IzhAvto Begins Bankruptcy Procedure

MTA model showing off the newest version of the Izh-2126 Oda at the Moscow International Motor Show in 2002.

Carmaker IzhAvto has filed for bankruptcy, leaving abour 5,500 jobs on the line, a court said Thursday.

IzhAvto filed last week, according to documents posted on the web site of the Arbitration Court in Udmurtia, where the company is based.

IzhAvto, the region’s major employer with nearly 5,500 people on the payroll, assembles vehicles for South Korea’s KIA and AvtoVAZ.

An IzhAvto official said the company will try to restructure its financing rather than fold its operations. The official spoke on condition of anonymity because the company is withholding comment until proceedings commence.

A separate source close to the company’s management, who also spoke on condition of anonymity, confirmed that intention.

IzhAvto has been incurring losses since the third quarter of 2008, according to the Audit Chamber, which attributed the company’s poor performance to its management’s “inefficient financial policy.” As of April, its debt stood at 11.3 billion rubles ($354 million). Sberbank, the car plant’s major creditor, is keeping IzhAvto’s controlling stake as collateral.

Some 2,000 people have been paid to leave their jobs at the plant. The company source said that the management hopes to avoid laying off the remaining 3,500.

The local car market — once close to becoming Europe’s largest — appears to be particularly vulnerable. New car sales dropped a staggering 58 percent in July following a 56 percent year-on-year drop in June.

To boost the sales, Industry and Trade Minister Viktor Khristenko unveiled a plan similar to the U.S. “cash for clunkers” program earlier this week. All new car buyers will be offered a 50,000 ruble rebate ($1,570) for a new vehicle when they present an old car to be scrapped, the ministry said Tuesday. Although it has not yet been given final approval, the incentive is expected to be launched next year in selected regions, including Moscow and St. Petersburg.

Meanwhile, IzhAvto’s much larger peer AvtoVAZ reported Wednesday that it had burnt through most of the 33 billion rubles ($1 billion) in emergency loans that it had received from the government earlier this year.

AvtoVAZ, which employs some 130,000 people in Tolyatti, said it had used most of the funds to settle its debts to suppliers and service its loans at Russian banks.

Most Russian car producers were loss-making even before the global downturn because of the vehicles’ relatively poor quality.

The factories’ operations were in most cases uninterrupted as the industry remained largely subsidized by the federal budget.