Cooperation: panorama of car industry

Origin: Seen again Objective is / autumn, 2003

The motorised sector is, as in most industrial countries, a key sector of Russian economy. The fleet of particular cars is estimated at a little more than 20 million units (that is almost 150 vehicles for 1000 inhabitants, to compare 500 in about in Western Europe and 300 in Poland and Republic Czech) and doubled transition since the beginning. The medium age is of 8 years, with 30 % of vehicles being more than 10 years old. In 2002, the market is estimated at about 1,6 million personal vehicles: in the order of 1 million vehicles for the Russian constructors (principally AvtoVAZ), a little more than 100 000 imported vehicles (figure in strong growth, with important market share of the Asiatic constructors), and about 500 000 imported vehicles of occasion. The Russian vehicles, which suffer from serious quality problems and from a technological delay (the range was not practically renewed for 10 years) are in competition with the foreign vehicles of occasion on the segment 3 000 6 000 dollars.

The new foreign vehicles are sold from 6 000 dollars (Korean in their simplest versions), and the wholesale trade of sales is made for vehicles price of which stretches up to 12 000 dollars (but there is naturally an important alcove for upmarket vehicles).

3 PLANS OF FOREIGN CONSTRUCTORS

Ford already produces Focus next to St. Petersburg for a stretchy capacity of 25 000 vehicles in 100 000.

Renault will produce from the spring, 2005 its vehicle X90 for the emergent markets in Moscow (capacity of 60 000 vehicles).

GM (general Motors) produces, in partnership with AvtoVAZ (Toggliatti) and with a financial participation of the EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT, a version changed by the 4 4 Niva (capacity of 75 000 vehicles), and will produce from 2004 Opel Astra (50 000 envisaged units).

There are besides several agreements of licences. Cars Kia and BMW are put together by the society Avtotor in Kaliningrad, and Hyundai and of Berlingo Citroen is put together in Taganrog by Doninvest. On the other hand, Kia (puts Hyundai together) has just signed with Izhmash, who already produces in the order of 100 000 Lada in Izhevsk, a plan of 120 000 vehicles (models Spectra). The first vehicles have to go out of lines by the end on 2004. Finally, other constructors as Volkswagen and Toyota would be also interested by an industrial establishment in Russia.

LOSS OF COMPETITIVENESS OF THE SECTOR

For soon 2 years, the Russian constructors begin meeting in a difficult situation, as testifies it the fall of sales of 10 % in 2002. On one hand, while the difference in quality with the foreign vehicles remains very important, the price difference is fast reduced: increase of the production costs of the Russian constructors (raw materials, energy, development of new models as Kalina for AvtoVAZ), development of competition between the foreign constructors, set up of true networks of distribution for the foreign vehicles, net reduction of the costs of maintenance (who were often perceptible as a risk factor by the Russian clients).

On the other hand, the importance of distance in price for the consumer strives itself to diminish with the development of the bank credit (notably on the initiative of the constructors), and with the increase in the purchasing power of the Russian consumers.

AvtoVAZ, who represents more than 80 % Russian productions, tries to react by going up in range and by transferring the production of models the most ancient poetries of other plants (notably Izhmash), but this day it is not although clear that this society will have the capacity to set up only a modern production of vehicles in big series according to classical criteria Costs Delays - Quality.

To attenuate the loss of competitiveness of Russian car industry, the government took some measures of which the most visible in summer the strong increase of customs on the imported vehicles of occasion.

However, we think that this measure will have no spectacular effect, because for all above-mentioned reasons, the choice of the consumers (not only the middle class) is going to come more and more towards new foreign vehicles in the segment 6 000-10 000 dollars.

It is then possible to think that the Russian government will try to speed up the establishment of the foreign constructors in Russia also by augmenting customs on the new vehicles (which are 25 % + a tax on motorisation) today as made it most Asiatic countries (from 40 % to 60 % in countries as China and India). Such customs policy should then be accompanied by a real aiming industrial policy in:
- make easier the establishment of the foreign constructors, and especially their subcontractors, notably by partnerships with Russian firms.
- to support efforts of AvtoVAZ (the Russian government should besides draw inspiration from experiments of other countries as China).
- support the small independent Russian constructors who will be able to remain on some alcoves (for example the toy car Oka sold for about 2 500 dollars, or of 4 4 of UAZ).

OPPORTUNITIES FOR THE FRENCH FIRMS:

Big stakes of the already present foreign constructors or who are going to establish themselves in Russia, but also from AvtoVAZ with its new vehicles, will be the constitution of a dense cloth of local subcontractors (local integration), the only solution to set up a competitive car industry. Indeed, this cloth is almost nonexistent today.

On one hand the Russian constructors were historically very integrated (up to 80 % added values, to compare with about 20 % at the foreign constructors). On the other hand, the historical Russian subcontractors seem to have real difficulties adaptation, and there are still very few experiments of establishment of submedicated foreigners.

And yet the market of the constructors who will have Western requirements in suppliers' terms could attain 500 000 vehicles before 3-4 years, notably for those who are already present (Renault, Ford and GM), and for those who are going to establish themselves in close future (Kia, Toyota, Volkswagen), and finally AvtoVAZ for its new vehicles (Kalina).

There is therefore a tremendous opportunity as the subcontractors and the French equipment manufacturers. Certainly, these last are more and more solicited by the constructors worldwide: in China, for already some years, in Central Europe (Republic Czech, Slovakia, but also Romania with Dacia Renault), in Iran (with Renault and PSA), in Turkey, etc.

RUSSIA BENEFITS FROM STRONG TRUMPS TO ENTICE:

Supported growth, raises the purchasing power and the net reduction of macroeconomic risks, wages which are going to remain among the weakest (almost comparable to those of Romania) during still of many years (while PECO will catch fast the levels of European wages).

a motorised market importing, both for the 1st mounting and for spare parts, rooms of the not wage costs among the weakest (energy, metals, etc.), who will return competitive export, incontestable potential R&D, geographical nearness (Ford so installed his plant near Europe).

While a green-field establishment is indeed the best solution for the big equipment manufacturers, SMES subcontractors probably have interest in passing by a local partnership. It seems to us important to note that the Russian partner should not willy-nilly be searched among the classical firms of the motorised sector (even of should not), because quality of management seems much more important than know-how as key factor of success. There are indeed some examples of societies which positioned on the motorised sector very recently successfully (as Interkoss-IV which gives rooms smashed up to Ford's plant). We also recommend to the French SMES to set joint representations up.

Article writes by Eric Louvert

Origin: Seen again Objective is / autumn, 2003

Written by admin one June 21st, on 2006 with no comments.
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