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AvtoVAZ Offers Military Staff Cheap Motor Loans

The Defense Ministry will help AvtoVAZ increase its sales by compensating military officers for their down payment on a Lada 4x4.

AvtoVAZ and Russian Technologies, which owns 25 percent of the car maker, and ruling party United Russia initiated the program with the ministry's approval, a high-ranking party official told Vedomosti.

Defense Ministry representative Igor Burenkov confirmed that the project is under discussion. The United Russia official said the program is currently being approved by the government.

AvtoVAZ and the ministry are offering officers the opportunity to purchase cars through the company's financing program Lada-Finans, which offers favorable loan terms (a minimum down payment of 15 percent, a three-to-five year period and interest rate subsidies of two-thirds of the refinancing rate).

Under the new program, the officer will pay the down payment himself, but his expenses will be compensated. To get compensation, he will have to provide the Defense Ministry with the loan contract and a receipt for the down payment.

The party official said AvtoVAZ was planning to sell 30,000 cars to officers per year, and that the program will be good for only one model — the Lada 4x4 (formerly the Niva). He did not say why the Lada 4x4 was the car of choice for the program.

The specifics of the program have not yet been confirmed, Burenkov said, and there could be more changes concerning the conditions of the loan, the car model and the number of automobiles.

The three-door version of the Lada 4x4 costs 256,382 rubles ($8,534), while the five door version costs 294,250 rubles, according to AvtoVAZ's web site. That means that the down payment on the five-door model would cost 44,138 rubles and if the announced sales figures are reached, it would cost the ministry 1.3 billion rubles. No money has been set aside for the program in the Defense Ministry's budget, a source in the ministry said.

Representatives of the government and the Finance Ministry could not be reached for comment.

The Defense Ministry has its own goal — to keep personnel in the Army, the party official told Vedomosti. The ministry will sign a special agreement with the buyers, which will require the officer to pay the entire sum should he resign his post before the loan is paid off. "Besides helping with AvtoVAZ's problems, we're similarly strengthening the highly qualified personnel in the armed forces," he said.

AvtoVAZ has suffered severely from the crisis. Last year, the company's sales fell 44 percent to 349,490 cars, and in January, monthly sales declined to a record low of 17,300 cars (a fall of 41 percent year on year).

The auto loan subsidy program became one of the most successful measures taken in support of AvtoVAZ. Since it came into effect in April 2009, 71,631 cars were sold through the program, 80 percent of which were Ladas. On March 8, a cash-for-clunkers program will go into effect, which promises participants a voucher for 50,000 rubles toward the purchase of a car made in Russia if they turn in a car older than 10 years.

AvtoVAZ is counting on the program to boost its flagging sales. In March, the carmaker will increase its production 55.7 percent month on month to 38,200 Ladas, and it could sell as much as 100,000 cars through this program, vice president Maxim Nagaitsev told Vedomosti.

Other Russian carmakers have survived because of state purchases: About 40 percent of all KamAZ trucks in 2009 were bought by state organs, Prime Minister Vladimir Putin said earlier this month. In 2009, state agencies bought 14,059 Ladas, or 4 percent of its total sales.

AvtoVAZ is counting on selling half of the 30,000 cars advertised, said Sergei Tselikov, head of Avtostat. In the mid-1990s, the factory experimented with special programs to sell cars to plant employees, suppliers, etc. Each such program increased sales by 5,000 to 7,000 cars a year. It's not worth it for the company to stick with only the Defense Ministry, it needs to work out similar programs with different audiences, he said.


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