MOSCOW: Russian roulette

Renault takes over a derelict car plant in a nation notorious for red tape

Decades of neglect take a toll on any building. The sprawling Moskvich plant in the industrial district south of Moscow has suffered more than most. The faded blue and red building with its crumbling concrete looks like a piece of moldy candy.

Inside, it is even worse. The roof leaks. There are puddles of water with oil floating on top. It is dark and menacing. Outside, guards wearing black combat uniforms and red berets walk the grounds, machine guns and clubs strapped to their sides. But what are they guarding? Ten years ago, Moskvich won a government contract to build engines for domestic automakers across the Soviet Union. The project collapsed, and now the plant houses $600 million worth of obsolete machinery.

There is another reason for the guards: A corner of the factory now houses about 200 Renault cars. Inside Moskvich's derelict factory, the French automaker is trying to launch a spotless $420 million assembly plant. As Moskvich plunged into financial ruin, the old engine plant was given to Moscow's city government to pay some debts. The building now is the city's contribution to the Avtoframos joint venture with Renault SA, which eventually will build 100,000 vehicles a year.

Building to compete

In 1997, Renault planned to sell the Megane in Russia. The joint venture assembled 1,500 Meganes and Renault 19s in its temporary workshop. But Russia's economic collapse forced the automaker to change plans. More than 90 percent of vehicles sold in Russia cost less than $5,000. To compete, Renault will produce the $8,500 Clio Symbol, and later a $5,000 car designed by Dacia, Renault's Romanian subsidiary.

'We are offering a small, reliable and robust car,' says Guy Barra, general director of the Avtoframos joint venture. 'We have to produce a model that can compete with domestic makers on price.'

But first, Renault must renovate the cavernous Moskvich plant. At 600 meters long and 150 meters wide, it is a valuable piece of real estate in a city where prices are high. We were the first journalists allowed to see the building. Not even Russian journalists have been there. We were not allowed to take any pictures. It was like taking a step back in time.

`It can drive you mad'

Denis Labalette is the man responsible for bringing the plant back to life. It has not been easy. Renault has dealt with vast amounts of red tape created by a bureaucracy still immersed in Soviet culture. 'It can drive you mad,' says Labalette. 'We have to get official permission for virtually everything we do to cover eventualities that no longer exist.'

Consider all of that rusty machinery inside the assembly plant. The former communist government had hoped to build a showcase engine plant that would encourage foreign investment. But the government ran out of money, and the assembly lines were never set up. In fact, some of the machinery - which once was worth $600 million - was never uncrated. Before it can remove the machinery, Renault must convince the government it cannot be restored. 'We had to get other carmakers in to verify that the machinery was beyond repair,' Labalette says.

a corner of hope

Instead of abandoning the equipment, Renault must prepare it for storage, on the slim chance that someone, someday, might find a use for it. By year end, all of the machinery will be returned to their wooden cases, having never produced a single engine. But if you walk past the last machine awaiting the packing case, you will see the plant's future. A corner of the plant is clean and brightly lit, housing Renault Clio Symbol sedans shipped from Turkey. They arrived at the plant in semiknockdown form, awaiting the installation of engines and various sub-assemblies.

the roof needs fixing

The next step in the plant's renovation is a new paint shop, between Renault's factory and Moskvich's assembly plant. Contrary to previous reports, Moskvich is not a partner in Renault's joint venture with the city of Moscow. But Renault will share its paint shop with Moskvich - if the Russian automaker ever builds another car.

In the first half of this year Moskvich produced 350 cars; in 1999 it made more than 36,000. Moskvich will have to pay Renault for every car it paints. But that is a future problem.

Renault's more immediate concern is to get the semiknockdown operation working properly. Clearing this corner of the Moskvich plant already has taken longer than expected. Next, Renault must repair the leaky roof, install water, heating and electricity, and refurbish the rest of the building. The renovations will allow Renault to operate its plant independently of its neighbor Moskvich.

Renault already has installed a large logistics area and offices for as many as 30 customs officials. Renault wants a tax-free bonded warehouse zone so that parts for the Clio Symbol can be shipped in, signed off and then fitted to the car.

But nothing is simple in Russia. The government fears that Renault employees will be tempted to sell the auto parts on the black market. So customs officials want to be in the plant to monitor parts shipments.

In another bureaucratic dispute, Renault is wrangling with the Russian government over the tax-free import of parts. Barra says Renault can offer a competitive price on its cars only if the imported parts are not taxed.

A SENSE OF HUMOR HELPS

Sources in Moscow say the city government balked on the tax-free deal because it wanted Renault to buy more parts from local suppliers. Barra confirms that Renault is talking with the government to determine which parts can be imported tax-free.

'We have to get this detail right,' Barra says. 'We are committed to 50 percent local content within five years.'

Barra insists that Russian-built components must meet Renault's quality standards. 'There are a number of large Western suppliers who are interested in coming to Russia, and this will help, but they are all waiting for the new-car plants to become established before making a move.'

Barra is a man with a sense of humor - and he needs it. As the former chief of Renault's Douay assembly plant, he produced 350,000 vehicles a year. Now he has trouble building a single one. He expects negotiations - which he calls 'the paper trail of bureaucracy' - to be completed in 2002. This will allow the next phase of investment, and Barra hopes to produce cars within two years.

Russia's endless red tape has been a frustration, he admits. 'There obviously has to be a balance between protecting local carmakers while encouraging foreign investment,' he says. 'But at the end of the day, Renault is investing in Russia and creating jobs.'

E-mail International Editor Chris Wright at automotiveinternational@compuserve.com and writer Anthony Lewis at ajlewis@compuserve.com

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