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Russia's Motor City Braces For Widespread Layoffs

Russia will experience the first massive layoffs in its own auto industry meltdown when popular carmaker AvtoVAZ lays off 25,000 employees — more than a quarter of its staff — in mid-December.

AvtoVAZ management has yet to announce which workers will be let go, saying only that the first cut will be those who are at or near pension age: 55 for women, 60 for men.

The announcement came despite efforts to protect the company from bankruptcy. This summer, Russia's government, which indirectly owns 25 percent of AvtoVAZ, provided $1 billion in emergency support to avoid what Prime Minister Vladimir Putin described as "the General Motors scenario."


A Failing Business Model

The Russian city of Togliatti is home to the AvtoVAZ plant that produces the Lada, one of the most popular cars in Russia. The city was built in the late 1960s around the company. Today, 1 of every 7 residents in Togliatti works for AvtoVAZ.

Metalworker Vladimir Potamashnev, 38, now only earns the equivalent of $250 a month, which he says is not enough to feed and clothe his family.

He blames Putin for focusing on oil and gas at the expense of Russian industry.

"I once believed in Putin and [President Dmitry] Medvedev, but no longer," Potamashnev says. "We sit on oil and gas, and they think that's just fine."


The overall global economic crisis laid bare long-standing problems at the plant, which produces outdated models that cannot compete with foreign imports.

Togliatti salesman Alexander Koblov says the plant needs to improve quality.

"All too often the doors don't close correctly," Koblov says. "And the plastic is poor. And, of course, we need new designs."

Sergei Tselikov, a leading industry analyst, says Putin approved new management of AvtoVAZ four years ago, but he says the company has failed to come up with a long-term strategy to save the plant and the city.

"Management is not from the automobile industry, and there continues to be a huge turnover at the top," Tselikov says. "They are lurching month to month with no real plans for the future."

On Friday, Putin demanded that Renault and Nissan, the company's two largest foreign shareholders, help modernize the plant. He has threatened to review their status if they do not comply.

A Citywide Ripple Effect

Piotr Zolotariov, head of Togliatti's local independent trade union, says that he expects the situation will get worse.

"The local government doesn't have taxes to repair roads or fix lights," Zolotariov says.

"There are problems with the water supply. The infrastructure is wearing out. We see much more crime — more drugs than ever before. The best and the brightest who could save the city are fleeing."

Tselikov estimates that for every job lost at the plant, another will be lost in related businesses, bringing the total new unemployed to as many as 70,000.

Officials hope public service jobs can cover some of those numbers — but most people do not see how the city can cope with this unprecedented crisis.

"Everyone is already feeling the effect of the pay cuts, and now everyone is wondering if they will even have a job," says Victoria Melnikov, who works at a clothing store. My parents work at AvtoVAZ. If they lose their jobs, what will they live on?" she said.

"No one knows what is going on."

Anatoly Ivanov, a Togliatti city council member, says the situation is potentially explosive.

"Will there be strikes? Will there be violence? Will workers close the main highways like they did in Pikalyovo last summer?" Ivanov asks. "It's very possible it could reach that point, and the security services are poised to stop this."

Nikolai Chubenko moved to Togliatti to build the plant in 1968. Today, at 60, he has no idea how he and his family will survive if he is among those cut.

"Some Russian economists say the crisis is over, but we see it's just beginning," Chubenko says. "Everyone is just waiting."

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