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Renault has outflanked its rival General Motors and secured a partnership deal with AvtoVAZ, the Russian builder of the Lada range, that aims at creating a one million vehicles a year Russian company within the Renault group.

Under the terms of the memorandum of understanding, the state-funded Russian Technologies, the present owner of AvtoVAZ, will form a 50:50 joint venture with Renault in the first half of 2008.

The pair would then share knowhow with the aim of improving the competitiveness of AvtoVAZ's products, which include engines and gearboxes as well as the Lada and Niva cars. Lada vehicles will be consolidated within Renault's sales figures and Russia, says the memorandum, would become Renault Group's main market.

AvtoVAZ currently has manufacturing capacity for a million cars a year and controls around 70 per cent of Russian domestic car production. The company already has a $330 million joint venture with General Motors to build the Chevy Niva SUV and the Chevy Viva, and GM had been seen as the favourite for a major deal with the Russian group.