It seemed like a good idea at the time, but with hindsight being 20-20, how many failed ventures can be summed up by that same excuse? Just last year, Russia was looking to foreign investors as one of the most promising emerging markets in the world. Renault got locked into a bidding war with Fiat and General Motors for a large stake in Autovaz, Russia's largest automaker, known to consumers for producing Lada.
Renault won and paid $1 billion for the 25% stake. But one year and one giant global economic meltdown later, that victory is looking more like a liability – the quarter interest is now worth less than a quarter of what Carlos Ghosn and company paid for it. And now Renault is expected to bail Autovaz out of its troubles or else face the wrath of one Vladimir Putin.
The autocratic Russian prime minister, whose government both owns another quarter of Autovaz on the one hand and has extended significant loans to it on the other, has reportedly demanded that Renault cough up some serious dough – $850 million, to be exact – in "emergency loans" to keep the Russian automaker solvent following a nosedive in the domestic market that saw sales plummet a whopping 50 percent and its workforce subsequently cut by a fifth.
Putin is reportedly threatening to further dilute Renault's stake in Autovaz if they don't comply, but while Ghosn has pledged to establish a new joint venture between the two together with sister company Nissan, the cash has yet to flow. With the prospect of folding to Putin's demands threatening to weaken Renault's image in the Russian market and around the world, it seems to be a lose-lose situation.
[Source: Financial Post | Image: Dmitry Astakhov/AFP/Getty]