MOSCOW Renault-Nissan (RENA.PA)(7201.T) finalized a long-awaited deal to take control of Lada-maker AvtoVAZ (AVAZ.MM) as it looks to snatch market share from rivals in Russia by taking the boxy cars upmarket for a rising middle class.
Carlos Ghosn, leader of the Franco-Japanese alliance who was in Moscow to sign the agreement, said the deal deepens a four-year partnership it has had with AvtoVAZ, hoping to tap demand for new cars from Russians with growing incomes and rising aspirations.
Reviving the Lada brand - still Russia's market leader - is a top priority for Ghosn, who says it is expected to lead the group's growth plans.
AvtoVAZ only survived a 2009 slump with the help of a state bailout and its clunky saloons, with a reputation for breaking down, are often the butt of jokes.
"Without any doubt, the Lada brand will be in the short term and the long term the largest brand in Russia for the alliance," Ghosn told Reuters. "We are here to strengthen the brand and give it everything it needs."
Ghosn said he wanted Lada to be competitive at the bottom end of the market but also wanted to move the marque into higher price brackets. Two new Lada models, the Largus and Granta, have already attracted high demand and the company is still trying to deliver six months' worth of orders, the group said.
Ghosn expects the newly-created venture to capture 40 percent of Russia's market by 2016, up from 30 percent, as Renault-Nissan contributes technology and product knowledge to Lada while benefiting from AvtoVAZ's manufacturing base.
"Russia is poised to become the largest auto market in Europe by 2015," Ghosn told a news conference on Wednesday.
The group will be competing against several foreign makers which have been investing in Russia, such as General Motors (GM.N), Ford (F.N), Fiat FIA.MI and Volkswagen (VOWG_p.DE).
Russia's car market has been growing rapidly on the back of a rise in disposable incomes and an expansion of the country's middle class, to between 15 and 30 million from just 1 million in 1999, according to recent research by Sberbank.
Car sales in Russia grew 40 percent last year to more than 2.6 million vehicles, recovering most of the ground lost after halving in the post credit-crunch slump of 2009.
Growth has been flattening out, but overall sales for the year look set to reach around 2.9 million and Ghosn expects yearly sales to reach 4 million at some point in the 2020s.
Analyst Vladimir Bespalov at VTB Capital doubted the new alliance would achieve a market share of 40 percent in the face of increasing competition, but saw around 35 percent as possible.
Under the deal, first announced in May, Renault-Nissan will invest 23 billion roubles ($742 million) to take control of AvtoVAZ via a 67.13 percent stake in a joint venture with state-owned holding group Russian Technologies.
The venture, to be completed by mid-2014, will own 74.5 percent of AvtoVAZ. Russian Technologies will own 32.87 percent of the joint venture.
AvtoVAZ's debt to Russian Technologies will also be restructured under the agreement. The Russian manufacturer will sell non-core assets to pay 8 billion roubles in loans. A remaining 46 billion interest-free debt is being extended and will be repaid by 2032.
As part of the agreement, Renault-Nissan will have eight seats on a board expanded to 15 members from 12.
(Reporting by Reuters Trainee Sonia Elks and Megan Davies; Additional reporting by Leila Abboud; Editing by Hans-Juergen Peters and David Holmes)
(This story was refiled to omit the superfluous reference to Renault in the ninth paragraph)