Avtovaz, Russia's leading automaker (owner of the Lada brand), is considering reducing its work week from 5 days to 4 in September. This is a rare move from a major state-owned employer, as high interest rates and competition from China put pressure on sales.

Avtovaz's predicament reflects Russia's broader economic downturn as growth slows after two years of rapid expansion fueled by increased defense spending.

Struggling to find enough buyers for its vehicles, Avtovaz predicts Russians will purchase 25% fewer cars this year. The company's sales have already fallen by that amount, down to 155,481 units in the first 6 months of the year, according to data from Autostat.

A Lada dealership owned by AvtoVAZ. Photo: Kolesa

A Lada dealership owned by AvtoVAZ. Photo: Kolesa

The company blames the central bank's high interest rates, which reduce demand for car loans and increase production costs. The bank has also drawn criticism from companies in other sectors like oil, construction, and metals, with steelmaker Severstal the latest to blame falling profits on high borrowing costs.

"We are talking about high interest rates and stricter requirements from regulators for car loan borrowers," Avtovaz said in a statement.

State-owned bank VTB estimates the volume of car loans in Russia fell by 46% in the first half of the year due to interest rate hikes at the end of 2024.

In addition, Avtovaz noted, "A large number of imported cars are entering Russia, with import brands pursuing a dumping policy."

Importers are struggling to sell approximately 400,000 newly imported cars, the company stated.

Avtovaz employs over 30,000 people, mainly in Togliatti, a city of about 650,000 residents. The Togliatti economy relies heavily on the company and its satellite businesses, including parts suppliers and car dealerships in the surrounding area.

The government bailed out the company before, when weak demand following the 2008 global financial crisis brought the Soviet-era automaker to the brink of collapse. At that time, the company received 75 billion rubles (955 million USD) from the state budget to avoid significant job cuts that could have sparked social unrest in Togliatti.

The company switched to a 4-day work week for three months in 2022 when Western sanctions were imposed after Russia launched its military campaign in Ukraine and foreign automakers left the market. Sales of its flagship Lada model fell 48.2% to 174,688 units that year.

Russia's domestic production relies heavily on foreign manufacturers, and the market slumped in 2022 before the rapid arrival of Chinese automakers helped revive the sector.

Chinese rivals now account for over 50% of sales in Russia, up from less than 10% before the conflict began.

Avtovaz said: "The final decision on implementing the 4-day work week will be made after analyzing market trends and economic factors, including interest rates and the availability of credit products."

My Anh (Reuters)