In the U.S., we had Corvettes and Mustangs. The Soviets had the Lada. Notoriously unreliable, the Lada was a car that inspired some traditional Soviet humor.
“What’s the difference between a golf ball and Lada? You can drive a golf ball 300 yards.”
“How do you double the value of a Lada? You fill up the gas tank.”
In 1991, 2007, and then 2022, all changed.
Russian Cars
When the former Soviet Union banned Western car makers during the Cold War, local manufacturers responded with the Lada, First made in the 1960s, the Lada was Soviet designed and sourced. Described as utilitarian, the car was neither beautiful nor reliable. But it was simple and easy to repair. The only choice at most dealers, Lada had an estimated 80% market share.
1991 was the turning point when the U.S.S.R. dissolved and opened its doors to Western automakers. For the first time, Lada, as a 1960s Fiat knockoff, had competition. Because Lada made the cars entirely in Russia and the government sold them, it never needed marketing. As you might expect, during the 1990s, its market share plunged.
Realizing that the car just needed new design, new factories, and new marketing, Renault bought a piece of the company in 2007. The car got Renault underpinnings, a respectable reputation, and a global supply chain that upped quality and depressed costs.
And now, that global connection is the problem.
Although the carmakers have not been sanctioned, still, Russia is cut off from Western banking, supply routes are blocked, and costs have soared. Lada closed factories and laid off workers.
Forced to return to its Russian roots, Lada has come full circle..
Our Bottom Line: Command Economic System
The Lada is the perfect example of the incentives problem in a command economy. Based on quotas rather than profits, Soviet factory output was based on the number of units. As a result, quality was secondary.
Twenty years ago, a typical Lada assembly line looked like 1920s Detroit. Now, in Izhevsk, Russia. it looks like this:
All changed when the market entered Russia. With new incentives, the car was transformed. As a part owner, Renault elevated quality and Lada’s corporate identity. Renault cared about its image and its sales.
Those Soviet jokes were no longer relevant…perhaps until now.
My sources and more: Always an interesting in-depth podcast, The Journal alerted me to Lada. Paired with this WSJ article, the two conveyed all I needed to know. Our featured image is a Lada VAZ 2101 that dates back to the 1970s.
