Translated material
Automotive crown
All leading global concerns will assemble cars in Russia
The head of the Ministry of Economic Development, German Gref, called yesterday an “automotive day”: two large foreign concerns - Volkswagen and General Motors - signed agreements with the Russian government on the organization of assembly plants in our country. These appear to be the last companies to benefit from the preferential industrial assembly regime that Russia will have to give up once it finishes negotiations to join the World Trade Organization. At yesterday's meeting of the President with members of the government, Mr. Gref spoke in detail about the projects, and the head of state answered him: “I know that there was a lot of work, I want to thank you, Viktor Borisovich Khristenko, everyone who took part, I hope that the projects will go well." However, due to the fact that foreign automakers intend to assemble cars in Russia in the middle price segment, Russian analysts predict at least a slowdown in sales of domestic brands, which are significantly lagging behind in quality. And the fact that the state will most likely helping the Russian auto industry with budget money, in their opinion, will not save the situation: technical progress takes a lot of time.The German concern Volkswagen was one of the first to begin negotiations on organizing its own production in Russia, but it took a lot of time to make a final decision. “This is the crown of many years of work,” said German Gref, signing the agreement. “The path in Russia was so long that we allowed our competitors to overtake us,” admitted the chairman of the board of directors of the German concern, Dr. Bernd Pischetsrieder.
It is no secret that the delay in entering the market was due to the company's intention to receive special preferences. It applied for the status of a special economic zone, but was refused. As the Ministry of Economic Development officially explained, it is impossible to create special conditions while there are already foreign automobile companies operating on a general basis.
Kaluga Governor Anatoly Artamonov did not hide his satisfaction yesterday. He had to endure a difficult competition for the opportunity to host auto production. A good dozen regions were vying for Volkswagen, among which were the Vladimir region, the Sverdlovsk region, and the leader in the number of automobile production areas - Leningrad region. However, the main contender throughout this time was Stupino, located near Moscow. It was from this region that an application for the creation of a special economic zone was received. Only a few days ago, the auto giant officially announced its abandonment of this region. Why the Stupino authorities did not please the Germans is unknown. In Kaluga, Volkswagen did not receive any unique benefits - according to Russian laws, preferences cannot be given to one company. The Yaroslavl region, which offered the concern its land and exemption from paying all regional taxes, lost on this. However, in the Kaluga region there has long been a law on supporting investment activities, which provides benefits for property tax, land tax, and also exempts income invested in production from income tax. In addition, the region supplies all necessary communications to the site - electricity, water and gas. Plus a good geographical location - the region is located almost next to Moscow.
Construction of the plant in the Kaluga region will begin this summer. The first car, and it will be the Skoda Octavia, will roll off the assembly line in the fall of 2007. Then preparations will begin for the transition to a full cycle, and full production will begin in early 2009. Over time, in Russia, said the chairman of the board of directors of Skoda Auto, Detlef Wittig, stamped body parts, finishing materials, seats and dashboards will be produced. “But engines and gearboxes will always come from Western Europe,” he emphasized. The total investment in the project may exceed 400 million euros, and the productivity of the enterprise - 115 thousand cars per year.
In addition to the Skoda model range, the Kaluga plant will produce the popular Polo, Passat and Toureg models. But the main sensation is that the company has developed a car specifically for the Russian market. This is a Sedan on the Polo platform, which, as representatives of the auto giant promise, will cost less than 10 thousand euros. A similar model is produced for Latin American countries under the name Gol and costs about 7 thousand there. So if the German concern manages to launch an analogue in Russia, it can become a serious rival for domestic brands sold in approximately the same price category.
General Motors turned out to be more secretive and, unlike Volkswagen, did not make the signing of the agreement to create its own production in Russia public. Mr. Gref had to be told in general terms about the terms of this agreement. He said that the company intends to begin construction of a plant in Shushary (St. Petersburg) in June of this year. The plant will produce three car models. At the first stage, the volume of investment in the project will be $115 million, at the second it is planned to double it. The minister did not provide any other details. But GM calls the terms of the deal confidential and refuses to disclose them. GM's secrecy becomes understandable if we consider that the company has problems in its joint venture with AvtoVAZ, which is controlled by the state. It cannot be ruled out that the fate of this project may be somehow stipulated in GM's agreement with the government on the creation of its own production.
At the end of March last year, the government signed Resolution No. 166, defining the industrial assembly regime in the Russian Federation. The resolution obligated the organization, within the established regime, to create mass production of at least 25 thousand cars with localization of welding, painting and body assembly, installation of equipment and testing of finished cars. The document provided significant tariff benefits for the import of automotive components for industrial assembly, but determined the timing of its implementation - 18 months for existing enterprises and 30 months for newly created industries.
In recent years, more and more enterprises have emerged in Russia that actually carry out not production, but assembly of cars. One of the first to start operating was the Avtotor plant in the Kaliningrad region (since 1995), which produces cars of the KIA, BMW, Chery, Chevrolet, Hammer models; and Renault, which has been assembling its models in Moscow since 1998. KIAs are assembled at Izh-Avto facilities. Since 2002, Ford has launched assembly production in the Leningrad region. There is a joint venture between General Motors and AvtoVAZ, which produces the Chevrolet Niva and Chevrolet Viva in Tolyatti. Two months ago, Severstal-auto signed an agreement to organize industrial assembly of several models of Italian Fiat; the company also assembles Korean Ssang Yong and Japanese Isuzu trucks. Japanese Toyota and Nissan have agreements with the administration of the Leningrad region to create their own production facilities in this region in the industrial assembly mode.
Half of the total number of assembly enterprises in Russia (including projects under construction and announced) appeared in the last year and a half - just during the period when the decree on industrial assembly was in effect. And experts believe that with the arrival of Volkswagen and GM, the list of contenders is virtually exhausted. “In fact, they are the last,” says Kirill Chuiko, an analyst at the Uralsib financial company. “As far as I know, no one else has expressed a desire to build assembly plants in Russia.” He believes that a certain success for companies in our market is guaranteed by a strengthening of the ruble, and therefore a reduction in the cost of foreign-made cars.
At the same time, the government also announced support for the domestic automobile industry. It was announced that about $5 billion would be invested in the development of AvtoVAZ alone, which came under the control of government agencies at the end of last year. However, the company, to put it mildly, lags far behind most of its foreign competitors in technology. Its development requires, first of all, technological developments that competitors already have, and they take time.
Assembly plants of foreign companies in Russia will certainly create competition for the domestic automobile industry, which, even if it gives the buyer a price advantage, is still seriously inferior in terms of the level of equipment and safety of its products.
However, the demand for cars in Russia has been growing rapidly in recent years, and for now the market can absorb the growing supply. And the main shortage is now observed in the so-called middle price segment of cars - 10-25 thousand dollars. This, in particular, is evidenced by the months-long queues for the purchase of Ford cars. Experts consider this normal: given the growth of the economy and the welfare of the population in Russia, given the opportunity to choose, buyers will logically prefer a more modern and safer foreign car to a domestic car.
Experts consider it natural that foreign investors will come to the auto industry: over the past three years, sales of foreign cars in Russia have been growing by 20-40% per year. Last year, the growth in sales of new foreign cars in Russia reached 40%. But this is not the limit: from January to April of this year, the sales volume of new foreign cars increased by 49% compared to the same period last year, to 79.2 thousand cars, and traditionally the most active buyers of cars are in the summer and early autumn. However, so far foreign model brands assembled in Russia account for only about a quarter of total sales.
The products of new assembly plants on the Russian market will obviously compete primarily with each other. Thus, Volkswagen models can push Ford into the market. And GM, if it stops at the middle price segment, will compete primarily with Korean cars. According to Dmitry Parfenov, an analyst at the Prospekt Investment Group, in this situation VAZ is unlikely to be able to increase its market share: “It will either retain its existing niche or reduce its presence in the domestic market.”