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Today's paper. Last Updated: 02/10/2012

GAZ Will Close Loss-Making Units

A worker assembling a vehicle at a GAZ plant. The automaker expects to close some of its 18 subsidiaries.��
Sergei Nikolayev / Vedomosti

A worker assembling a vehicle at a GAZ plant. The automaker expects to close some of its 18 subsidiaries.��

GAZ Group said Wednesday that it might close several unprofitable subsidiaries because of a worsening market in another setback for Oleg Deripaska's struggling car and van maker.

The automaker's board will meet July 10 to examine their first-half results and will also decide which of the group's 18 commercial entities should be closed, GAZ chief executive Sergei Zanozin told reporters.

The statement comes a day after the Nizhny Novgorod-based automaker said it would lay off 6,500 workers at its main plant. Zanozin said Wednesday that the government's industry stimulation measures "had not yet brought a significant improvement" in the market and that the situation might be even worse in the fall, RIA-Novosti reported.

Last month, GAZ announced that LDV, a British van maker it bought in 2006, would go into bankruptcy after it failed to find a buyer for the loss-making unit.

An Industry and Trade Ministry spokeswoman said that while the government does not comment on individual companies, federal authorities have already done a lot to help GAZ, which was listed in December as one of Russia's 295 strategic companies.

"We're not ignoring the 'screwdriver companies' that assemble foreign-branded cars, either," the spokeswoman said.

But GAZ Group is getting plenty of support in a number of ways, including "targeted subsidies from federal to local budgets for state automobile contracts. The GAZelle small commercial truck is transported for sale in the Far East under a discounted rate by Russian Railways. And we're also preparing a special leasing program for strategic auto manufacturers," the spokeswoman said.

The possible closure of units could also aggravate a debt conflict between Deripaska's companies and Mikhail Fridman's Alfa Group.

On Tuesday, Alfa filed a bankruptcy lawsuit against Glavstroi, one of Deripaska's construction assets, and on Wednesday Alfa filed a suit against GAZ in Moscow Arbitrage Court seeking 1.55 billion rubles ($48 million). The suit lists two GAZ subsidiaries, Avtozavod GAZ and TZK.

Russian Machines, the unit of Deripaska's Basic Element that runs GAZ, said the units in the Alfa lawsuit were unlikely to close, however.

"The decision to close the unprofitable factories was made at the end of 2008, and it has nothing to do with the Alfa lawsuit," the company's press office said. TZK is a purchasing and trading company, which supplies the manufacturer, and Avtozavod GAZ is its key spare parts producer.

Both companies are core GAZ assets and are unlikely to be among those that the board might close, Russian Machines said.

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