Why Renault’s Latest Russia Deal Looks Smart

Renault’s partnership with struggling Russian automaker Avtovaz got a fresh infusion of cash on Nov. 27 – and happily for Renault, Russian taxpayers will foot most of the bill.

In a deal announced during a visit to Paris by Prime Minister Vladimir Putin, the Russian government said it would grant a $2.5 billion bailout to Avtovaz, while the government of the Samara region surrounding the company’s headquarters will pay the salaries of 14,600 AvtoVAZ employees who are being shifted to two new subsidiaries as part of a restructuring plan. Renault is to supply some $360 million worth of technology, equipment, and advice – but no cash — to support production of a Russian-made car based on the French automaker’s low-cost Logan model.

It sounds like a pretty good deal for Renault, which spent $1 billion to take a 25% stake in AvtoVAZ in 2008, only to watch the company pushed to the brink of bankruptcy after Russian auto sales plunged more than 50% this year. Renault had been under pressure to shell out more money to increase its stake.