How Russian are Russian cars?

Do you want to show your fist to the West and switch to a Lada? Please. You just have to stand in line: on its own, Russia can only provide 20% of the population with passenger cars.

ARTEM NIKITIN

Import in boomerang shape

In response to Western sanctions, Russia may limit the import of cars from the EU and the US, primarily used ones. Presidential aide Andrei Belousov stated this a few weeks ago. According to him, in this area the West depends more on Russia than vice versa.

According to the Federal Customs Service database, in January-August 2014, 423 thousand passenger cars were imported into Russia (852 thousand for the whole of 2013). The main exporting countries are the EU, USA, Japan, South Korea and China. They account for 89% of all imports (West - 52%, East - 36%). During the same time, according to the analytical agency Autostat, 8 thousand used cars were imported into Russia. This is 2% of the total volume. However, as the FCS press service explained to Denga, customs monitors statistics only for legal entities. According to estimates by Vector Market Research CEO Dmitry Chumakov, together with the “physicists”, the import of used foreign cars is at the level of 150 thousand cars per year. Roughly speaking, 15% of all imports. Not much either.

In recent years, many think tanks have apparently stopped keeping statistics on this segment, it is so small. There is nothing surprising in this: due to the high duties introduced after the crisis, the imported secondary market has practically died. For example, customs clearance of a Japanese Toyota Camry 2007 increases its cost three times (from $5.5 thousand to $15 thousand). The ban on the already meager import of used cars to Russia will hardly be noticed abroad.

Another thing is the import of new cars, which accounts for a third of all sales of foreign cars in Russia. From FCS statistics it follows that almost 90% of all imports from the EU and the USA are cars with an engine capacity of over 1.5 liters. In terms of price, this is mainly the middle and premium segment, the localization of which in Russia is still insignificant. Without consequences for the Russian consumer, only the import of cheap economy class goods can be banned.

Analysts at Roland Berger Strategy Consultants went further and considered three scenarios for limiting the import of cars from “unfriendly” EU countries and the USA (Asia, in their opinion, does not count, although Japan has joined Western sanctions). So, if cars costing up to €30 thousand are banned, then foreign concerns will miss €175 million in profit, and the Russian budget will miss €465 million (due to reduced revenue from import duties, VAT and recycling fees). If all imports, then €550 million and €1.42 billion, respectively (taking into account additional revenues from increased sales of Russian-assembled cars).

The only scenario in which Russia will benefit and the West will not, involves an even greater increase in duties on the import of foreign cars (for example, from 25% to 35%). But, firstly, from 2018, as part of its obligations to the WTO, Russia must reduce duties. And, secondly, the benefit from such a demarche is too small: the budget will earn €55 million, and Western business will lose €105 million.

Finally, the withdrawal of a significant amount of supply from the market (135 thousand cars - with a ban on the segment up to €30 thousand and 230 thousand - with a ban on all Western imports; data in annual terms) could lead to a shortage. In the first case, it will be 54 thousand cars, that is, approximately half of the failure can be compensated by increasing production and sales of Asian brands. And in the second - 109 thousand. Even Asia will not help much here.

Potential losses are approximately 2-5% of the entire new car market in Russia. Not much, but enough to raise prices, which had already risen due to the devaluation of the ruble. According to estimates by the principal of Roland Berger Strategy Consultants, Eduard Cherkin, the price increase could be 10%. For a falling market, this is like fuel to the fire: according to the Association of European Businesses (AEB), in the eight months of 2014, sales of new cars fell by 12% year on year, to 1.58 million units. “Under these conditions, automobile companies do not want to lose any of their sales channels (despite the fact that Russia accounts for 8-10% of all car exports from the EU. — “Money” ),” says Cherkin. “Even because of a short-term ban imports, Western brands will have a long time to regain their market share, which they will lose to Asian manufacturers. Dealers are interested in constant sales and, most likely, will not wait for the situation to improve, but will change licenses to Asian brands.”

Soon, only the name and patriotic stickers will remain “ours” in domestic cars.
Photo: Yuri Martyanov, Kommersant

However, all this is fortune-telling. It is not known whether there will be a ban on imports at all, and if so, which part of it (it is much more logical, for example, to screen by engine size rather than by the cost of the car). One thing is clear: Russia depends on European automakers, not only on imports, but also on domestic production.

New Russians

Since the beginning of the 2000s, 18 factories for assembling foreign cars have been built in Russia. The current capacity of all plants, according to PwC estimates, is 3 million cars, of which only a third are from AvtoVAZ (directly under the Lada brand - more than 400 thousand cars). In the next five years, capacity should increase by another 800 thousand.

The cost of car production in Russia is higher than in Europe and Asia (the difference ranges from 5% to 15%). The reasons are high electricity tariffs, low competition, logistics costs, corruption. If it were not for high duties, importing would always be a more profitable business. In 2005, the authorities invited foreign factories to sign an agreement on industrial assembly: in exchange for zero duties on auto components, they had to increase production volume (up to 25 thousand units) and localization level (up to 30%) within seven years. In 2011, the conditions became more stringent: no later than 2020, reach a capacity of 350 thousand cars per year, and increase localization to 60%. Only six companies agreed to them - AvtoVAZ, Renault, General Motors, Volkswagen, Nissan and Ford. The logic of the state is clear: by 2020, Russia promised the WTO to reduce duties, and without them, any production with a capacity of up to 50 thousand cars per year will lose out to imports. The fact is that full localization is possible only with large volumes of component consumption. For example, a piston manufacturing plant will be unprofitable if it produces less than a million parts per year. For the chassis, clutch and complex plastic products, a capacity of 500 thousand is required, for radiators - 400 thousand, and for manual transmissions and seat belts - 200 thousand. The most unpretentious parts are head restraints, seats, exhaust systems, upholstery and bumpers, factories production of which can survive with orders of less than 100 thousand units per year. That is why it is most profitable to produce budget brands in Russia - a mass segment and sensitive to price surges. According to Cherkin, after 2020, factories with a capacity of up to 50 thousand cars may close in Russia due to economic inexpediency.

Now the level of localization varies greatly from plant to plant. According to Avtostat, AvtoVAZ has the highest – 80%. Renault Moscow (formerly Avtoframos, which produces Renault Logan) has about 75%. Hyundai reached 45%, and Volkswagen Group Rus, Ford Sollers, Nissan Manufacturing Rus and PSMA Rus - 35-40%. At other foreign factories, the level of localization does not yet exceed 10-25%.

According to the Ministry of Industry and Trade, the average level of localization of cars in Russia is 45%, and the actual level of auto components is only 20%. The fact is that this indicator is calculated based on added value, which includes all costs, including staff salaries, utilities, land rent and other expenses. In other words, the construction of the plant itself will already provide an overall localization of 10%. To bring this level to 20%, you can order some little thing on the spot; for 30-45%, stamping shops will already be required; for 70%, production of almost everything except the engine and chassis will be required.

When foreign automakers were just starting to open factories in Russia, they were shocked by domestic suppliers: the quality of the products left much to be desired. To increase the level of localization, they urgently had to invite their old foreign partners - Continental, Bosch, Magna, Bridgestone, Johnson Control, TRW Automotive, Valeo SA and many others. As a result, today 80-90% of Russian suppliers of parts to car factories are branches of international manufacturers. According to the head of AvtoVAZ, Boo Anderson, he himself is satisfied with only six suppliers out of 500 available to the company. In Russia they still know how to make tires (Cordiant) - this is perhaps the most striking example.

As the press service of Renault Russia told Denga, approximately 20% of all the company’s suppliers are Russian enterprises (by origin, not in the legal sense). At the same time, the overall level of localization of the Logan brand at the Moscow site is 70%. The French purchase bumpers, instrument panels, seats, glass, lighting equipment, rear-view mirrors, exhaust systems, fuel tanks, batteries, aluminum rims, tires, enamels, paints, as well as numerous stamped parts locally.

The latter are a different story. At first, the company imported all the steel sheets for Russian foreign cars, since domestic metallurgists could not provide decent quality steel. First of all, this concerns the front part of the body, where cold-rolled steel with special properties is required. The test batches turned out quite well, but it was impossible to maintain the quality for a long time - this is the problem with almost all former Soviet factories. As one of the metallurgical companies explained to Denga, our giant factories were focused on volume, not quality. At best, 2-3% of all production may go to the needs of the Russian automobile industry. So this is more a matter of prestige than business. Moreover, foreign car companies have established strong supply chains and quality arrangements with small European steel mills many years ago. In total, in 2013, domestic companies supplied the auto industry with about 1 million tons of steel. Of these, 70% was consumed by AvtoVAZ and other Russian factories, and 30% by foreign ones. Foreign factories import approximately 1.3 million tons of steel for their needs.

Korean Hyundai has achieved the greatest autonomy from our steelmakers. At the plant in St. Petersburg (produces the most popular model in Russia - Hyundai Solaris) it even has its own stamping shop, the metal for which is supplied by Hyundai Motor Company's subsidiaries - Hyundai Hysco and Hyundai Steel. Another plant for stamping parts in St. Petersburg is Cosym, owned by Magna International and the Korean Shin Young Metal Ind. Alfa Automatic Technologies operates in Moscow, a joint venture between AMO ZIL (51%) and the Japanese corporation IHI corp. (49%).

However, this does not mean that domestic metallurgists are not attracted to foreign automakers at all. The main suppliers of even limited quantities of metal are Severstal, MMK, NLMK and others. As Severstal told Denga, the share of metal in supplies to Severstal-Gonvarri-Kaluga LLC (a joint venture between Severstal and Gonvarri, makes steel blanks for stamping shops) is almost 43%. The rest is purchased from ArcelorMittal and another Russian company. And the stamping itself is carried out by three factories - the joint venture Gestamp and Severstal in Kaluga, Vsevolozhsk and Tolyatti. The parts are then used in the production of Volkswagen Polo, Peugeot 408, Citroen C4, Ford Focus, Renault Sandero, Renault Duster, Renault Fluence and Nissan Almera.

Such localization, of course, is not a reason for patriotic feelings. The fact that a foreign car is assembled from local parts does not make it Russian. Sometimes an increase in quality, on the contrary, leads to a decrease in localization. For example, the GM-AvtoVAZ plant started at a level of 95%, but dropped to 47% (Avtostat data). However, in the new Chevrolet-Niva (release postponed to 2016) the share of imports should be no more than 8%.

Behind the wall of the auto industry

A good example of protecting the auto industry from the West is Iran. Approximately 94% of the total new car market is shared by two Iranian companies - Iran Khodro and SAIPA, which produce clones of Western brands from the mid-1980s. Imports are extremely small - duties are at 90%. A car is not a luxury for an Iranian. The average price is $5.5-7 thousand - at the level of the cheapest Lada model. And gasoline costs three times cheaper than in Russia. Finally, the climate and roads allow this trash not to deteriorate for decades. But even the Iranian auto industry could not resist Western sanctions imposed in 2012-2013. After South Korea restricted the supply of components (it accounted for 60%), production costs for OEMs increased by 40%, and the market halved in three years, from 1.649 million to 794 thousand vehicles.

Russia is even less fortunate in this regard. AvtoVAZ has a market share of 16%, which is negligible compared to the Iranians. The needs are very high. According to Autostat, there are 40.2 million passenger cars in Russia, and in terms of the number of cars per thousand inhabitants, we are two times behind Eastern Europe (283 cars versus 400 in the Czech Republic).

In the late 1960s, the VAZ was built under license from Fiat. The first Zhiguli models were a copy of the Italian Fiat-124, assembled from Western components and using Western equipment. These models lasted for decades. As localization increased, quality began to decline. But history seems to have come full circle. The controlling stake in AvtoVAZ belongs to the Renault-Nissan consortium, the general director is from Sweden, about 300 robots are used to weld LADA Kalina/Granta bodies, manufactured in Russia under license from the German company Kuka, and many models are produced on a Western platform.

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