Facing massive layoffs, Russia's 'Detroit' feels the chill

TOGLIATTI, Russia -- A chilly wind snapped at Vasily Kurikov's face at noontime Tuesday as he walked to the employment office to find a part-time job as a street cleaner.

He'd worked for 28 years at AvtoVAZ , Russia's biggest carmaker, but the factory has him on half-shifts and, like everyone else in town, he's heard that there are 27,600 job cuts coming. Looking at the people in front of him, many of them AvtoVAZ workers left to wander this city on the banks of the Volga River , Kurikov said that things could turn bad.

"Most of Togliatti works for AvtoVAZ ," he said. Kurikov's eyes squinted as he continued: "If there are mass layoffs, then our labor unions must organize strikes, and we will come to the streets and speak about our problems."

The prospect of unrest among AvtoVAZ's 102,000 employees has set off alarm bells from Togliatti's city hall to the Kremlin, about 500 miles northwest.

The plight of AvtoVAZ hints at what many say is a crucial weakness of modern Russia : its outdated infrastructure and inefficient, Soviet-legacy companies.

The company produces the Lada, a cheap car originally based on the Fiat that became an emblem of the Soviet Union and is Russia's most popular automotive brand.

Observers have described Togliatti as " Detroit on the Volga," as the automaker grapples with financial difficulty not unlike Ford's, Chrysler's or General Motors' , with workers facing layoffs or early retirements.

For Russia's leadership, the implications are profound. Although no one is predicting riots in Togliatti, any hint of trouble in the provinces is seen as an unacceptable challenge to the Kremlin's centralized, authoritarian power.

The prospect of life without a job at AvtoVAZ has left many dazed in the city of about 720,000 people. Once known as Stavropol on the Volga, it was renamed in 1964 for Italian Communist leader Palmiro Togliatti , whose last name is often transliterated here as Tolyatti.

Some workers whose hours have been slashed sit on park benches, their breath smelling of beer or vodka, and stare into space when asked how the layoffs might affect the city.

AvtoVAZ's problems were laid bare after the global financial crisis slammed Russia's economy. Only a year and a half ago, the consulting and financial services firm Ernst and Young predicted that Russia would be Europe's largest car market by 2012. The French carmaker Renault bought a quarter of AvtoVAZ for about $1 billion in 2008, and other Western companies were lining up to get a piece of the action.

Then the recession hit. An August report by an Ernst and Young analyst in Moscow noted predictions that the Russian auto market would be down 50 percent this year.

After producing about 900,000 vehicles last year, including kits sent overseas to be assembled, AvtoVAZ officials said they expect output to fall to about 350,000 in 2009.

Many observers have hinted at the possibility of a massive restructuring.

Taking a cleaver to the company, though, could lead to the sort of social upheaval that the Kremlin has sought to avoid at all costs. In December, riot police were sent 4,000 miles from Moscow to the Far East city of Vladivostok to break up protests against higher tariffs on imported cars.

When reports surfaced about layoffs this summer, and concern began to spread through Togliatti, the company's leadership released a statement carried by government media that said the reports were just rumors. In September, though, AvtoVAZ confirmed that its work force would be reduced from 102,000 to about 75,000.

Togliatti's employment office said that about 19,800 AvtoVaz workers will be employed in public works jobs, such as cleaning public squares, until November, a temporary measure to offset their lower wages.