France-Russia Automotive



N° 02


Les Lettres du Fil

Published by Agence du Fil SARL@2007

Price : 10 euros


Français     English     Русский

the benefits of Decree 166  
the costs depend on the region  
for services  
the Moscow factory will be enlarged  
start to appear  
AV-TO network is growing fast  
that manufacture locally  
unevenly distributed across the country  
is a new Severstalavto owner  
The latest news of the market  
The next events of the automotive market  

Dear Reader,

This second edition of Auto Franco-Russe contains the opinions of several experts on the development of car assembly in Russia. The head of an auto centre shares his views on the aftermarket. You will also find news from the component suppliers who are entering this market.
To help you to understand this world, we can now offer you a ‘Panorama of car manufacturers in Russia'. This exhaustive catalogue was updated in 2007 and contains all the players in the national car assembly sector.
www.autofrancorusse.fr to view a copy. Bonne lecture!

Alexis Nekrassov, Chief redactor








The special economic areas and Decree 166 regulating assembly have contributed to the arrival of foreign manufacturers. They are now being rewarded with record sales.


For a number of years the players in this market have been announcing the renaissance of the Russian car industry but it has been slow in coming. It now seems as if finally not only has the train started but it’s a high speed express!
The demand for new cars grew by 20% in Russia in 2006. It is showing exponential growth with two million vehicles sold in 2006 which represents 20% growth. According to Ernst & Young, sales of western brands assembled in Russia grew by 80% and now account for 13% of total sales. New car imports have grown by 60% to about 750,000 units whilst Russian produced vehicles have dropped from 46% to 37% of total sales.
In addition to the quantities, the structure of the demand has changed: Russian owners are becoming more and more concerned with quality and image when buying a car, with the price being a secondary consideration. Consequently, according to the Ernst & Young study, greatest growth in Russia has been seen in the US$ 20,000-25,000 segment followed by the US$ 10,000-15,000 and US$ 25,000-30,000 segments.

The benefits of the economic areas and Decree 166

Several of the various special economic areas developed in Russia have developed specialised car sectors. The companies that have set up in these areas benefit from an exemption from customs duties for components that are imported then re-exported and also from a reduced tax rate for imported components that are incorporated into products that are sold within Russia. There are other benefits linked to these economic areas such as reduced taxation rates for corporation tax and on investments.
However, the critical condition for the development of the Russian car industry is Decree 166 of April 22nd 2005 which included the virtual exemption from customs duty (from 0 to 5%) for any manufacturer committed to a project for a local production plant with a capacity of at least 25,000 vehicles per year. The condition that has to be met to qualify for this condition is to have local content represent 50% of the overall value within 5 years. In other words, 50% of the production costs have to be incurred in Russia which is easier said than done.... The investor has to commit to starting local welding, painting and vehicle assembly plants at the same time.
The impact of Decree 166 has been considerable and almost immediate: a few weeks after it was signed, the Korean, Kia, announced it was building a car production factory in partnership with Izhavto that would assemble vehicles. Then it was the Ford factory at Vsevolojsk in the Saint Petersburg region that quickly became an assembly plant. Since then, Severstalavto has started producing the SsangYong four-wheel drive and will soon start with Fiat models in its Alabouga factories; Renault-AvtoFramos produced almost 50,000 Logans in 2006, etc.
By 2010 General Motors, Nissan, Toyota and Volkswagen, to mention only a few, will produce hundreds of thousand vehicles by assembling them in Russia. We forecast that production from the seven new car production plants for global brands planned for Russia between 2006 and 2009 will take foreign manufacturers sales to over one million locally produced vehicles by 2010 and to 1.2 million by 2012.

Foreign manufacturers with local production are rubbing their hands in delight.

The 10th Adam Smith conference on the Russian automobile industry took place against a backdrop of quiet euphoria in March 2007 in Moscow. One could detect in the Marriott's rooms that the foreign manufacturers who had taken the risk of investing in building plants had certainly won their bet.
Renault Avtoframos, a joint venture between Renault and the City of Moscow, sold 72,484 vehicles in 2006, including 49,323 Logans that were produced locally, which is a growth rate of 148% compared to 2005. Russia has become Renaults 9th biggest market in the world. Renault Avtoframos has achieved this by developing a network of 71 distributors and 91 sales outlets covering 55 cities. Anyone who knows the country will recognise that this is a titanic task.
The manufacturer forecasts sales will exceed 100,000 vehicles per year in Russia by 2009. It also intends to increase production capacity to 160,000 vehicles by 2009 and the new Logan models will be produced there, according to a heads of agreement signed with the City of Moscow. The investment will cost 150 million dollars and an extra 1,000 employees will be recruited.
Jean-Michel Jalinier, Renault Avtoframos managing director, believes it is essential that as much production is located in Russia as possible in order to become established in the country. He warns against the belief that Russia will be a 'low cost' country: "Ex-works parts are 5% more expensive to produce here than in Romania. However, we want to succeed in Russia so we purchase locally".
Ford, who likes to remind us that it completed the first car factory in Russia in 1932, is the other manufacturer who has been rewarded for its efforts in the country: only four years after it opened the first fully foreign owned factory near Saint Petersburg, the company had a sales of 2 billion dollars in Russia in 2006, compared to only 175 million dollars in 2000.
The Ford factory at Saint Petersburg is one of the company's most complex in Europe: it produces four different Focus models 6 engine types, 3 transmissions, 4 series and with hundreds of options available. Ford will continue its investments in Russia in 2007 with the construction of a spare parts warehouse and training centre at Moscow.
Numerous manufacturers have taken advantage of the opportunity provided by Decree 166 to decide on significant investments for production capacity in Russia, both on their own or with Russian partners: GM (40,000 units at Kaliningrad and 25,000 at Saint Petersburg), Toyota and Nissan (50,000 units for each of them at Saint Petersburg), Fiat (40,000 vehicles per year in partnership with Severstalavto), etc.
The Russians appear to have abandoned the idea that they would like to see the Russian automobile industry rise from its ashes under its own strength without inputs from western players and replaced it with a more pragmatic strategy in partnership with foreign manufacturers who provide finance, technology and process methods in exchange for access to the Russian cake.
This change can not be better illustrated by the sale of Severstalavto by the nationalist, Alexei Mordachov, (who had promoted the locally designed Patriot four-wheel drive) to Vadim Shvetzov, who is much more open to partnerships with westerners.

The need for locally produced spare parts is becoming urgent.

Whist it is easy to agree to produce 25,000 vehicles per year with 50% of their overall value sourced in Russia, respecting this commitment would appear to be a real challenge. The experience of the players already present in the country shows that Russian car components suppliers are not usually capable of meeting international quality standards at costs practiced in the west, nor can they guarantee the required quantities. This is due in part to the fact that each of them has a virtually exclusive relationship with their previous clients and never really had to worry about quality until recently.
Gérard Cohadier, Purchasing director at Renault AvtoFramos, confirms that out of thirty three Russian producers that were audited, none obtained the A level, only two reached the B level, ten were at the C level and one got a D… "We are obliged to source 50% of the Logan's value quickly. This means we are looking for solutions that will allow us to meet this target. We are planning to combine Renault's and Nissan's purchases and form a group with other manufacturers... We have set up the means that are needed to provide a high level of support to the local producers who commit to us".
The development of automobile production in Russia, which is mainly by foreign brands setting up assembly plants, is now confronted with a shortfall of components whilst the foreign manufacturers’ usual suppliers have shown, until recently, little interest in setting up in Russia.
This situation is in the process of changing. Several companies are currently creating partnerships or looking at starting their own factories under favourable fiscal terms that will produce locally to supply several manufacturers at the same time. Setting up in Russia is now an issue for western suppliers.

Alain Bastid


back to contents

  YOUR PARTNER TO EXPLORE RUSSIAN MARKETS OPPORTUNITIES : +33 1 47 63 18 18  www.square-strategy.com  



    Production costs depend very much on the region according to Ivan Bonchev, responsible for the Automotive Sector for Ernst & Young in Russia    

France-Russia Automotive: What is the state of the market for car components in Russia?

Ivan Bonchev: This market is generating a lot of interest. There were about 200 local component suppliers and 100 foreigners at the last specialist conference at St Petersburg. There are not enough quality suppliers in Russia. This explains why the customs duty has been reduced for everyone who imports car components. Even the Russian manufacturer Avtovaz can now import components duty free. The same applies to IzhAvto who assemble the Kia, or for SeverstalAvto. For the moment its importation because we can not yet build factories as long as the demand for components has not reached critical mass.
At the same time Magna has several ongoing projects in Russia. Valéo, who manufacture cables under license near Moscow (Itelma – Editor's note), are also trying to complete a joint venture. Faurecia manufactures bumpers in partnership for Renault. The manufacturers will progressively ask their suppliers to set up in Russia. The Renault-Nissan alliance has probably more room to manoeuvre when it comes to getting suppliers to come because they can promise bigger volumes between them.

- Is Russia a low cost production country?

- Low cost is largely a myth. The costs depend on the region. Moscow or St Petersburg are expensive regions both in terms of land and labour. What's more, the value of the aids provided by the regions, such as St Petersburg or elsewhere, is not very high and only for a limited period, e.g. temporary corporate tax reductions or exonerations - in any case, there is no profit during the first years. When deciding where to set up, it is much more important to consider logistics facilities, existing services, labour that is not too expensive and, above all, local policies that are favourable to foreign investors.

- Do the free economic areas satisfy these criteria?

- The free areas are interesting for outsourcing, for re-exporting the production. The St Petersburg free area is a so-called 'technological ' area and the benefits don't concern mass production. On the other hand the Alabouga area at Tatarstan is an industrial area. It is located near the Kamaz car factory and the SeverstalAvto plant that is going to assemble the Fiat Ducato and the Ssanyoung. It would be interesting to set up at Alabouga if you intend to supply these factories. Mr. Shvetsov, the new head of SeverstalAvto is very oriented towards international partnerships. They have already started producing bodywork parts with a British company (Stadco – Editor's note).

- Does the spare parts sector have the same potential as the factories?

- The spare parts market is currently penalised by counterfeit products, grey imports and customs advantages. Currently, Russian businessmen prefer to invest in car sales rather then the aftermarket because margins are higher. There is no national network of service centres because half the fleet is still accounted for by vehicles that are more than ten years old. They are mainly locally designed cars where the owners tend to have a low cost approach. They buy parts and fit them themselves or they use independent tradesmen. However, the market has great potential. Imported and locally assembled cars from international manufacturers have a guarantee and after sales service that lasts for up to three years with the manufacturer's network. With the increase in the number of vehicles that are more than three years old, the demand for national networks will increase.


l Who is Ivan Bonchev?


He is responsible for the automotive sector for Ernst & Young in Russia which offers assistance, searches for partnerships including regional aids, advises on the choice of company structures, fiscal optimisation, etc.
Mr.Bonchev is also vice-president of the Automotive Components commission in the Association of European Businesses, which is a lobbying body that represents the interests of component manufacturers and the aftermarket.


back to contents




Three questions for Gaïrat Salimov, industry sector analyst for the Troïka Dialog investment bank.


France-Russia Automotive: What does the future hold for the Russian car market?

Gaïrat Salimov: The market will stabilise at about 2.5 million cars per year. However production capacity will be closer to 3 million.

- Currently, it’s a market of imports but you seem to be suggesting that it wall have export capacity?

- That's right. Currently all the transport channels related to importing are overloaded. Whether it’s via Finland or Kaliningrad, you will find car transporters on all the roads. Coming from Finland via St Petersburg, it can take up to three days for a car transporter to cover the 700 km between St Petersburg and Moscow. However, I think that it will be the inverse in ten years time, we will see export flows increase. It is interesting to produce a single model in large volumes, including for export. Then import the other models for the Russian market. I think that in the long-term global manufacturers will move most of the production to China. However their 'reaction' capacity will be located in Russia and Eastern Europe.

- Despite the booming car market, the service sector looks to be almost empty at the moment?

- In reality there is the potential to develop distribution and service networks. The new vehicle market is bigger than the second-hand market and should be worth forty billion dollars in a few years. This means there will be a potential of several billion dollars for services if we use a 7 - 10% ratio or new car sales.
There are currently virtually no national players in this segment. It is mainly being developed by independents. It is considerably easier for a local player to find the land and make the necessary arrangements with the local authorities. There is doubtlessly a role for international companies that want to build a network of centres in Russia whilst having access to western finance.


l Who is Gaïrat Salimov?


He is an industrial sector analyst and associate partner in the Troïka Dialog investment bank who is a recognised expert on the automobile market. The bank is specialised in stock consolidation. Its specialist can also provide their skills to international companies in the field of consulting, partner selection and searching for land.


back to contents




As the project with Avtovaz has not gone ahead, the Moscow factory will be rapidly enlarged.


After selling 50,000 Logans in 2006, Renault Avtoframos intends to double its production capacity to 160,000 vehicles by 2009-10. The company has just launched its factory extension project on an adjacent plot of land that used to be a car plant. This land was sold by auction in December 2006 in confused circumstances, as is often the case with Russian property deals. Several potential buyers claim that they were excluded from the auction. Avtoframos did not participate in the deal. At the end of December, following a short legal battle, the purchaser, Metropol, who claimed to be a property investment company, announced that it wanted to sell part of the land (over 50 Ha) next to the Avtoframos factory to the City of Moscow for a price of almost 100 million euros. Metropol kept the other part of land, which is separated from the factory by a railway line and highway, for a property development. The Moscow Town Hall has already announced that it wants to allocate part of the newly acquired land to the project to enlarge the AvtoFramos factory in which it is a shareholder. The City has earmarked the other part of the land for component manufacturers (no names have yet mentioned so far).
For a moment this project seemed to be under threat. According to AvtoFramos's European suppliers at the beginning of March, Renault's purchase department was not able to give them a delivery address for advance orders. In other words, it was not certain the factory would stay on the Moscow site. When questioned, the Avtoframos management denied that there is any project to relocate. The explanation was more complicated: Renault was negotiating a partnership with Avtotaz. Its scope was not made public but Avtotaz's new owners were seeking to replace GM as it was probable that they would soon leave the joint venture. However, Avtovaz finally preferred a partnership with the Canadian, Magna where a Russian holding company had just entered the capital. Then Renault finalised its plans for extending the Moscow facility.
The Avtoframos factory has already cost about 250 million euros. The manufacturer must provide another 150 million euros for the extension project. Clearly, the people at Renault have not underestimated the size of the Russian market.


back to contents




An independent confederation is starting to become important in the automobile industry.


The management at the Ford plant at Vsevolozhsk gave in to worker's demands after a twenty four hours strike in February 2007. This factory in the St Petersburg region assembles the Ford Focus which is very popular in the Russian market. The strikers demanded that a group agreement be negotiated that would limit the use of external labour, provide employment protection and commit management to future salary increases. The strike was called by an internal union. "This industrial action is limited to the company, it has no external roots" affirmed local sources. "This was not the first strike at Ford; there was another in 2005 and there will undoubtedly be others". The stoppage at the factory resulted in lost profits equal to 303 cars, according to the management.
Two union confederations are now present in the field. The FNPR represents over forty unions which have 28 million members. Its reputation is that of a confederation that dates from the communist era and is very close to the Poutin government.
In the automobile sector, an independent trade union confederation is causing problems for the FNPR. Its name: the MPRA, also known as 'Edinstvo'. The MPRA organised the strike at Ford they are also in dispute with the GM-Avtovaz management at Togliatti where a dismissed union MPRA member has just won his case before the courts. It should be noted that regional governments do not encourage independent trade unions but do not openly oppose their activities.
The MPRA has just announced that a union has been created in Renault-Avtoframos. Ford union members have also travelled from Vsevolojskto Moscow to assist their colleagues. The local Renault management has behaved wisely. They recognised the new trade union as being representative of company employees at the end of May and proposed to start regular meetings with it.


back to contents




The planned membership of the WTO will change the rules.


The Economy Minister has announced that he will no longer approve new agreements for automobile assembly with fiscal and customs benefits after June 2007. The reason given is the planned entry of Russia into the WTO and the incompatibility of the selective customs benefits given to some companies with the main principles of the WTO. However, it seems that there is also a problem with maintaining the benefits that have already been approved. The Minister is looking at the possibility of providing the same benefits to every company involved for a period of six to eight years after Russia becomes a member of the WTO.
It is worth noting that the date of entry is regularly postponed because Russia does not meet the WTO rules especially on copyright, combating software piracy, etc. The latest news is that membership will not be before 2008.


back to contents




Russian - Ukrainian disputes are handicapping the holding.


The Ukrainian holding, Bogdan, planned to build an assembly plant at Borsk in the Nijni region. Its forecast production was 160,000 cars per year, mainly Chevrolet Lanos and Aveo, and 6,000 Bogdan-Isuzu buses. Bogdan wanted to invest up to 470 million dollars in the plant to which they were ready to add another 300 million to increase car component production in the region. It was one of the largest car development projects in Russia in terms of quantities. However; poor relations between Russia and Ukraine have handicapped the Ukrainian company. No contract had been signed by June 2007.


back to contents




The banks are changing their proposals.


Almost 274,000 car purchase loans were agreed by the sixty main Russian banks during the first half of 2006 which is 2.2 x the number for the same period in 2005, according to the RBC agency. The banks have made considerable changes to their proposals especially by reducing the minimum acceptable salary for a car loan to a monthly revenue of 10,000 roubles (about 333 dollars). The average monthly salary in Russia is almost 11,275 roubles equivalent to 375 dollars (November 2006) so almost 70% of workers can now obtain a loan. At the same time, the average value of a loan has increased to 12,400 dollars, compared to 10,000 dollars the previous year. This corresponds to an increased consumption of 46.2% in terms of vehicles purchased in the 12,000 to18,000 dollar price bracket. 26.5% of purchases were for vehicles costing more than 12,000 dollars.


back to contents






Alexandre Trindine, general manager of the AV-TO auto centres owned by tyre manufacturer Amtel, wants to develop auto centres on supermarket car parks and mini-centres at the bottom of buildings.


France-Russia Automotive: What is your analysis of the Russian aftermarket?

Alexandre Trindine: It is very competitive on all sides, starting from the organised trade and extending to open air markets… Tyre suppliers also see us as competitors. The market is not transparent. The prices charged by our competitors can be as much as 40% lower than ours for some products. This applies to tyres and also to spare parts. Prices are often 30 - 40% lower than offered by the dealerships. This is the effect of 'grey' imports and also working with very small margins.
The same applies to our services: any mechanic can fit tyres in his garage. Recently the State and the City of Moscow have been trying to regulate the market and require that all trades people are certified. There is a movement towards a civilised market. However, it will take another three or four years and several laws and regulations before we get there. What's more, there is currently no association that represents the interests of our sector. Undoubtedly, there are far too many internal disputes that prevent us from uniting.

- Is there a big difference between the markets in the capital and the regions?

- In Moscow, the main demand is for parts for foreign cars. But we don’t have accurate information on the brands and models. One can not rely on the official statistics for vehicles in circulation. Firstly, because the data comes from a database stolen from the police, one does not know by whom, when or under what circumstances. Secondly, cars often change region but are not re-registered. In the regions, it's even more complicated. Parts are only available by order. Sometimes, they are even imported against an order.

- You have just opened an AV-TO centre at Moscow that is bigger than previous centres. What's its purpose?

- This centre is a pilot centre. Our objective is to continue our growth but we will now build centres, rather than purchasing centres here and there where we may feel a bit confined. Our future centres should be 800 - 1200 m² with 8 - 12 workstations.

- Will these centres offer your mother company's products in preference?

- We are owned by the tyre maker, Amtel, and its brand is well-known, 70% recognition in the countryside and up to 80% in Moscow. However, we are not linked to a brand. Amtel and Vredestein tyres are only 25% of our sales in both value and volume. In addition to tyres, our auto centres sell discs, accessories, cleaning products and spare parts.

- What are AV-TO's growth objectives?

- To reach retail sales of 2.5 million tyres per year, we will need at least 180 centres. We want to become the leading national network of service centres with 200 - 300 centres. They will be organised in regional business units. The regional entity will deal with retail sales, distribution and logistics. The regional director will decide whether or not to obtain supplies centrally at the price negotiated by central buyers or to buy from local distributors. This can reduce the logistics risks. We regularly check to see if there are benefits from decentralised purchasing.

- Where do the local distributors obtain their stocks?

- That depends on the products and the brands... The major tyre companies import their products for the Russian market themselves. However, for products from Korea, China and elsewhere, the route can be different, e.g. Dunlop tyres manufactured in Japan are often bought in Dubai.

- What is the purpose of your agreement with the French Point S network?

- Our AV-TO network is only growing through fully owned centres. Centres that want to take advantage of our purchasing power but stay independent can take out a Point S franchise. We believe that this network will contain 30 - 50 centres by the end of 2007.

- What is your priority for developing the network?

- I think that in the future the spare parts prices will fall whilst labour costs increase. This means we will try and increase the profits from labour and services. There are traffic jams in the main cities and people waste a lot of time going to an auto centre. We are going to try and develop mini-centres at the bottom of the buildings in the city's 'dormitory quarters'. We will also offer cleaning which is a service for which there is high demand.
There are tyre fitting centres on Auchan car parks in France. Why not in Russia? We are going to suggest this project to the leading supermarket chains such as Metro or Ikea for their Mega shopping centres, etc.

- Your concept makes one think of auto centres like Speedy - and Speedy is looking at entering the Russian market…

- The market is large; there is room for several of us. However, we are not trying to copy the Speedy example. We will be more like the German, ATU, or Canadian Tires. The difference is that we will make quite a lot of premium sales. Our foreign visitors are surprised when they see that our clients also drive BMW and Porsche.


l What is AV-TO?
A network of auto centres owned by the Russian tyre manufacturer Amtel. It was created to maximise sales of its own products as wholesaler and distributor margins are reputed to be high in Russia. The commercial network was developed by purchasing two companies, RosShinMaster and part of the Sever Avto network at Moscow, which provided 34 sales outlets. AV-TO now employ 1,200 people in nearly 120 centres split into 18 regional networks and independent companies. It had sales worth 230 million dollars in 2006. AV-TO centres are present in a dozen cities (17 cities if we include the distribution business). In 2006, AV-TO bought MegaShina, a tyre distributor from Nijni Novgorod, and PigMa, a spare parts wholesaler, which has added their respective skills to those already present in the network.


back to contents






Developing factories in Russia and neighbouring countries appears to help the penetration of car brands in Russia. This is the conclusion of the latest statistics from the Automobile Manufacturers Committee of the Association of European Businesses at Moscow. According to the Association, the Ford Focus was the best selling car in Russia during the first five months of 2007: 38,102 cars sold. Renault Logan is in second place with 24,560 cars. They are followed by Chevrolet Lanos (21,485), Toyota Corolla (19,734) and Chevrolet Niva (18 579).
A closer look at the data shows that three of the top five models are locally manufactured: the Focus is assembled at Vsevolojsk, the Logan by Avtoframos at Moscow and the Chevrolet Niva by GM-Avtovaz at Togliatti. The Chevrolet Lanos is assembled in Ukraine. The next models in the ranking confirm the trend: the Daewoo Nexia made in Uzbekistan and, to be exhaustive, the Hyundai Accent, made in the Tagaz factory in southern Russia, sold 16,707 examples and is ninth in the sales rankings.
Seventh, eighth and tenth place are, in order, held by the Ford Fusion, Mitsubishi Lancer and Chevrolet Lacetti.


back to contents




The car fleet is very unevenly distributed across the country. According to data published in the press, Moscow had 253 cars per 1,000 people in 2006. This figure has doubled in less than ten years as the capital's monstrous traffic jams confirm. The Moscow region had 241 cars per 1,000 people.
The frontier regions, Kamchatka and Sakhalin in the far east and the Kaliningrad enclave at Russia's western point have 245 - 268 cars per 1,000 people. The fleet consists mainly of second hand cars imported directly from neighbouring countries: Japan for Kamchatka and Sakhalin (with right hand drive), Poland and Germany for Kaliningrad.
Residents of St Petersburg, Russia's second capital, and the Tyumen oil-producing region, have 228 cars per 1,000 people.
The cities of Samara on the Volga, Krasnodar in southern Russia or Magadan, capital of a gold-rich region in Siberia, all have over 200 cars per 1,000 people.
These figures are published regularly but do not provide a full picture of the market. Many of the cars registered in the oil-producing regions such as Tyumen are in reality being used in Moscow where the sector's company head offices are found.
This uneven distribution of the fleet across the country must be considered when evaluating the national coverage of a potential Russian partner. The level geographical coverage is not relevant on its own because 70 - 75% geographic coverage provides virtually national coverage of the market. Some distant areas have few cars. The fleet mainly consists of locally designed four wheel drives due to the absence of quality roads. Consequently, two thirds of Siberia creates almost no demand for automobile services.


back to contents




The official photo


Following his purchase of Severstalavto at the start of 2007, Vadim Alexandrovitch Shvetsov has become the new star of the Russian automobile industry.


The forty-year old businessman likes to say that he learnt everything from working with the steel magnate, Alexeï Mordachov. The two businessmen grew up at Tcherepovets a city in northern Russia built around the metallurgy plant owned by Severstal, the country's second largest steel producer. Shvetsov ran the trading company 'Severstal-Invest' from 1993 to 1997 which was an intermediate used for purchasing 'Severstal' shares. Eventually, the shares accumulated by the company were sufficient for Mordachov to take control of the company. Shvetsov became sales director for 'Severstal' in 1997 and was responsible for creating a system of sales for the internal and external markets.
Shvetsov became Mordachov's deputy in 2001. Shortly after, he took charge of the 'Severstal-Avto' group. The group had been set up by Mordachov to block his rival, the businessman Oleg Deripaska, who had just bought the GAZ car plant and consisted of the UAZ car factory and the ZMZ engine factory. The trucks produced by GAZ used engines made by ZMZ. Severstal-Avto became a source of pressure for Mordashov. However UAZ and ZMZ were in poor condition. Shvetsov was obliged to reorganise the production. According to him, he had 'never previously found a business quite so interesting'. The group achieved a profitability of 15% in 2004 and still, today, remains the most financially successful Russian company. Shvetsov bought the group that he had created from Mordachov in 2007 and now owns 58% of it. He had to sell his shares in 'Severstal' and other metal sector companies to buy the group. He is now the undisputed head of 'Severstal-Avto'.

Western management style

Shvetsov tries to use western management techniques that he learnt at Northumberland University at Newcastle in the United Kingdom where he studied for an MBA. All Mordachov's senior management has been to this school. In order to better organise production, Shvetsov works with specialised foreign consultancies and recruits foreign managers. He believes that as the head of a large company, his primary role is to recruit good managers. Following his separation from his partner, he increased the number of independent directors on the 'Severstal-Avto' board to seven.
He follows the Korean business model for car companies: assembly under licence followed by developing local parts production and finally investing in engineering and design. He believes that this approach is the most suitable for the Russian situation as it already has its own automobile industry.
Vadim Shvetsov has not been able to avoid politics: he was elected to the Douma in the city of Tcherepovets in 1996 and served until 2000. However, he is mainly known for his charity work. He was the head of a very influential organisation in 2003 and 2004: the 'Russian automobile industry union' . It was partly due to its effective lobbying that Order no.166 was approved. This Order was the stimulus for the massive creation of assembly lines in Russia by foreign manufacturers. Shvetsov was the first to sign a component import agreement under preferential conditions for assembling of Ssang Yong four-wheel drives.

His opposition to Chinese manufacturers is legendary.

Shvetsov has the reputation for being totally opposed to Chinese penetration of the Russian economy. He accuses Chinese manufacturers of unfair competition. According to him, Chinese companies are guilty of dumping because they are supported by the Chinese government through subventions and reduced fiscal charges for exporting companies. He complains of the Chinese manufacturer, Great Wall, which is getting ready to build its assembly plant in the Alabouga special economic area alongside the new Severstalavto factory. The construction contract for the Chinese factory has been held up for over a year in the Russian Ministries.
Shvetsov was the second bet known person in the Russian automobile industry in 2006 with first place being held by the Ford chairman, Henrik Nensen. The magazine 'Finance' estimated Vadim Shvetzov to be worth 480 million dollars at the start of 2007.
Vadim Shvetsov enjoys flying aircraft and is also a car and motorbike racing enthusiast. Not too surprising for a young entrepreneur in the automobile industry.


back to contents







- PSA sold 27,200 cars in Russia in 2006 including 15,300 Peugeots and 11,900 Citroens.

- Mazda sales in Russia increased by 50% in 2006 to reach 32,300 cars. The Mazda 3 and the Mazda 6 account for most of these sales.

- Demand for local brands of cars was unchanged in January-February 2007 resulting in a stock of 100,000 Avtovaz Ladas in the manufacturer's warehouses and the dealerships. This represents about 16% of Avtovaz's annual sales in Russia.


- Only 5% of Russian consumers trust the quality of the Chinese cars that have recently become available in the Russian market, according to a survey conducted by the 'Centre d’études Chinacom'. However, 35% of them are content with the quality of electrical products. Almost 63% of consumers trust the quality of Chinese textiles.

- Avtovaz is looking at the option of central purchasing from approved suppliers to supply its network as a means of reducing the percentage of counterfeit parts used by its own agents and service centres. It has also launched an ad hoc information website: http://contrafact.vaz.ru/

- All the constraints on the use of GPS have been removed. Experts are predicting strong demand for GPS navigation systems.

- Rolph, Mitsubishi's main dealer, has announced up to 30% price reductions for the brand's spare parts. It is estimated that there are 280,000 Mitsubishi's in circulation including 68,800 sold in 2006. Rolph manages dealerships for several brands including Audi, Mazda, Ford, Hyundai. It sold 110,000 cars in 2005 and had sales revenues of 2.4 milliard dollars.


- Edouard Rossel, governor of the Sverdlovsk (Yekaterinburg) region in the Urals, thinks that his region is unjustly penalised because international manufacturers prefer to set up in the European part of Russia. He says he is ready to promote the relocation of manufacturers to the Urals.

- The St Petersburg regional administration is planning to cancel all the fiscal advantages for car assembly plants this year. The advantages will continue for car component factories.

- The Moscow government has offered land next to the Renault Autoframos plant to component manufacturers.


- Weigl Group AG is going to build a component factory in the Alabouga special economic area at Tatarstan.

- German company, Kirchhoff, is going to construct a bodywork parts factory at St Petersburg. The site will supply the Ford factory and, shortly, the General Motors plant.

- Magna International intends to build a components factory near Kaluga to supply the Volkswagen plant. Its Shushari factory near St Petersburg will become operational in 2008.

- German company, Siemens VDO Automotive, has just bought the Russian company Avtel who produce electronic components for car engines. It has announced sales revenues of 50 million euros for 2006. Avtel will supply the Ford plant at St Petersburg and the Volkswagen plant at Kaluga.

- Faurecia Technoplast Automotive has started delivery of its rear panels, dashboards and door panels to the Renault Avtoframos factory from its site at Nijni. The same site could also supply the Renault factory in Columbia.

- Severstalavto planned to open a dozen auto components plants near its assembly plant in the Alabouga special economic area. They will produce exhaust systems, seats and plastic parts in partnership with international suppliers.

- The American company, Delphi, and the Samara cable factory have created a joint venture to supply electric switches to the Avtovaz and GM-Avtovaz factories. The Samara factory belongs to the SOK group. The investment will be1.5 million dollars.

- Two German suppliers, Robert Bosch AG and Zahnrad Fabrik, intend to build factories at Togliatti to supply components to Avtovaz. Bosch will supply ABS and injection parts. ZF will make suspensions.

- The VPZ ball bearing factory will provide bearings to Daimler Chrysler. The company is part of the EPK holding which has four other bearings factories. EPK is owned by the businessman, Oleg Savchenko.

- Spanish company, Ficosa, has given the Avtocomponent at Nijni a license to product rear-view mirrors for the Renault Avtoframos factory. The partners plan to create a joint-venture for component manufacture. Avtocomponent already works with the German company, Edag.

- Antoine Aoun, Purchasing Director for Renault in Russia has suggested that several suppliers, including Bosal, Inergy and BASF, are ready to set up production units in Russia to supply Renault Avtoframos as part of its factory enlargement project.

- Siemens AG will supply two automated lines to the future Chrysler assembly plant owned by GAZ.

- The Chinese company, Beijing Automotive Industry, has signed an agreement to assemble trucks and vans with AMC Group, a component producer in the Ulyanovsk region, and the regional authorities. The factory should be operational by 2008. Its planned capacity is 7,000 vehicles per year.

- The Finnish company, Reka Rubber, will produce its rubber components at Vyborg in the St Petersburg region to supply the region's car plants.

- Toyota has contacted AirBridge Cargo to develop a relief supply circuit for its Russian factory.

- A second production line has entered service at the Borsk windscreen plant. The company supplies the Renault factory at Moscow and the Ford factory at Vsevolojsk. A third line will supply windows to Toyota from 2008 The Borsk factory belongs to the GlaverbelAsahi Glass group.

- The planned Mitsubishi factory will probably be located in the St Petersburg region. It should be operational by 2010 and have a capacity of 200,000 cars per year. According to sources, they may enter into a partnership with PSA for this factory.

- The American company, Tenneco Automotive, is going to build an exhaust factory at Gorelovo in the St Petersburg region. The site will produce 1.5 million exhausts per year. Tenneco Automotive already has a factory with an annual capacity of 150,000 systems per year at Togliatti, near the Avtovaz plant, supplying GM-Avtovaz.

- The K&K factory at Krasnoyarsk in Siberia will supply aluminium wheel rims to Renault Avtoframos for the Logan.

- Italian producer, Magneto Wheels, is looking for a site for a wheel rim production unit in Russia.

- British company, WPT – Eurasia Trans, is investing up to 50 million dollars in building its factory at Kingisepp, in the St Petersburg region. The factory will open at the end of 2007 and will produce 2 million steel wheel rims per year.

- Volkswagen has opened a tender for body parts for its factory under construction at Kaluga. The winner may also be invited to supply the VW factory in India. The Spanish company, Gestamp, the Canadian company, Magna and the British company, Stadco are amongst the competitors.

- Avtovaz intends to stop purchasing from the Novolipetsky Combinat metal works and replace it with Samsung for sheet metal used to produce body panels. The metal produced by the Koreans is considered to provide higher quality for a lower price.

- German company, Continental, who bought 51% of the Czech tyre producer Matador, has now become joint owner of the Matador-Omskshina joint-venture that produces 2 million tyres per year. Omskshina belongs to the Russian oil holding Sibur.


back to contents

  YOUR PARTNER TO EXPLORE RUSSIAN MARKETS OPPORTUNITIES : +33 1 47 63 18 18  www.square-strategy.com  


    - MIMS show – Interavto
From August 29th to September 2nd 2007 at Moscow
MIMS is now one of the meeting places for car manufacturers from all around the world. Last year, it had nearly a thousand exhibitors on 87,000 m² in its two pavilions and a large open air area.
The show is held at the Crocus Expo exhibition park quite a distance outside the capital - you have to be careful when selecting hotels to avoid spending several hours in traffic jams.
    - An exhibition - conference on the automobile industry in Russia
October 9th - 12th 2007 at Togliatti
An event co-organised by the manufacturer Avtovaz with the aim of establishing new contacts with equipment suppliers.
    - Franco-Russian car buyers meetings
November 11th - 17th 2007 at Moscow, Nijni Novgorod and Togliatti.
A programme of meetings with the purchasing departments of local manufacturers: Gaz, Severstalavto, Avtovaz, Sok, and also Renault-Avtoframos, Magna, Technoplast (Faurecia), Itelma (Valeo). About fifteen French equipment suppliers are participating in this study trip organised by Ubifrance and the commercial section of the French Embassy at Moscow. The objective is to establish local contacts, clients or partnerships and to learn about the specificities of the market.
    - The Russian Automotive Industry
March 11th - 13th 2008 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.

back to contents



    1,008,000 units: this as the number of western branded cars sold in 2006. Including 265,000 locally assembled cars according to the Automobile Manufacturers Committee of the Association of European Businesses.    

27.6 million car tyres and 10.95 million truck tyres were produced in Russia in 2006.


580,416 cars for the first five months of 2007: sales of foreign branded cars have jumped by 74% compared to the same period in 2006 according to AEB.


back to contents


To receive the next issues of the France-Russia Automotive/Auto Franco-Russe fill the subscription form : www.autofrancorusse.fr


Copyright Agence du Fil SARL

    The France-Russia Automotive/Auto Franco-Russe is published by the Agence du Fil SARL Company.   RCS Paris 487 788 051.    

La maquette de l'Auto Franco-Russe a été réalisée avec le concours de l'agence Vingt-Quatre Graphisme