A tie-up between carmaker, Avtovaz, and truck producing counterpart, Kamaz, could be on the cards. The markets have initially reacted well to the news, but not everyone is convinced about a new united company.

Speculation about a possible merger between Avtovaz and Kamaz revolves around State corporation, Rostechnology, which owns 25% of Avtovaz and almost 40% of Kamaz. It is believed to wants to unite its assets in a single corporation.

Reports in Mondays press about a possible merger saw share prices for both spike. Analysts such as Sevastyan Kozitsyn say that's mainly on the strength of rumors about the appointment of a head for a united company.

“The general director of Kamaz, Sergey Kogogin, might become the head of a merged company. He did a lot for Kamaz, turning it from a non-transparent and loss-making into a successful holding, which produces vehicles competitive with foreign ones. Avtovaz has always suffered from less effective managers. Market participants are betting on more transparency and effectiveness in a corporation headed by Kogogin.”

Kogogin’s efforts in turning around Kamaz lead deeper analysis into a potential merger to a look at the cultures prevailing there.

Avtovaz is a metaphor for post soviet manufacturing in Russia, producing outdated models with tooling which nobody seems to have the finance to upgrade, beset by management issues which have seen claims of gang warfare at its main productions centre. Its products are cheap, but equally legendary for their unreliability. Russian car buyers have increasingly bypassed it, as foreign brands made in Russia have carved out market share at its expense. The economic downturn has seen it regain some ground on price factors.

Kamaz on the other hand, is a Russian manufacturer which has global respect for its products – a range of trucks which has cornered the trucking section of the Dakar rally in recent years. Elena Sakhnova, analyst at VTB Capital, says there is little by way of synergies to be gained in merging the two

“This idea will not be realised. It does not make sense to merge the two companies. They are very different, and they are involved in different businesses. Their margins are different. They might save on some common parts, but otherwise……”

Global experience tends to show that light vehicle makers and truck makers are better off apart. Before a merger proceeds it will also be necessary to get the agreement of other Kamaz and Avtovaz shareholders.

An official announcement on the merger is expected this week. However the share price of both companies has already jumped on rumors of the tie-up. But while market traders may benefit in the short term the longer term will need existing shareholder agreement and the resolution of key managerial and strategic issues for any tie up to lead to better vehicle production.