To compensate for the loss of benefits by increasing production

Russia's largest manufacturer of foreign cars, the Kaliningrad-based Avtotor group, is looking for options for a development strategy after the end of its customs benefits in 2016. The group is negotiating with its partners about the transition from large-scale assembly to the creation of full-cycle production and expansion of product output. A memorandum on increasing BMW production to 80 thousand cars per year has already been signed, but so far this document does not oblige the parties to anything.

Development director of the Kaliningrad Avtotor, Alexander Sorokin, said yesterday that the company has agreed with BMW to expand the production of its cars. According to Interfax, Mr. Sorokin said during a meeting of the council for placing investments in the Kaliningrad region that in 2014 Avtotor will move from large-unit assembly of BMW to full-cycle production. The total investment in the project could amount to €200 million, of which €50 million will come from BMW and Avtotor, and €100 million from loans.

According to Mr. Sorokin, the corresponding memorandum between BMW and Avtotor has already been signed, and on September 27, the board of directors of the German company plans to approve the project. At the same time, it is planned to build a new plant. Its first stage should begin operating in 2014, producing 55 thousand cars per year, the second - after 2015. The total capacity of the enterprise will be 80 thousand cars per year.

Avtotor is the largest company in Russia producing foreign cars. In 2010, approximately 170 thousand BMW, Chevrolet, Kia, Cadillac and Opel cars were assembled at three plants in Kaliningrad. The plan for 2011 is 240 thousand cars. The Kaliningrad enterprise produces BMW 3rd, 5th and 7th series, as well as crossovers BMW X1, X3, X5, X6. In 2010, Avtotor produced 11 thousand cars under the BMW brand. The company is located in the SEZ and has the right to import all components for assembly duty free until 2016.

BMW representatives were unable to confirm to Kommersant yesterday that the company's board of directors intends to discuss this project on September 27. The German company explained that this is only one of the discussed options for its development on the Russian market. Avtotor general director Valery Gorbunov confirmed to Kommersant that there are no firm agreements with BMW yet, and the memorandum “does not oblige anyone to anything.”

According to Mr. Gorbunov, the project to expand the production of German-brand cars was developed by Avtotor itself as part of plans for the further development of the enterprise, and similar options for expanding production are being discussed with all the group’s partners. Mr. Gorbunov explained that the company’s benefits will run out in 2016, so it is now preparing proposals for creating an “automotive cluster” in the region after that. They, according to Valery Gorbunov, will be presented to the Russian government on October 1. The head of Avtotor did not disclose any other details.

“Due to the imminent end of the Avtotor benefit period, it is extremely important to choose a partner with whom the company will work in the long term, and this needs to be done as soon as possible,” notes Mikhail Pak from Aton Investment Company. “However, this partner will have to in 2016 year to raise prices for cars produced in Kaliningrad." In his opinion, BMW “has no other choice,” because the company definitely will not be able to build a plant in Russia with a capacity of 300 thousand cars per year, as required by the new industrial assembly rules, but it needs to increase sales on the Russian market. “In order not to lose its share, the company will still have to build a full-cycle plant, and Avtotor seems to be the most logical partner for this,” the analyst believes.

In 2010, BMW, according to AEB, managed to sell 20.5 thousand cars in Russia, sales growth was 26%; in eight months the company sold 17.2 thousand cars, sales increased by 33%. According to Mikhail Pak, based on these data, the most realistic plant capacity seems to be 50 thousand cars per year.

Egor Popov, Denis Skorobogatko

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