TOGLIATTI, Russia (Reuters) - AvtoVAZ will slash its workforce by a quarter in the face of the plunging demand that has pushed Russia’s largest carmaker to the edge of bankruptcy, the company’s chief executive said on Thursday.

AvtoVAZ, part-owned by French car maker Renault, has agreed with trade union leaders to shed upto 27,600 jobs at its plant on the Volga river, where the Lada has been produced since Soviet times.

“Our plant is in a critical financial condition,” AvtoVAZ Chief Executive Igor Komarov told a local television channel.

“Losses for 2009 will be 35 billion roubles ($1.2 billion), which raises serious questions about our ability to keep running in the future,” he said. “Our main goal is to avoid bankruptcy, which could lead to the plant being sold off in pieces.”

Sales of new cars in Russia fell 54 percent year on year in August, scuppering Russia’s hopes of overtaking Germany as Europe’s biggest car market this year.

The Association of European Businesses expects 1.4 million cars to be sold in Russia this year, down from 3.2 million in 2008.

The AvtoVAZ cuts, which follow mass protests in the city of Togliatti, are the latest challenge to Prime Minister Vladimir Putin in his attempts to keep a lid on simmering unrest in one-factory towns hit by Russia’s first recession in a decade.

In March, Putin ordered 25 billion roubles in state funds to be disbursed to AvtoVAZ and asked state banks to provide bridging loans of another 8 billion roubles.

“We have been granted a 25 billion rouble loan which allowed us to live through the summer, pay salaries and debts, but I am sure that support in the same form will not be given to us again,” Komarov said.

“You know perfectly well that many consider AvtoVAZ a black hole.”

Its Moscow-traded stock closed down 5.75 percent, while the wider MICEX index ended the day down 1.80 percent.

JOB CUTS

AvtoVAZ, also part-owned by state conglomerate Russian Technologies, has halved salaries and reduced the working week at the plant in Togliatti, a city 900 km (560 miles) southeast of Moscow built in the 1960s to serve the car plant.

“The enterprise is working on one shift and at 65 percent of capacity. Cutting personnel is essential in such a situation,” AvtoVAZ, which employs 102,000 people, said in a statement.

“It’s hard to find another job in Togliatti. AvtoVAZ is everything for this town, and nobody is waiting for us in other cities,” said assembly line worker Alexander Afanasyev.

Aton analyst Mikhail Pak estimated that AvtoVAZ could save approximately 8 billion roubles ($266.7 million) a year by cutting its workforce by 27,600.

Unemployment in Russia has eased in recent months, falling to 6.2 million, or 8.1 percent of the workforce, in August from 6.3 million in July. But analysts have warned job losses might rise again as companies plan autumn layoffs.

About 2,000 workers protested in Togliatti last month, demanding the state nationalise the car plant. Deputy Prime Minister Alexander Zhukov has called for special measures to save jobs.

AvtoVAZ said those to be dismissed would include 13,000 pensioners, who are expected to leave in September or October, as well as 5,500 people approaching pensionable age.

The company said around 6,000 of the 9,100 younger workers to be laid off “would once again be required” from the start of 2012, when AvtoVAZ and Renault plan to launch a joint project.