Iconic Russian Car Maker, Known for Cold War Self-Reliance, Halts Production

The disruption reveals how Russia’s economic system is starting to really feel the chunk of sanctions the West imposed on Moscow after Russian President

Vladimir Putin

determined to invade Ukraine. Russia’s exclusion from the Swift interbank funds system has made it arduous for Russian firms to transact with suppliers. Provide routes, notably by means of Ukraine, are shut and the ruble’s devaluation has made paying for components from exterior Russia rather more costly.

Such a stoppage was as soon as unthinkable. Throughout Soviet occasions, Lada’s dad or mum firm AvtoVAZ erected a large manufacturing unit on the banks of the Volga River, able to nurturing a homegrown provide chain.

At the moment, nevertheless, AvtoVAZ is owned by French automobile maker Renault SA and the Togliatti plant depends on a Renault manufacturing unit in Romania for subassembly and elements. Greater than 20% of AvtoVAZ’s components—from connectors to key electronics—come from exterior Russia, individuals acquainted with the matter mentioned.

“If commerce stops, AvtoVAZ stops,” mentioned one former AvtoVAZ board member. “Putin is aware of that he can’t do it by himself.” It could take months and even years to get manufacturing up and working once more with out the assist of Renault, the previous board member added.

An AvtoVAZ spokesman mentioned the corporate deliberate to idle its crops till at the least March 11 because of the worldwide chip scarcity that has affected automobile makers world-wide. He declined to touch upon the sanctions.

Employees unwilling to make use of their trip days will likely be paid a part of their month-to-month earnings whereas they’re on go away, the spokesman mentioned. Workers working in spare-parts manufacturing and distribution, in addition to customer support, will hold a full working schedule throughout this era. The spokesman added the corporate was making each effort to renew manufacturing as quickly as potential on the Togliatti plant and one other manufacturing unit in Izhevsk, 700 miles east of Moscow.

Russia is dealing with a new-vehicle scarcity if automobile makers like AvtoVAZ stay paralyzed. Lada is Russia’s solely homegrown model with vital market share, accounting for 21% of auto gross sales in Russia final 12 months, and plenty of international automobile makers have suspended manufacturing of autos at their factories in Russia. The nation has round 46 million passenger vehicles, that are a median of shut to fifteen years previous, based on Thomas Besson, an analyst at brokerage agency Kepler Cheuvreux.

“They nonetheless want to maneuver, whether or not the nation is at battle or not,” Mr. Besson mentioned. “That also requires somebody to make the vehicles. AvtoVAZ is likely one of the firms with the best diploma of native integration.”

Lada and AvtoVAZ are additionally a part of Russia’s nationwide psyche, very like

Common Motors Co.

within the U.S. “For Russia, Lada is an emblem of the rise of the business,” mentioned Nikita Novikov, an editor of the automotive publication speedme.ru.

AvtoVAZ was based in 1966 when the Soviet Union constructed a mammoth manufacturing unit on the banks of the Volga and renamed town that mushroomed round it after Palmiro Togliatti, the then chief of Italy’s Communist Occasion. The plant sprawled over 1,000 acres, greater than New York’s Central Park.

Within the early years, it bought all of its output domestically. Russians usually needed to wait years to get a automobile. The model turned recognized world-wide for its sturdiness and loved golden years with the enduring Lada Niva, a boxy automobile that some contemplate a precursor to the fashionable SUV.

Lada vehicles had been usually unreliable however their easy designs made them simple to repair.

“I drove my very own automobile, mounted it myself, didn’t take it to a storage. It was low cost in fixing, low cost in driving, easy in maintenance, and cozy,” mentioned Vadim Ivanov, 57, a avenue cleaner who lives within the village of Bolshaya Izhora exterior St. Petersburg, and who has owned 5 older-generation Lada fashions.

By the mid-2000s, nevertheless, AvtoVAZ was scuffling with points acquainted to lots of Russia’s large companies: rampant corruption and an absence of productiveness and funding. In 2007, Russia put a stake in AvtoVAZ up on the market, which was acquired by the French automobile maker Renault.

When Renault executives first visited the large AvtoVAZ plant in Togliatti, they had been shocked by what they noticed.

“The equipment was like Detroit within the Nineteen Twenties,” mentioned a former Renault government who was on the AvtoVAZ board. “The whole lot was handbook. There have been no robots.”

The manufacturing strains—fairly than being organized in a serpentine sample like in European and Asian crops—had been straight and lengthy, the previous government recalled. “For those who stood at one finish of the road, you may see the curvature of the earth,” he mentioned.

Renault executives set to work modernizing the plant. For years, the French automobile maker chartered a jet to move its workers from Paris to Samara on the banks of the Volga each Monday morning and return them to the French capital on Thursday evenings. Renault workers helped construct a brand new manufacturing line and revamped the model’s product design. In addition they labored to stamp out graft and enhance the provider base.

“For Putin, it’s additionally thought of successful, and it’s seen to everybody: when individuals see the vehicles on the street they will see the change of high quality,” mentioned

Patrick Pelata,

a former chief working officer on the French automobile maker. “You continue to have loads of previous Lada vehicles, and once they see the brand new ones individuals see the change.”

At the moment, the Togliatti plant employs about 32,500 individuals. The plant makes quite a lot of Lada fashions, together with the XRAY, the Largus and the Granta. It additionally makes autos for the Renault model.

Final 12 months, AvtoVAZ bought about 350,000 autos, accounting for 12% of the vehicles bought by the French automobile maker and making Russia its second-largest market behind France. Renault’s operations in Russia made a internet revenue of €166 million, equal to round $181 million.

For the previous two weeks, buyers have fretted that Renault would lose its enterprise in Russia, sending the French automobile maker’s share worth down greater than 35% for the reason that center of February.

Including to the stress is the truth that Rostec Corp., a Russian state-owned protection and industrial firm, owns the 32% in AvtoVAZ that Renault doesn’t personal. Rostec’s CEO is a detailed good friend of Vladimir Putin’s and has been sanctioned by each the U.S. and EU since Russia’s seizure of Crimea in 2014.

“We’re apprehensive, clearly,” mentioned one individual near Renault. Dropping the Russian enterprise “could be a complete disaster,” the individual mentioned.

Write to Nick Kostov at Nick.Kostov@wsj.com and Evan Gershkovich at evan.gershkovich@wsj.com