France-Russia Automotive
N° 10
December 2010
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France-Russia Automotive (Auto Franco-Russe) is an economic newsletter focusing on the development of the Western automotive groups’ business in Russia. France-Russia Automotive is distributed both on paper and electronically. To receive the next issues for a free trial you only need to subscribe on our website: www.autofrancorusse.fr. France-Russia Automotive is published by Agence du Fil SARL Company, whose publications are devoted to the Franco-Russian trade.
In this issue
The Russian automotive market has been slow to begin
its exit from the crisis. The upturn in sales has been somewhat sluggish
in 2010 but the trend was reversed towards the end of the year. Sales
growth has been 22% for the first ten months, but is already 28%
if including the month of November. The profit for the year should exceed
30%. Sales of saloon cars and commercial vehicles should near two
million units for the year 2010. There is still, however, some way to go
to reach the pre-crisis level, when sales brushed the three million
mark.
The Russian government's "cash for bangers" scheme has been fruitful. It
is most of all Avtovaz that has benefited from it. Strengthened by its
partnership with Renault, the local market leader is partly recovering
from its difficulties. The government has taken advantage of this
improvement to consider the reduction of tax benefits granted to Western
manufacturers.
Several car manufacturers and parts manufacturers have chosen to
establish themselves in Russia this year. For example, Hyundai which has
also brought its suppliers, Magna International. Mazda is considering
the possibilities. Fiat is working on a project aiming to achieve
300,000 and then 500,000 vehicles assembled on-site.
The main local tyre manufacturers plan to pool their assets in order to
hold out better. Meanwhile their competitors in Europe and Asia are
seeing a surge in sales.
The Editor
HYUNDAI COMES WITH ITS OWN SUPPLIERS
The parts manufacturers have established themselves around the new Hyundai factory near St. Petersburg. Seven Korean suppliers of the brand are already present in its industrial estate. Four others should be joining them soon.
Opened at the end of September 2010, the Hyundai
XMMP factory is located in the Kamenka industrial estate, near St.
Petersburg. This region is already home to the factories of Ford,
Toyota, GM and Nissan, as well as several parts manufacturers. The
Hyundai factory is expected to produce up to 150,000 cars per year, a
rate it should reach only in 2012. Actual production will begin in
January 2011, and 105,000 vehicles should be assembled during 2011.
The Hyundai project is expected to rapidly achieve a high degree of "localisation"
of assembly through the on-site manufacture of components, notably
bodywork parts. Several Korean parts manufacturers have been invited to
join the manufacturer on its site, where an industrial estate of 24ha
has been created for them. Two months after the opening of the factory,
seven had already answered this requirement, by means of local
subsidiaries. Sungwoo Hitech Rus, Sejong Rus, NVH Rus, Doowon Rus,
Daewon Rus, Donghee Rus and Shinyoung Rus are preparing to begin
production of bodywork parts, suspension, seats, interior parts,
exhausts, air conditioning, etc. Their production is configured to
ensure the assembly of 150,000 cars per year, according to statements.
Other sources mention the possibility of fitting up to 200,000 cars per
year. Four other Korean equipment manufacturers are expected to join the
site. Nearly 2,000 people now work at the Kamenka site, of which 1,300
work in assembly at the manufacturer's site. They will increase in
number to 5,300 by 2012.
The presence of parts manufacturers on-site allows the manufacturer to
optimise costs by reducing logistical costs and securing supply to
assembly lines. It also allows local requirements to be met, which
require foreign manufacturers to reach a "localisation" level for the
production of parts for assembly, of higher than 30% after five years
and 50% at seven years, in order to keep tax and customs preferences.
This is a very difficult constraint to satisfy, so much so that the
level of production and quality of local parts manufacturers is
insufficient according to industry criteria. By bringing in its own
suppliers, Hyundai is on track to meet its requirements ahead of time:
its rate of "localisation" could reach 45% by 2012, according to its
statements. Note that the methods for calculating "localisation" are
often controversial, differing from one manufacturer to another.
The Hyundai factory will start by assembling a model called Solaris for
the local market. With a selling price announced of between 12,000 and
20,000 dollars depending on the parts, this model should partly compete
with the Logan assembled by Renault in its Avtoframos factory in Moscow.
A model of Kia will also be assembled in the Hyundai factory, probably
from 2012. Investment in this project is close to 190 million dollars,
according to the manufacturer's statements.
More about Hyundai
Up until then, Hyundai cars were assembled by its local partner Tagaz, a
car factory located in Taganrog in the south of Russia. It had assembled
more than 60,000 Hyundai Accents in 2008. During the crisis the
partnership was frozen. Today, Tagaz is once again in talks with
Hyundai, to resume assembly of the Accent, at a rate of 30,000 units per
year. Kia models were assembled in the Izhavto factory. The partnership
was brought to an end following the bankruptcy of the factory.
Hyundai sold 77,679 vehicles on the Russian market between January and
the end of November 2010, up 16% compared to the same period in 2009.
This is a relatively small increase compared to the average increase of
28% registered by market as a whole for the same period.
FIAT AIMS FOR SECOND PLACE ON THE RUSSIAN MARKET
Its new project with local company Sollers aims to assemble up to 500,000 vehicles per year from 2016. However, there is a long way to go before achieving this.
Fiat is working on an accelerated project with Sollers, its
Russian partner. The manufacturer aims to substantially increase the volume of
its assembly in Russia, with the aim of reaching a production of 300,000, and
subsequently 500,000 cars per year. A project that should receive Russian public
funding.
With very limited presence on the Russian car market, the Italian manufacturer
sought to strengthen its position by signing several assembly agreements in
2007-09 with the local partner Sollers (formerly Severstalavto). Today, the Fiat
saloon cars are assembled in the Sollers Naberezhnye Chelny factory, located in
Tatarstan, on the Volga Basin. This applies to Fiat Albea, Linea and Doblo
models. The stated capacity of this factory is 70,000 units per year. But only
18,837 cars under the Fiat brand were sold between January and November 2010.
Located in the same region, the Sollers-Elabuga factory assembles Fiat Ducato
commercial vehicles. Just over 8,000 vehicles have been sold during 2009,
including nearly 3,000 in the context of public contracts obtained by the local
partner. In 2010 the manufacturer hopes to sell around 15,000 units assembled in
Elabuga, nearly a quarter of which would be in the context of public contracts.
The local partner Sollers is heavily indebted, to the tune of 900 million
dollars for a turnover of 1.1 billion dollars in 2009. Rising interest rates on
loans during the crisis precipitated it being in the red. The company announced
net losses of 160 million dollars in 2009. Previously in the black, the company
still maintains the confidence of banks, but its ability to find additional
funding is reduced. This probably explains why Sollers has imagined a tripartite
scheme including public funding for its new project with Fiat.
The new Fiat-Sollers project was completed in spring 2010 by a Memorandum of
Understanding (MoU) signed by Sergio Marchionne, DG of the Fiat Chrysler Group
and Vadim Shvetsov, DG and majority shareholder of Sollers, in the presence of
Prime Minister Putin, a great promoter of this agreement. The project includes
the establishment of a joint venture (JV) which would take on the expansion of
the existing Naberezhnye Chelny factory in order to assemble up to nine models
of Fiat, the majority from Chrysler. The factory should start up in 2016,
assembling 300,000 vehicles per year, with the possibility of increasing the
rate to 500,000 vehicles per year. Vadim Shvetsov further confirmed this to
Bloomberg at the start of December 2010.
At the same time, production lines would be installed to produce a maximum
number of components on-site, up to the engines and gearboxes. These should be
made based on the Sollers ZMZ engine factory in Nizhny. The objective is to
achieve a rate of "localisation" of components higher than 50%. This is the
condition imposed by the Russian government for its support.
Public funding at stake
Key point of this project: funding of 2.1 billion Euros to be provided by the
state bank VEB, as well as 300 million Euros provided equally by the partners.
With regard to Fiat, this contribution should be made by the transfer of
licences and technology. Sollers brings its production units as a basis for the
project. Most of the budget relies on public funding and it is possible that the
VEB bank enters into the capital of the joint venture. This point, like many
other points of the project, is still under discussion.
The new Fiat-Sollers project, if completed, would be the largest establishment
of a Western manufacturer on the Russian market following the Renault-Avtovaz
alliance. It could compete with the French manufacturer on the entry and
mid-level segments of the range.
The project also shows a political dimension. It is the only one to meet the new
requirements of the Russian government to sign partnership agreements in the car
industry: a production volume of several hundred thousand vehicles per year, and
a rate of localisation higher than 50%. In fact, if these new regulations are
adopted, Fiat-Sollers and Renault-Avtovaz alone would be entitled to the benefit
of tax and customs preferences accorded during the renewal of the contracts of
assembly.
This political aspect raises reservations. It is not a given that new
regulations could one day be applied under the form announced today. Not without
hurting the interests of the other Western manufacturers already established in
Russia. And the public funding sought by the Fiat-Sollers JV represents a
significant amount. Especially in the context where it will have to reconcile
with the support notably promised for the Renault-Avtovaz projects, which will
be finance intensive. The Russian government appears to lack support in its
industrial investment strategy.
Analysts note that the Fiat-Sollers project budget appears oversized in relation
to the production targets displayed. Finally, the financing is based almost
exclusively on support promised by the government. Now, between promises of
money and their realisation, there may be a long way to go in Russia. But Fiat
not bringing about investment in the short-term, the Italian manufacturer does
not take many risks in this important issue which is still today in its very
beginnings.
Who is Sollers?
Sollers has sold 59,000 vehicles in 2009, compared with 123,000 in 2008.
Besides the Fiat models, the company also assembles lightweight Japanese
Isuzu trucks in small quantities. The bulk of its sales is provided by
the locally designed 4x4 produced under the brand UAZ-Patriot, 41,984
units sold between January and November 2010. In addition to the Korean
Ssangyong 4x4, 11,310 vehicles sold during the same period, according to
AEB statistics.
After a catastrophic year 2009, Sollers announced slightly increased
profits for the first six months of 2010. Its turnover reached 653
million dollars for this period. Losses were limited to 40 million
dollars, which is two times less than for the same period in 2009.
www.sollers-auto.com
A POLO SEDAN MODEL FOR THE RUSSIAN MARKET AT VW
Volkswagen Rus began sales of its new Polo Sedan
model developed especially for the Russian market and assembled in its
factory in Kaluga. The vehicle is characterised by enhanced
anti-corrosion bodywork protection, guaranteed for 12 years by the
manufacturer. Corrosion is a major problem for vehicles in most regions
of Russia, where the sudden changes in temperature can cause a number of
changes from condensation to ice and vice versa during the day. Also,
the products used by the snow clearing services in winter are sometimes
very aggressive for the lower part of the bodywork. The chrome parts of
the vehicle are also treated in this way. Another change brought about
is enhanced suspension for poor quality roads. All of this is completed
by a package of options for cold climate areas. Tested in different
climatic zones and on different types of road in Russia, the new Polo
Sedan was unveiled to the public at the last Moscow International
Automobile Salon in August 2010. Its success was immediate: the waiting
lists at some VW dealers are full for delivery in... September 2011.
VW is interested in a partnership with local company GAZ, to use the
assembly capacity of the GAZ factory in Nizhny. It has installed a
production line intended for the assembly of the Chrysler Sebring under
the local label Siber. But the project ended in commercial failure,
notably due to an overly high sales price, according to experts. The
unused assembly line has a capacity of 170,000 units per year. The VW
Skoda assembly factory at Kaluga has a capacity of up to 150,000 units
per year. The manufacturer expects a soaring demand for its models, up
to 360,000 units by 2017, according to VW's management.
The manufacturer's factory is situated in Kaluga, a town of 330,000
inhabitants located 200km south west of Moscow. From now on the factory
assembles Polo Sedan, Golf, Passat, Passat CC, Tiguan and Touareg
models, as well as several models of Skoda. VW sold 445,516 cars for the
ten months of 2010, up 34% compared to the same period in 2009, as well
as nearly 5,000 commercial vehicles. Skoda sold 38,022 cars for the ten
months of 2010, up 38% compared to the same period in 2009.
A GREATLY EXTENDED RANGE AT RENAULT AVTOFRAMOS
Renault plans to greatly expand the range of vehicles
assembled by its subsidiary in Moscow. The manufacturer took advantage
of the Moscow International Automobile Salon in August 2010 to introduce
these new models destined for the Avtoframos factory, whose new
production line which was opened in March 2010 increased the production
capacity from 60,000 to 160,000 vehicles per year. The SKD assembly of
Fluence and one of the models of the Megane range will begin towards the
end of 2010. The SKD assembly of Renault Duster will begin in late 2011.
The Logan and Sandero, the two flagship vehicles of the Russian factory,
will now have a version with an automatic gearbox. The production of the
Sandero Stepway SUV in Moscow will begin towards the end of 2010, and
sales will follow in January 2011.
Most of these Logan and Sandero models are already assembled at the
Renault Dacia factory in Pitesti in Romania. Assembly at Avtoframos is
supplied at a level of over 50% with pieces from the Dacia factory.
Renault has a 94.6% share in the company Avtoframos. The rest belongs to
the city of Moscow which provided the land for the initial establishment
in 2005 and for the recent expansion. A change has just occurred at the
top of the company: Bruno Ancelin has replaced Christian Esteve in the
post of Director General Russia. The newcomer is a production
specialist. As well as his new position, he retains his responsibilities
as Director of Global Sourcing for the Renault-Nissan alliance.
Renault has sold 75,158 vehicles over the ten months of 2010, which is
26% more than for the same period in 2009. Of this, 50,226 were Logans
and 13,638 were Sanderos, assembled at Avtoframos and sold through the
network of 120 brand dealerships in Russia. Very popular among the
middle classes, in October 2010, the Renault Logan even became the sales
champion for Western brands in Russia, a position that it regularly
fights over with the Ford Focus assembled near St. Petersburg.
MAZDA CATCHES ITS BREATH
"The Russian government's selective support for the
car industry is one of the main problems in our market. It is the only
market in Europe where some may be assisted and others not", comments Joerg Schreiber, CEO of Mazda Motor Rus, in an interview with the press.
Orders for brand vehicles have recovered well in 2010, but this time it
is Mazda that could not serve up the goods. With the factories of the
manufacturer having decreased their production, it has been difficult to
meet a global demand that has gone up again. The quotas reserved for the
Russian market were quickly exhausted and the 50 brand dealerships were
forced to manage increasing waiting lists. Result: Mazda could only sell
18,559 cars on the Russian market during the ten months of 2010,
compared to 27,686 during the same period in 2009. This is a decrease of
33%, while the market as a whole showed an average rise of 22% over the
same period, according to statistics from the Association of European
Businesses (AEB).
Factory output had been increased since, things returned to normal and
sales in October 2010 were shown to be 86% better than those in October
2009. Mazda Motor Rus appealed to the Trans-Siberian Railway to
transport vehicles, allowing the delivery time to be limited to four-six
weeks from the start of manufacturing the vehicle. A commercial argument
with influence on Russian customers. In addition, the local subsidiary
offers auto loans at preferential rates, in partnership with the bank
Gazprombank. Even if the option of buying on credit is not a priority in
the eyes of Mazda consumers. The share of loans in the funding never
exceeded 30% before the crisis, after a sharp decline it rose again to
25% during the summer of 2010.
The manufacturer is now planning to move into higher gear. Takashi
Yamanouchi, CEO of Mazda announced at the start of December that a team
of experts had been sent to Russia with the task of studying the
possibility of establishing an assembly factory.
MAGNA INTERNATIONAL ESTABLISHES ITSELF IN KALUGA AND ST. PETERSBURG
Magna Technoplast, the local subsidiary of Canadian
Magna International opened its new factory in the Kaluga region at the
end of October 2010. On this site, plastic exterior and interior parts
will be will be made for the Western manufacturers established in Kaluga.
The VW Skoda factory in Kaluga has been operational since 2007. PSA
opened a factory in partnership with Mitsubishi in April 2010. Volvo
also set up its assembly plant in Kaluga. The cluster thus formed
promises opportunities of proximity, an important criterion for costs of
transporting bulky parts. In addition, Magna Technoplast plans to supply
the Renault-Avtoframos factory in Moscow, from the Kaluga site.
The new factory totals 15,000 m2 and employs 200 people. The
manufacturer aims to increase the workforce to 340 people in 2012. The
available land would eventually allow an extension up to 40,000m2.
The Canadian company has invested nearly 74 million Euros in this
project, of which 41 million is for production equipment. Magna also has
a production entity in the St Petersburg region. Opened in September
2010, it includes several workshops for production; for plastic parts as
well as the stamping of bodywork parts. It is located near several
factories under construction or already in operation: Ford, Hyundai, GM,
Nissan. The manufacturer also runs a site at Nizhny Novgorod, the former
JV of the Technoplast and Faurecia premises. Located near the GAZ
factory of the local holding company of Russkie Mashini, this site was
intended to supply the production of a new range of saloon cars for GAZ,
which was stopped after a commercial failure.
PIRELLI INVITES ITSELF TO THE PROJECT ALLIANCE OF LOCAL TYREMAKERS
After the crisis, local tyre manufacturers are
seeking to group together to face the market which has become
increasingly dominated by Western products. Since the summer, several
major products have been announced. First the petrochemical holding
company Sibur concluded an agreement with the oil company Tatneft to
merge their tyre assets. In this context, a new structure could be
created to manage industrial assets. Sibur will transfer 100% of its
company Sibur Russian Tyres to it, as well as the factories of the
bankrupt tyre manufacturer Amtel and which have ended up in the lap of
Sibur. Tatneft will provide its Nizhnekamskshina tyre factory. Tatneft
will receive 51% of the capital for the new structure, which would be
managed by the management team of Sibur Russian Tyres.
This alliance, if it is realised, would reunite all local tyre
manufacturers, with the exception of Western tyre manufacturers
established in Russia and of some small independent local producers.
Sibur Russian Tyres groups together four production sites: the Yaroslavl
factory, the Omskshina factory in Omsk, the Voltair factory in Volzhsky
and the Uralshina factory in Ekaterinburg. A JV with Matador is
established on the Omskshina site. The company claims 30% of local tyre
production. Nizhnekamskshina has two factories, for passenger and truck
tyres, grouped together on the same site. Its share of local production
is 27%. Finally Amtel has factories in Voronej and Kirov, as well as a
second, unfinished factory in Voronej. Its share of local production is
10%. The three actors respectively claiming 17.1%, 15% and 7.1% of the
Russian tyre market, estimated to be worth 33 million tyres in 2009
according to Sibur RT. They are mostly found on the entry level market
for passenger vehicle tyres and the market for truck tyres.
The alliance had not yet realised that the partners have already
announced a new project. This time, Sibur wanted to emerge from the tyre
industry and transfer all corresponding assets into a new alliance with
the public holding company Rosstekhnologii. Better yet, Pirelli could be
involved in this future BIS alliance. A Memorandum of Understanding (MoU)
has been signed between Sibur, Rosstekhnologii and Pirelli. According to
its terms, the Italian tyre maker could receive 10% of Sibur Russian
Tyres, as well as a share in the joint venture (JV) with Rosstekhnologii,
which will hold 40.1% of Sibur Russian Tyres.
Local manufacturers visibly share the desire to pool their assets to
better withstand the market. But their successive strategies seem to
lack consistency at the moment. One can expect new configurations of
alliances to emerge. However, the presence of Pirelli obeys a stated
desire to establish itself permanently on the Russian market. The tyre
manufacturer had planned, two years ago, to settle in the region of
Togliatti, Samara, in partnership with the public holding company
Rosstekhnologii which is also a shareholder in the manufacturer Avtovaz.
But this project could not be completed. Today Pirelli may be interested
in the unfinished Amtel factory. This would be a quick way to arrive on
the Russian market which is in the process of starting up again. On the
condition of being able to get on with all of the potential partners,
whose number is increasing by the day.
YOKOHAMA HAS BENEFITED FROM THE CRISIS IN RUSSIA
“In 2009 our sales grew 33% compared to 2008, when
other manufacturers were severely hit. In 2010 we should grow another
20% and reach 2.5 million tires sold over the year”, says Mr Muto
Makoto, Vice President for Yokohama LLC in Russia. In his opinion the
crisis that hit most of its competitors in 2009 has indeed benefited his
company.
Mr Makoto claims that part of this success is related to the fact that
Yokohama tires are generally 10% cheaper than most its European
competitors’: “When Russian consumers were hit hard by the crisis, they
appreciated to be able to reduce their expenses without being forced to
downgrade the quality of products they chose for their security”.
Being cheaper than competitors was a company’s strategic decision to
adapt to harder market conditions, as Mr Makoto states that Yokohama
does not benefit from cheaper production costs: “On the contrary, until
our new plant in Lipetsk is opened in October 2011 we have quite
significant costs related to logistics, customs, etc.”
Yokohama’s vision of the Russian market potential is immense, as show
the plans for the Lipetsk plant capacity extension: it will start at 1.4
millions tires in 2012, and then expand to 2.8 millions in 2014 and to
4.2 millions in 2016.
To support its ambitious growth objectives, Yokohama intends to continue
to grow its dealer’s network in Russia: points of sale will progress
from 300 “Yokohama Club Network” today to 800 in 2017.
Logistics is a key success factors on the Russian market, as road
conditions can be so rough. Yokohama enjoys a comprehensive organisation
with a major warehouse in Finland and regional warehouses in
Vladivostok, Krasnodar, Yekaterinburg, Moscow and Saint Petersburg.
Asked if he intended to lower even further the Yokohama tires prices
after the Russian plant is opened, Mr Muto laughed: “This is not in the
plan. But we will be more than happy to pay more taxes to the Russian
government if our profits grow!”
CONTINENTAL PLANS TO ESTABLISH A FACTORY IN ADDITION TO OFF-TAKE PRODUCTION
Continental has decided to locate a factory in
Russia. The site should become operational in 2013, even though the
location has not yet been chosen. The factory will produce up to 4
million car tyres per year under the Continental, Barum and Gislaved
brands. Meanwhile, the manufacture of Matador tyres remains entrusted to
the Matador-Omskina joint venture with Sibur Russian Tyres in Omsk.
At the same time, the tyre manufacturer is considering the possibility
of improving its supply of truck tyres on the Russian market. In
particular, it foresees the assembly of trucks under the Volvo and
Renault VI brands, on the Volvo site in Kaluga. Meanwhile, Mercedes is
planning to increase its share in the local company Kamaz, by 10% today,
with a view to increasing assembly.
"The truck tyre market is very dynamic and we lack products to meet the
demand. This year, Matador sales were close to 80,000 units - but we
could have sold at least 100,000 or a little more if the products had
been available to us," explains an official at Continental. "Demand has
sharply increased thanks to imports of Western brand trucks as well as
Chinese ones. These trucks need tyres of different sizes from those
offered by the local manufactures," he adds.
Sales in this market are growing steadily, with an acceleration over the
last two years. According to Jaron Wiedmaier, Director for Russia, "This
market is still in its infancy but it has started up strong. The
supplies of tyres produced in Russia will allow us to become more
competitive and to strengthen our position on the Russian market."
To meet the requirements of the truck tyre market, Continental finalised
an "off-take" agreement for the delivery of truck tyres with NASTP, a
subsidiary of Tatneft. With this partnership, Continental intends to
secure its supplies to Russia with 200,000 tyres per year. Production of
this will be performed by the Nizhnekamsk All Steel Tire factory, which
has a production capacity of 1.2 million tyres per year. The factory,
which opened in December 2009,was built with the help of Continental,
which has delivered technologies and expertise.
With this agreement, the two entities expand their partnership.
"Continental Russia will receive Matador and Continental brand tyres
from Nizhnekamskshina, which will be produced in Tatarstan, with the
technology that we have sold in this factory," according to the Russian
management of the manufacturer. The agreement will enter into force in
January 2011.
Continental Russia will expect to make its sales of truck tyres increase
strongly, up to 280,000 in 2012, representing a tripling of volumes.
"Our new challenge will now be to convince Russian customers that the
products made in Russia are as good as those made in Germany or the
Czech Republic. Russian people still have a poor opinion of locally made tyres and we definitely want to change this perception for which there
is no real basis."
THE MARKET FIGURES: A SLOW BUT PROMISING RECOVERY
With almost 1,509 million cars sold during the first
ten months of 2010, according to AEB statistics, the market looks
optimistic. This concerns an increase of 22% over the same period in
2009. However, the increase was unevenly distributed between local and
Western brands. The market leader, Avtovaz sold 418,000 vehicles across
this period, showing an increase of 40% compared to the same period in
2009. Its sales have been strongly supported by the "cash for bangers"
scheme: nearly 80% of the 400,000 premium certificates issued have
already been used for the purchase of Avtovaz vehicles (see this issue).
Western brands have sold a whole 981,000 units compared to 850,000 for
the same period in 2009. The increase is more modest, at 15.4%. This is
difficult to compare with the results recorded before the crisis, up 36%
over the first ten months of 2008 compared to 2007, and up 64% in 2007
compared to 2006.
This rather weak upward trend is confirmed by the profits of some very
important brands present on the market. Chevrolet sold 91,000 units in
the first ten months of 2010, compared to 89,000 across the same period
in 2009, 199,000 in 2008 and 151,000 in 2007. Renault is doing better
than the others, showing an increase of 25% in 2010. The French
manufacturer has sold 75,000 units for the period in 2010, compared to
60,000 in 2009, 93,000 in 2008 and 80,000 in 2007. Hyundai: 69,000 for
the period in 2010, 59,000 in 2009, 171,000 in 2008 and 112,000 in 2007.
Ford has not recorded any significant recovery. It sold 70,000 for the
period in 2010, unchanged from 2009, compared to 155,000 in 2008 and
137,000 in 2007.
Three manufacturers buck this trend: Kia, Daewoo and Skoda. By
displaying sales of nearly 96,500 vehicles for the first eleven months
of 2010, Kia is the champion of growth with 55% more compared to the
same period in 2009. Daewoo sold almost 67,500 cars over the period,
which is 44% more than in 2009. Skoda sold around 41,500 cars over the
same period, which is 38% more than in 2009.
Good news has emerged towards the end of the year. If the growth in
sales was 22% for the first ten months of 2010, it is already 28% for
the first eleven months of 2010 compared to the same period in 2009.
Just in the month of November 2010, the growth in overall sales on the
car market is of an average of 80% compared to the same month in 2009.
Sales stood at 1,706 million units between January and November 2010.
They should be close to two million vehicles for the entire year, but
without quite reaching it. Consumers are clearly reverting to their
pre-crisis habits. The market could accelerate at the start of 2011.
The Automobile Manufacturers Committee of the
Association of European Businesses in Russia publishes the monthly
statistics for sales of cars and commercial vehicles, of all
manufacturers, Western and local, operating on Russian territory.
Without distinction, the statistics cover the sales of new vehicles
assembled on-site or imported.
www.aebrus.ru
A BILL AIMS TO DEMOLISH THE CUSTOMS BENEFITS FOR WESTERN MANUFACTURERS
The government continues to discuss a possible
modification of the terms of contracts for car assembly. Generally
signed for seven years, these contracts today allow Western
manufacturers to import parts and other components for their local
factories, taking advantage of customs preferences, with a rate of
between 0% and 5%. Several versions of the governmental bill have leaked
into the press, and clearly the ministers concerned, notably those for
Trade and Industry and for the Economy are not in agreement on the
terms. But the main points of the bill seem to have been decided.
The conditions of contracts signed require manufacturers to establish a
production of at least 25,000 cars per year, most having chosen a
configuration of between 30,000 and 120,000 vehicles per year. In the
new version, this constraint could be increased to 300,000 cars per
year. In addition, the legislature intends to impose the creation of an
entity of engine production, with a target of 200,000 engines produced
per year.
In the current wording, the manufacturers commit to steadily "localise"
the production of component parts, to reach a "localisation" rate of 30%
at five years, and 50% at seven years. In the future wording, the
localisation rate of 40% should be reached at four years, and 60% at six
years. It should be noted that today, the rate of 30% is rarely reached
in time, as the market lacks quality suppliers. Local suppliers being
unable to provide acceptable quality parts for assembly lines,
manufacturers are pushing their usual suppliers to establish themselves
in Russia. But they sometimes show reluctance when faced with
difficulties of establishment and in the absence of a guarantee of a
large number of orders.
Manufacturers already present have invested on average between 150 and
250 million dollars in their assembly factories in Russia. In the new
version, the government wishes to impose a minimum investment of 750
million dollars in the new establishments, and 500 million dollars in
the expansion of the site if it concerns the renewal of an existing
contract. This is in addition to the creation of a research and design
centre for new models directly in Russia.
Other clauses already planned or under discussion, all go in the same
direction. It involves opting for the regime of "liberal" entry which
has been granted to Western manufacturers for several years. It must be
said that the promoters of these contracts are no longer in government.
Notably the very liberal Guermann Greff, former economy minister, left
for the banking sector. The current team shows a much more protectionist
strategy. And brandishes its argument: the manufacturers have been able
to set themselves up, benefiting from different advantages, and they are
now able to pay a little bit more.
An ultimatum to Western manufacturers
With the new conditions of contracts for assembly, the government gives
an ultimatum to the Western manufacturers: move the design and a large
part of the production to Russia, or abandon the tax and customs
preferences. It is likely that most will choose this last option, having
not expected to rapidly multiply their on-site production by a factor of
four to six times. Renouncing the benefit of tax preferences will then
cause an increase in customs duties on imported components. From 0% to
5% today, these taxes would increase to 20% on average.
Ford, GM, Toyota, Nissan, Hyundai, VW-Skoda, PSA and Mitsubishi, already
in place, are among the manufacturers affected by the future
legislation. As well as Mazda which plans to establish itself and Suzuki
which halted its project, without completely renouncing it. Some
exceptions stand out. Renault in partnership with Avtovaz, with a
theoretical production capacity which greatly exceeds the new
requirement. And Fiat with its local partner Sollers, which just
introduced a project meeting these criteria (read about it in this
issue). Note that VW and Skoda are currently researching a proposal to
extend production in partnership with GAZ, which could place them among
the contenders to benefit from the new assembly contracts, fewer in
number of vehicles produced per year (read about it in this issue). In
all three cases, it concerns the three local leaders of the car industry
which could benefit from the tax advantage, up until then, granted to
Western manufacturers.
If the government seems determined to implement the new rules on the
agreements for car assembly, several political factors may still
influence their effective application. Notably, the entry of Russia to
the WTO, still awaited even if the deadlines are routinely rejected.
Faced with these uncertainties, a lobby within the government is pushing
for an accelerated application of the new rules. Most assembly
agreements in force have been signed between 2004 and 2007, and they
have not yet expired. Igor Shuvalov, Deputy Prime Minister, has recently
suggested to Western manufacturers that they voluntarily renounce the
application of existing agreements to sign agreements under the new
rules before the end of February 2011. This deadline is imposed by the
schedule of preparations for WTO entry. But the timing seems too tight
to encourage determination.
THE "CASH FOR BANGERS" SCHEME WILL BE RENEWED IN 2011
Initiated by the Russian government, the scheme to
support the local car industry by scrapping (see France-Russia
Automotive No.9) will be renewed next year. These results are considered
to be very positive. Nearly 200,000 car scrapping certificates were
issued between March and June 2010. And 150,000 additional certificates
were delivered between July and October 2010. Some 50,000 or so further
certificates should be delivered before the end of the year 2010. All
have strongly contributed to market growth in 2010, according to the
analysis of local agency Autostat.
Under this programme, motorists who scrap a vehicle of more than 10
years of age receive a certificate with a face value of around 1,500
dollars. This certificate can be redeemed against the purchase of a new
vehicle of a local or Western brand, assembled in Russia. The government
has established a list of vehicles whose purchase will allow the
certificate to be cashed in. It includes over 80 models from 22
manufacturers, and not only budget ones: Citroen C-Crosser, Peugeot 4007
and Mitsubishi Outlander have recently joined the list.
However, nearly 80% of certificates made out have been used to purchase
Avtovaz vehicles. And 7% of certificates have been used to purchase
Renault vehicles, primarily the Logan and Sandero models assembled at
Avtoframos in Moscow. Skoda, Ford and Chevrolet have also enjoyed the
following of motorists, but with lower shares.
The cash for bangers scheme cost around 730 million dollars in 2010.
Avtovaz is the largest beneficiary of the programme, its sales having
risen 40%. Nearly an additional 470 million dollars will be spent in
furtherance of it in 2011. It should ensure a further 7% of market
growth for new vehicles. The cash for bangers scheme should come to an
end in autumn 2011.
A LOCALLY DESIGNED HYBRID CAR ?
Two Russian companies have started building a car
with a hybrid engine. Together, Onexim and Yarovit have just presented
their plan for a locally designed economical vehicle. Few technical
details have filtered through on the project. Christened E-mobile, it
should work just as well on petrol as on LPG gas. Its dual engines would
also include an electric motor and batteries. The bodywork would be made
from composite materials. A prototype was presented to the press at the
start of December 2010.
A factory should begin construction in 2011, in the Togliatti region
near Avtovaz. The start of production is scheduled for 2012, at an
initial rate of 10,000 units per year. The partners have said that they
would like to invest almost 150 million Euros in this project.
The holding company Onexim specialises in steelwork with aluminium
factories, as well as in finance, media, etc. Its main shareholder,
Mikhaïl Prokhorov has been credited with a fortune of 13.4 billion by
Forbes magazine in 2010. This is the second greatest fortune in Russia.
Onexim has no known links with the automotive industry.
Originally specialised in the trade of agricultural products, Yarovit,
the holding company of businessman Alexander Biriukov, had already tried
the automotive industry by announcing a project to assemble trucks from
imported components under its own brand, Yarovit Motors, but without
completing it up until that point. The holding company has a small
industrial site in St. Petersburg.
There is no expertise in Russia for the design of cars with hybrid
engines. The only active research centre in saloon cars, that of Avtovaz,
shows a serious delay compared to Western trends in car design. It is
unlikely that a vehicle of this type can be mass produced or designed by
local industry in such short periods of time.
THE DECEPTION OF "GLONASS INSIDE"
The Russian government still hopes to impose the use
of the native GLONASS positioning system in navigators, including in the
on-board systems of cars that normally use GPS. Developed in the 80s,
GLONASS could never enforce itself for lack of funds to maintain the
orbit of the necessary number of satellites, in working order. Several
satellites were lost during a failed launch in December 2010.
Still, the government sticks to its course having invested more than two
billion dollars in the modernisation of GLONASS. And it intends to
legislate on the issue in late 2010 or early 2011, establishing a
customs barrier from 2012. At that time, imported positioning systems,
including those of vehicles and mobile phones that are not equipped with
the GLONASS receiver module in addition to GPS, could be subject to a
specific tax of 25%. The government will eventually impose an emergency
tracking system, called ERA-GLONASS, on all new vehicles. It may become
obligatory around 2014.
To meet the new demand, local producers are on the market for devices
with dual reception, GPS and GLONASS. We have just discovered that in
some of these models, the GLONASS chip was effectively present, fixed to
the inside of the GPS box with simple sellotape, not connected to the
circuits. With the GPS system ensuring positioning, it was impossible to
realise the deception without dismounting the appliance. But in formal
terms, the "GLONASS inside" obligation was apparently satisfied.
IN BRIEF
Jaguar has introduced a new model in Russia:
the XJ Sentinel is equipped with all the usual comforts of the brand,
but in addition it has a bullet-proof and explosion-proof armour capable
of withstanding a load equivalent to 15 kilograms of TNT. A shock
argument addressed to entrepreneurs and local officials, very concerned
for their personal safety. Jaguar sold 696 cars in the first ten months
of 2010, compared to 812 for the same period in 2009.
Citroen has been recognised as the best brand on the Russian
market for supporting its dealers at the point of sale, in a survey of
250 local dealers representing 22 brands, conducted by the firm Ernst &
Young. Peugeot has received acclaim for the quality of its
financial relationships with dealers. But it is Audi that has won
the most votes from traders, on all aspects of the relationship between
the manufacturer and its dealers. Volvo and Nissan are
also mentioned in this survey.
More than 50% of the fleet of 33 million cars in Russia are now of
Western brands, according to the agency Autostat. In Moscow the
share of Western brands stands at 62.7%, and in St Petersburg, at 58%.
Conversely, in poor areas, the share of locally designed models is
higher. In Togliatti, the town of the Avtovaz factory, the share of Lada
brushes two thirds of the fleet.
The Spanish Grupo Antolin has launched a components factory,
mainly for interior components, near St. Petersburg. The factory should
become operational in 2011. The investment stands at 30 million Euros.
The tyre factory of Finnish company Nokian Tyres at Vsevolojsk,
near St. Petersburg, continues to grow. Seven production lines, each
with a capacity of one million tyres, are already operational, and the
eighth should shortly become so. Two other lines should be established
in 2011, with a capacity of 1.5 million tyres each. Nokian has planned
to invest 50 million Euros in its equity at this last stage of
expansion, in addition to the 400 million Euros already invested in the
factory. The tyre manufacturer aims for a manufacturing capacity of
eleven million tyres per year. Its Russian production is from now on
exported to around twenty countries. Its distribution network Vianor
has over 300 sales outlets in nearly 160 Russian towns. This is more
than a third of its worldwide network of 673 sales outlets in June 2010.
Michelin planned to invest more than 10 million Euros in the
construction of a recapping workshop for truck tyres, at its Davidovo
site, 90km from Moscow. The factory of the French tyre manufacturer
makes car tyres under the Michelin, BFGoodrick and Kleber brands. Its
current capacity of nearly 2 million tyres per year should be increased
to 4 million, as soon as market conditions allow it.
The last Moscow International Automobile Salon which was held at
the end of August 2010 at the Crocus Expo exhibition centre, in
conjunction with the Interauto exhibition, showed all the signs
of recovery of the automotive market. Nearly 600 vehicles were on
display. The fair welcomed more than a million visitors. This was the
same level of attendance as in 2006, showing a clearly positive trend.
AGENDA
Tyre and Rubber Expo: from 1 to 4 March 2011, at
the Expocenter in Moscow
Over 200 manufacturers will introduce their
range of tyres for all types of vehicle, rubber parts for the automotive
industry, raw materials and components for the tyre industry, as well as
the parts for production, recapping, balancing etc. The organisers are
expecting 7,000 trade visitors.
www.rubber-expo.ru
The Russian Automotive
Industry : from 15 to 17 March 2011 at Moscow
An international conference organised by the Adam Smith Institute.
Interventions are planned from the main players from the local and
international industry. You can meat the cream of the leaders in Russian
automobile industry and their purchasing directors.
www.adamsmithconferences.com
Automechanika : from 24 to
27 August 2011 at Moscow
Automotive equipment, car accessories and vehicle maintenance.
mims.ru
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