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French carmaker Renault announced on Monday that it was leaving Russia under a negotiated deal with the Russian government that would give Renault the option of resuming operations in the country at a later date.
Under the deal, Renault will sell its 68% stake in AvtoVAZ, Russia’s largest automaker, to a Moscow-based automotive research institute known as NAMI. Renault did not disclose the price, but a person with knowledge of the situation, who spoke on condition of anonymity to discuss details not made public, said the automaker had received the token sum of 1 ruble.
NAMI would continue to operate AvtoVAZ’s two sprawling automobile plants and pay its employees. Renault could then buy out the stake within six years, Renault said when announcing the deal.
“Today we have made a difficult but necessary decision, and we are making a responsible choice towards our 45,000 employees in Russia,” said the French manufacturer’s managing director, Luca de Meo.
Renault did not immediately reveal how much it receives for the participation. The company said it would take a financial hit of 2.2 billion euros ($2.3 billion) in the first half due to the sale, and sharply lowered its financial outlook for 2022.
Russia’s deal with Renault offers a window into how the Kremlin is trying to create openings for Western companies to start doing business there again whenever the dust settles after the brutal invasion of Ukraine by President Vladimir V. Putin.
Western companies have come under immense pressure to divest from Russia, and hundreds have suspended operations or abandoned businesses with Russian partners, adding to the pressure on the Russian economy. On Monday, McDonald’s announced that it would sell its Russian business to a local buyer.
Russian Industry and Trade Minister Denis Manturov has previously said that AvtoVAZ, the maker of Lada, Russia’s best-selling car, is likely to be handed over to NAMI for support “with the possibility of redemption, if our colleagues decide to return”.
The Kremlin has argued since the start of the war that Western companies were pulling out of Russia primarily because of political and social pressure, rather than economic reasons.
But while Mr Putin has threatened to nationalize Western companies that leave, the government is also employing other mechanisms, such as the one negotiated with Renault, that could entice companies to eventually return.
Russia is Renault’s second largest automotive market after France, accounting for around 10% of global sales. In 2008, Carlos Ghosn, then managing director of Renault, agreed to partner with AvtoVAZ with the direct blessing of Mr. Putin, who wanted a foreign partner to help improve quality and saw Mr. Ghosn as the man who could do the job. .
Renault’s partnership with AvtoVAZ boosted Mr Ghosn’s high salary at the time, attracting the attention of some Renault shareholders. Yet the deal ultimately made Renault Russia’s largest automaker, rolling 500,000 Lada and Renault-branded cars off its assembly lines each year for an increasingly affluent group of Russian consumers.
In March, however, Renault announced it was halting operations at a factory in Moscow and reassessing its partnership with AvtoVAZ, after Western sanctions blocked the import of computer chips and other parts needed for cars. The announcement came hours after Ukrainian President Volodymyr Zelensky, addressing the French Senate, called on Renault and other French multinationals to leave Russia.
Renault had initially tried to keep its Russian factories running, even as Russia cracked down on Ukraine, citing the need to keep producing for the local market. In closed-door meetings early in the conflict, French government officials urged senior leaders to avoid making hasty decisions to leave.
The French state owns a 15% stake in Renault and holds a seat on the board of directors. President Emmanuel Macron told a press conference in March that French companies should be “free to decide for themselves” whether to stay in Russia.
Renault, like other Western companies, also had to keep paying its workers, especially after Moscow said it would penalize foreign companies that stopped paying workers.
But Western limits on shipping parts to Russia soon made it impossible to keep the two plants operating.
Western sanctions targeting Russian oligarchs close to Mr Putin have also taken their toll.
Renault’s partner in AvtoVAZ is Russian Technologies Corporation, known as Rostec, which owns a 32% stake in the company through a Dutch holding company. Rostec is headed by Sergei Chemezov, who was the target of Western sanctions after the Russian invasion. Mr. Chemezov is believed to be a former KGB agent who worked with Mr. Putin in East Germany before the fall of the Soviet Union.
Mr Chemezov, who was a key interlocutor with Mr Ghosn on the 2008 deal between Renault and AvtoVAZ, vigorously defended Russia’s war in Ukraine as “necessary”. Among other things, Rostec also manufactures Russian Kalashnikov assault rifles, as well as ammunition, military equipment and aircraft engines.
As Russia’s economy faces a sharp economic downturn as international sanctions bite, Moscow seems keen to ease the pain. According to this agreement, the Renault plant in Moscow will continue to produce cars. Sergei Sobyanin, the mayor of Moscow, announced on his blog on Monday that the city will take over the factory, which will build passenger cars under the Moskvich brand so that thousands of employees will not be “left without work”.
Renault considered the option of being able to buy back its stake in AvtoVAZ, a significant part of any transaction, according to someone familiar with the situation. But any future takeover would depend on the geopolitical circumstances at the time and the status of Western sanctions against Russia, the person added.
Renault officials did not comment further. But Mr. Ghosn did not hesitate to speak out. In an interview with BFM TV in France last month from his home in Lebanon, where he lives as a fugitive after escaping in 2019 from a criminal investigation in Japan for alleged financial misconduct at the head of the Nissan car alliance -Renault-Mitsubishi, he said the political pressure that had built up on Renault to leave Russia was “damaging”.
“Russia is not going to disappear,” he said. “It’s a big country going through a difficult phase today. Obviously, Ukraine even more. But the market will stay and sooner or later the situation will normalize.