You're reading: Russia govt denies AvtoVAZ layoff plan

MOSCOW, Oct 28 (Reuters) - The Russian government on Wednesday denied that it had approved a plan by troubled car maker AvtoVAZ to cut its work force by a quarter after a month of hesitation due to fears of public unrest.

Business daily Vedomosti quoted unnamed sources as saying a government commission of First Deputy Prime Minister Igor Shuvalov had agreed that the maker of the Lada car needed to cut 21,000 jobs to become more efficient.

"The government knows what to do. Twenty thousand jobs will not be cut. We are talking about retraining, meaning that every employee will have a right to a job in other divisions or elsewhere in the city of Togliatti," Shuvalov’s office said in a statement.

The near bankrupt company, in which French group Renault owns a 25 percent stake, has a workforce of 92,000.

"It is no secret that the current situation in AvtoVAZ, from an economic point of view, requires significant job cuts," Shuvalov’s office said. "But social priorities remain constant."

Vedomosti said the government was considering setting up a special structure to support workers made redundant until it found them new jobs.

The vast majority of AvtoVAZ workers live in Togliatti — a one industry town that exists only to serve the plant.

Sales of cars in Russia have fallen by half following the country’s first recession in a decade.

Shuvalov previously opposed a plan by the company’s management to lay off some 27,000 people as the government sought alternatives to mass redundancies.

AvtoVAZ shares were up 2.66 percent at 1031 GMT, having earlier risen 7 percent.

AvtoVAZ has repeatedly warned of bankruptcy as it struggles to cope with plunging sales of its clunky Ladas and heavy debts.

"This is definitely one of the necessary steps to keeping AvtoVAZ as a going business, although I think 21,000 jobs may not be enough," Uralsib analyst Anna Kupriyanova told Reuters.

The government has been deliberating on how to resolve the situation and is expected to provide the carmaker with some 70 billion roubles ($2.42 billion) to stay afloat while Renault is expected to help by providing technology.

Russia’s biggest lender Sberbank said last month that AvtoVAZ might figure in its plans to buy a stake in General Motors unit Opel with auto parts maker Magna International Inc.

Truckmaker Kamaz, in which German carmaker Daimler holds a 10 percent stake, has also struggled amid the downturn and saw its profits nearly wiped out last year.

Kamaz is expected to announce half-year results on Wednesday.