But the loss of Renault will be felt more keenly. It was the number one foreign carmaker in Russia by a comfortable distance – 45,000 employees and a 39 per cent of the market, partly through a 68 per cent stake in the Russia car manufacturer Avtovaz, so Renault’s exit leaves a huge hole in domestic supplies.
It will be painful for Renault too. Russia accounted for roughly 10 per cent of Renault’s turnover and half its operating margin, the result of a high profile $US1 billion ($1.4 billion) deal struck between its fugitive former chief Carlos Ghosn and a key ally of Putin in 2007.
But as business plans go this is right up there with the very worst. It is doomed to failure: a knee-jerk, ill-thought out move straight out of the populist playbook, with no commercial rationale to it whatsoever.
The Moskvich brand was launched shortly after World War II before the company collapsed in 2005. The brand is being revived after Renault announced it was exiting Russia.Credit:AP
Contrary to Sobyanin’s description of the Moskvich as “legendary” with a “long and glorious history” it wasn’t even good when it was rolling off Soviet assembly lines during the Cold War. But by the time its main factory collapsed in 2006 with debts of more than 30 billion roubles ($650 million), including unpaid tax and electricity bills, it had all-but stopped making cars years earlier.
Though the car was cheap and relatively sturdy, it had a wretched reputation and after the Iron Curtain came down, Russian consumers scrambled to buy better foreign brands. At one point in the 1990s, the plant was producing so few cars that it turned some of its spare capacity over to building pool tables.
But even if there was some logic to reviving a car that was confined to the dustbin of history long ago, the practical hurdles render the project an absolute non-starter.
First, there’s the capital needed to essentially create a new car brand from scratch. A project of this nature would cost billions, in a country heading for financial ruin.
Sooner or later, ordinary Russians are going to realise their quality of life is diminishing, no matter how much propaganda is shoved down their throats. It will be a turning point in Putin’s grip on power.
Secondly, importing the components and materials required would be next to impossible given the collapse in trade between Russia’s pariah regime and the rest of the world. One of the primary reasons that Renault and other manufacturers either halted production or pulled out altogether is because it became increasingly difficult to import the necessary parts. Chief executive Luca de Meo told the Financial Times that the company was “forced to decide” because it was no longer able to build cars in the country.
It shows the regime is fast running out of ideas, friends and, perhaps most crucially, time to prevent a shortage of basic goods and products that the Russian people take for granted.
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In many ways Russia is more excluded from the international system than it was under Communist rule. At least the USSR was still able to trade with the rest of the Eastern Bloc. Yet Putin is already so isolated that he is being forced to try to revive the disastrous economic planning of the Soviet era.
Sooner or later, ordinary Russians are going to realise their quality of life is diminishing, no matter how much propaganda is shoved down their throats. It will be a turning point in Putin’s grip on power.
Telegraph, London
