France-Russia Automotive
N° 5
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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.
EVENT
THINGS ARE ROLLING WITH TYRES
The acquisition of tyre maker Amtel by its competitor Sibur, the planned installation of the Pirelli factories and Goodyear's objectives heading in the same direction: The tyre market has become very dynamic, like the rest of the Russian automobile sector.
The tyre market provided lots of
column inches during spring and summer 2008 with three major events.
Firstly, there was the Sibur Russian Tyres and Amtel-Vredestein merger;
two local companies that united to create the market leader with a
current production capacity in excess of 23 million tyres per year. Then
we heard that Goodyear was in negotiations for a site to locate a
factory. And, finally, Pirelli signed an agreement to install three
factories at the same time.
The Amtel-Vredestein news was not a great surprise. The Russian/Dutch
tyre maker had been in difficulty for a long time, staggering under the
weight of its accumulated debts of over 800 million USD with sales
revenues of 990 million USD in 2007. The banks' confidence was waning
and the interest rates were increasing and al the company's margin was
being used to service its debts. Just to the point where Amtel had to
borrow in order to pay cash for its raw materials.
For its part, Sibur Russian Tyres manufactures tyres for segment C and
was gradually running our of steam as these tyres were mainly used for
old locally manufactured cars. Their owners are not rich and,
consequently, it is a low margin segment. Every attempt to date by Sibur
to create an alliance with a western partner in order to move up market
had failed.
According to the agreement, it is Amtel Vredestein that has acquired
Sibur Russian Tyres. In order to pay for it, Amtel has increased its
capital for the benefit of Sibur Holding, the Sibur Russian Tyres mother
company which is itself a subsidiary of Gazprombank and, thereby, the
giant Gazprom. The result is that Sibur Holdings is the owner of the new
entity.
According to various sources, the Sibur management have great hopes for
the new company that will be produced by the merger between Sibur
Russian Tyres with Amtel. They expect to continue construction of the
Voronezh-2 factory. They also want to take advantage of the merger to
offer Sibur Russian Tyres truck tyres in European markets via Vredestein
distributors. A project that some consider to be too optimist, even
within the company, given the variable quality of tyres from Sibur
Russian Tyres in relation to European standards. Sibur is now looking
for a partner that will ensure the future of the AV-TO centres but allow
them to retain a minority stake.
The story does not end there: the Sibur Holding Managing Director and
five Vice-Directors are in the process of buying their own company.
Sibur Holding currently consists of several businesses including
petrochemicals and plastic production. According to different sources,
this is what interests the future owners the most. This could result in
the sale of the new entity Amtel-Sibur.
Pirelli and Goodyear advance on the market
At the same time, the Italian Pirelli signed a heads of agreement for
the creation of a joint company with Rosstekhnologii. This public
company that manages arms sales has been heavily involved in
consolidating industrial assets recently. Rosstekhnologii is the main
shareholder in the Avtovaz factory at Togliatti, where Renault now owns
25%. The exclusive negotiations that will last until the end of
September relate to three factories: tyres, 'steel cord' and particle
filters for exhausts. The partners are scheduled to tour the potential
sites for their location during July. According to various sources, they
could be at Lipetsk, Iaroslavl and Kalouga. 'Our joint venture project
is not specifically linked to Avtovaz's needs but is intended to develop
Pirelli in the Russian market', explained Aimone di Savoïa Aosta,
Managing Director of Pirelli Tyres Russia.
And the remaining player, Goodyear, is looking for site to locate a
factory in Russia. The project aims to produce 5 million tyres per year;
this figure has been neither confirmed nor denied at present. The tyre-maker
has been in negotiations with Serguei Vakhrukov, the Iaroslavl region
governor. The governor quickly proposed an industrial site. This does
not make the rest of the discussions a foregone conclusion because the
land offered by the region can be taken back just as quickly.
Upon coming aware of this, Sibur Russian Tyres whose biggest factory
producing 4.5 million tyres is at Iaroslavl, went and suggested a
partnership to Goodyear. It was refused. Since then, Sibur has been
using its network and influence on ministers to make the American
industrial understand that if it wants to locate itself at Iaroslavl, it
has no alternative but to form an alliance with Sibur. The Russian tyre
manufacturer is worried more about human resource dumping by Goodyear
setting up next to its factory than about the competition.
When contacted, Goodyear confirmed the Iaroslavl negotiations but stated
that 'they were looking at every option and all the possibilities were
still open'. Negotiations continue without cessation.
RUSSIAN TYRE PRODUCTION
Tyre production is split between
three main local players: Sibur – Russian Tyres, Amtel-Vredestein and
Nizhnekamskshina. The Nokian and Michelin factories located in Russia
should be added to these.
Sibur – Russian Tyres has a total of four factories: Iaroslavsky and
Omskshina are its two stars followed by Voltaïr at Volgograd and the
Iekaterinbourg factory. The Russian-Dutch Amtel-Vredestein produces in
its Amtel Povolzhie factory at Kirov and Amtel Chernozemie at Voronezh.
The Moscow Tyres factory acquired by Amtel was closed a short while ago.
The Vredestein factory at Enschede in the Netherlands is the brand’s top
of the range showcase. Finally, Nizhnekamskshina has two factories,
truck and motorcar tyres, located side by side, in the town of
Nizhnekamsk in Tatarstan.
The total production of local manufacturers (excluding Nokian and
Michelin) was 39.11 million units in 2007. This figure includes all
types of tyres even for agricultural vehicles and motor bikes.
Analysis by type of tyre, shows that motorcars represented 23.8 million
of the units produced Truck tyres: 7.98 million. Utility vehicle tyres:
5.12 million. Agricultural machine tyres: 1.65 million. And motorbike
and bicycle tyres: 0.56 million tyres.
The leader is Nizhnekamskshina who produced 12.39 million tyres. Sibur
Russion Tyres is in second place: 11.6 million. The internal leader in
the company, Sibur-Omskshina with the joint venture OmskShina – Matador,
produced 5.6 million units. Amtel-Vredestein produced
11 million tyres in Russia under the Vredestein, Amtel and Maloya
brands. Its star entity, Amtel-Povolzhie reported 6.7 million tyres.
The only independent producer
of any size is Altaïsky Shinny at Barnaul who made 1.25 million tyres
of all sorts including aircraft tyres. The company lives on public
orders. Several niche manufacturers such as Petroshina and Krasnoïarsky
Shinny both produce fewer than 100,000 units per year.
Finally, the Finnish company Nokian and the French company Michelin
should reach a total production of 7 million motorcar tyres in 2008.
Expansion plans are being put in place for the Nokian factory.
EXPERTS COMMENTS
WILL AMTEL-SIBUR BE PUT UP FOR SALE SOON?
Three questions for Vladimir Rozhankovsky, senior analyst for the investment bank Centreinvest Group.
France-Russia Automotive: What
is your analysis of Amtel-Sibur's market position?
Vladimir Rozhankovsky: Sibur's tyres suffer from major quality problems.
These defects are partly due to the variable quality of their raw
materials. This is not a problem as long as they stay in segment C.
Drivers who buy on the basis of low price accept that they will have
quality problems from time to time. However, this does not help them
penetrate other segments. Sibur has been seeking to but a western
licence for some time and has made offers to everyone. It has received
the same reply: We can not give you a licence to manufacture under our
brand because you are unable to manage quality control in your
factories.
As for the segment B products from Amtel, they are currently
overestimated in quality terms and overvalued in terms of price.
Generally, segment B is not the most important segment in the Russian
market. The price difference between segments A and B is not very great
due to customs duties. Many drivers who could opt for segment B tyres
prefer to pay a bit more and purchase segment A tyres. Russian tyre
manufacturers are always losers in this because they are not up to date.
They are only now starting to produce tyres that were fashionable two or
three years ago.
- How does Sibur Holding view its new acquisition?
- Sibur Holding currently has three business areas: petrochemicals,
mineral fertiliser production and tyres. Petrochemicals are the most
profitable of these three businesses because it uses the gas that
accompanies oil extraction. Even today, this gas is not valued and is
still burnt sometimes! And the oil companies pay fines to the ecology
service. Consequently, those who use the gas get it very cheap.
The Holding's managers are in the process of buying it and they will
have to borrow from Gazprombank. I think they will want to sell the
fertiliser and tyre businesses as soon as possible because they see them
as side issues and will want to reimburse part of their loans quickly
and reduce interest rates.
- To whom will they sell such a large undertaking?
- A new operator who will buy them mainly to obtain the raw material and
distribution supply chains. In the Russian market they have the benefit
of low cost raw materials and labour. It will not be a Chinese company
because Russian segment A buyers will never buy a product made by the
Chinese. I think that Amtel-Sibur will be offered to one of the three
majors: Michelin, Goodyear or Bridgestone.
"SIBUR HAS OBTAINED A BRAND AND MODERN FACTORIES"
Guennadi Sukhanov, industrial sector analyst at Troïka Dialog, deciphers the importance of the Amtel-Sibur alliance.
'The Amtel-Sibur merger will
become more competitive and more powerful in respect of suppliers. Amtel
has found a way of dealing with its financial problems. As for Sibur, it
is positioned on segment C which is not growing. However, developing
segments A and B requires lots of money and time. By acquiring
Amtel-Vredestein, Sibur has obtained a brand, factories that are amongst
the most modern in the market and the Vredestein R & D centre. An entry
onto the European market is also perhaps in the back of their minds.
However, I think that the Russian market is currently more interesting.
A customs duty of 5% provides protection that has greater impact on
segment C. It will be easier for Amtel-Sibur to compete with foreign
suppliers on a Russian market that is growing rapidly especially in
segment B for models manufactured in Russia.
At the same time, the Avtovaz management are already unhappy with the
prices they pay for their factory fitted tyres. They have even conducted
a lobbying campaign to have the customs duties removed for tyres and
rims.
Finally, I note that the Amtel-Sibur press release mentions the
possibility of a cession. This is also an important detail.'
THE RM HOLDING IS INVOLVED IN COMPONENTS
'There is a flagrant shortage
of components manufacturers whilst we expect this market to grow even
faster than the motor vehicle sector. The component market should reach
20 - 30 million dollars by 2010' stated Eric Eberhardson, previously
Managing Director at car manufacturer GAZ. He is now the Managing
Director for Russkye Machini's (RM) automotive division, which owns GAZ,
and was speaking during the annual 'The Russian Automotive Industry Adam
Smith' conference in spring 2008.
He believes the GAZ group's primary action is to break the traditional
vertical integration approach which is a legacy of the soviet era when a
motor vehicle factory produced most of the components used on its
assembly lines and competition was completely absent. At the same time,
it should eliminate the single supplier approach in favour of
competition.
Eric Eberhardson foresees the holding becoming involved in the creation
of the network of suppliers needed to reply to their tenders: 'We are
going to develop several partnerships at the level of the RM holding.
The main development axes for these partnerships are those of quality
and service because both are missing in the market.' This promise,
made by one of the country's biggest industrial groups, can not be taken
lightly.
l Who is GAZ?
It is currently 16 automotive companies including one in the United Kingdom. The GAZ management mainly consists of western managers. It expects to manufacture 200,000 vans, 60,000 Ciber motor cars and 60,000 trucks in 2008. Its objective is to increase commercial vehicle (vans and trucks) sales to 300,000 units over the coming years.
NOKIAN TRIES TO SEDUCE DEALERS
Nokian is
encouraging dealers to develop the 'Tyre Hotel' service that stores
winter tyres. The Finnish tyre maker produces four million tyres per
year in its factory near St Petersburg, which is being extended. It has
made its reputation in Russia with its winter tyre ranges. It claims 35%
of the premium segment of this market. According to the company, it is
preferable for drivers to have two sets of wheels fitted with tyres to
cope with the climatic constraints in most regions. Nokian is working on
a programme that is intended to help dealers develop 'Tyre Hotels' to
store the 'out of season' wheels.
Andreï Pantioukhov, Managing Director at Nokian in Russia emphasised the
high added value that could result from the partnerships between dealers
and the company. Speaking at 'The Russian Automotive Industry'
conference in March 2008 in Moscow, he stated 'A dealer makes as much
margin on the sale of a set of winter tyres with branded wheels as when
selling a new vehicle'. Without counting the two seasonal visits
every year.
However, dealers don't always see it in the same way: often, many brands
proposes a set of winter tyres via their dealers at the same time as a
new vehicle is purchased. According to Andreï Pantioukhov, this risks
creating unrealistic consumer expectations as they could consider that
they have the right to a free set of winter tyres.
Nevertheless, Nokian has several dealers amongst its clients: Rolf,
Business Car, Major, FK Motors, Atlant… which represent 20 - 30% of its
sales. And the company is still developing its own auto centres under
the Vianor name. There were 140 of these outlets at the start of 2008
and the objective is to reach 300 centres. Nokian's sales income in
Russia is 340 million Euros, a 57% increase from 2007.
THE LONG PATH OF LOCAL CONTENT
Sourcing components from local
suppliers will firstly involve internal and external plastic parts. This
is the conclusion of a survey of automotive sector purchasing managers
conducted by Ernst & Young. In order of priority, plastic parts are
followed by tyres, bodywork parts and exhausts. Most respondents agreed
that engines would be the last items to be locally sourced - if at all.
Most of the people asked expected to see local sourced content reach
nearly 70% by 2020.
In terms of how this is going to be achieved, 38% forecast the creation
of joint ventures with Russian partners, 25% expected to source
components directly from local suppliers and a similar number relied on
their own 'supplier's park' where suppliers would be invited to set up.
Lastly, quality was by far and large the first requirement for
purchasing managers, cited by 80% of them.
AVTOVAZ EYES IZHAVTO
Avtovaz is still discussing the
purchase of the IzhAvto assembly plant at Izhevsk in Oudmourtie with its
current owner, the local group SOK. The plant currently assembles the
Kia Rio with a forecast production rate of 45,000 units per year and,
has recently started assembling the Kia Sorento 4x4. It also continues
to assemble a few old Avtovaz models. According the Group SOK managers,
the plant could produce up to 220,000 cars per year but in its current
state this is purely a theoretical estimate.
The transaction being prepared has highlighted a few differences in
terms of objectives. According to SOK, Avtovaz wants to acquire a plant
to produce models from Renault which is now a shareholder. However
analysts are more in favour of Avtovaz wanting to progressively transfer
production of most of its older models. This would allow them to prepare
the Togliatti land for producing the French manufacturer's models.
The two approaches produce price estimates that are quite divergent. SOK
is asking for 500 million dollars. According to analysts, Avtovaz is not
ready to spend more than 400 million: this is KPMG's estimate. A plant
audit is ongoing and negotiations continue.
FIAT WILL PRODUCE ENGINES WITH SOLLERS
Fiat Powertrain Technologies has
signed an agreement with local company Sollers (previously SeverstalAvto)
to build an engine factory at Nijni Novgorod as a joint venture. Th
efactory will be located on land belonging to the ZMZ engine factory'
which currently produces engines of an old design for the UAZ Patriot
4x4 from Sollers that is assembled at Oulianovsk. The planned factory
will assemble 2.3 litre 110 hp diesel engines for the Fiat Ducato which
Stoller has started assembling on its Alabouga 'special economic zone'
site in Tatarstan. The factory should start production at the end of
2008 or early 2009. Its capacity could reach 90,000 engines per year by
2012. According to the company, some of this production could be used to
equip its own models, including the Patriot. The engines meet standards
up to Euro 5 which gives them a head start on the Russian market which
only reached Euro 3 in 2008.
Group Sollers is managed by Vadim Shvetzov, who is also the major
shareholder, and has developed several partnerships with Fiat who do not
have a very big presence in Russia at present. They have just signed an
agreement to assemble the Fiat Linea as a joint venture, also at
Alabouga, in addition to the Albea and Doblo. Sollers also distributes
other Fiat models in Russia.
MITSUBISHI WITH PSA
Following over a year's
hesitation, Mitsubishi has decided to contribute to the PSA factory. The
first stone of this planned joint factory was laid in June 2008 on the
site near Kalouga, 180 km south west of Moscow. It is intended to start
production in 2011. The French partner owns 70% of the company and
Mitsubishi 30%. The initial investment by the two parties was nearly 470
million euros.
The factory is managed by Didier Aleton, PSA Russian project manager,
and will produce 160,000 cars per year including 110,000 segment C
vehicles from the French manufacturer and 50,000 SUV from both
companies. It will employ about 3,000 people in two teams. Production
could eventually reach 300,000 units. A quarter of the 200 hectare site
has been reserved for its suppliers.
A FIFTH VW MODEL WILL SOON BE ASSEMBLED AT KALOUGA
Volkswagen started assembling Skoda Fabia in its
Kalouga factory at the end of May 2008. The car will be launched in the
autumn. The plant already assembles the VW Jetta and Passat, plus the
Skoda Octavia: nearly 10,000 vehicles are produced. The arrival of these
locally produced vehicles in the dealerships is accompanied by price
reductions of about 6%. The Kalouga plant should produce 66,000 VW and
Skoda units in 2008. The German company should also start assembling the
Tiguan 4x4 there in August 2008.
Volkswagen is also developing a model that is specific to the Russian
market. It is based on the Polo and will be offered on the market for
less than 10,000 dollars. This will mean it is competing head on with
the old models still produced by Avtovaz. Assembly of this model could
start in the Volkswagen Kalouga plant at the end of 2009.
AVTOVAZ NEGOTIATES FOR ENGINES
According to information in the Russian press, Avtovaz would like to buy a licence to produce 450,000 1.4 and 1.6 litre engines for its future range from its shareholder, Renault. These engines would be used for the existing Avtovaz ranges and not for those that it intends to produce with Renault in the near future. The draft agreement should be presented to an extraordinary general meeting of Avtovaz shareholders in early September.
KAMAZ READY FOR SALE
54.4% of Kamaz's capital was acquired by an offshore Cypriot company in April 2008. Located in the southern Russian Muslim enclave of Tatarstan, Kamaz manufactures almost 45,000 trucks per year and has sales income of 2.5 billion dollars and has always had an opaque financial structure. According to sources, part of its capital is directly owned by the Tatarstan president, Mintimer Shaïmiev. The current delocalisation of its capital to an offshore zone is part of the preparation process for offering part of its capital to a western truck specialist. It is not excluded that its share could be greater than that of a simple blocking minority.
COOPERATION BETWEEN ST PETERSBURG EQUIPMENT SUPPLIERS
The cooperation fund managed by the automotive component manufacturer's professional association (APAK) at St Petersburg must increase significantly: consisting of 36 million dollars currently, it needs to become 300 million shortly. 'The aim for these funds is to provide assistance to members for enlargement or equipment renewal projects' stated St Petersburg APAK Chairman, Serguei Bodrunov.
SECOND-HAND REPLACEMENT PARTS
The replacement parts market for Japanese vehicles is inundated by second-hand parts coming from Japan. They are parts removed from cars that are dismantled by car scrap merchants in Japan. From the point of view of Russian motorists, these parts are guaranteed to be original which gives them an advantage compared to counterfeit Chinese parts which are very common. And the fact that they are used parts - this is dealt with using the pitch that Japanese take good care of their vehicle which means that, according to them, these parts have a much greater working life. Vladivostok, the main Pacific port is also the commercial centre for second-hand spare parts. Garages throughout the length of the Trans-Siberian railway are also supplied by this circuit.
FINANCIAL CLARITY IS POORLY ACCEPTED BY DEALERSHIPS
The development of dealerships by western brands is confronted by the behaviour of local businessmen in the automotive sector. The average unit cost for opening a dealership is 15 - 30 million dollars depending on whether it is in Moscow or the regions. This creates a growing need for external financing using bonds, public loans, etc. This requires capital visibility. However, this process is slowed by the mentality of entrepreneurs who are used to authoritative and secretive operating methods. They will not change overnight.
SALARIES INCREASE
Prime Minister Poutin visited the Sollers factory
(previously Severstal Avto) at Alabouga in Tatarstan when assembly of
the Fiat Ducato started, in May 2008. Poutin asked a worker what his
salary was during the celebrations. The worker's reply, who was
undoubtedly selected by the management for his ability to speak with
dignity: 538 US$ (14,000 roubles). It's within a few kopeks of the
national average wage at the end of 2007 (13,500 roubles). A few days
later during a ministers meeting, Poutin promised to increase the
average salary to 29,000 roubles, more than 1,100 US$, by 2011.
'Two years ago, automobile sector salaries were usually about 420 -
460 US$ (11,000 - 12,000 roubles) per month. Only Ford paid twice as
much’, observes Guennadi Sukhanov, industrial sector analyst at
Troïka Dialog. ‘However, between March 2007 and March 2008, salaries
have increased on average by 45%. I am surprised because the local
industry leaders of Avtovaz or Kamaz are located in towns where the
factory is virtually the only employer. They should have been able to
control salary levels better. However, it is possibly a long overdue
adjustment as there have been few salary increases in the sector for a
long time.'
A WORRIED MIDDLE CLASS
A survey conducted by BBDO's local
subsidiary that was published in the local financial daily Vedomosti
shows an image of the Russian middle class that is quite different to
that seen in Europe. We expected to see the usual values for this
segment: freedom including the rights of entrepreneurship, development
and success. Wrong! the Russian middle class is socially passive and
worried about change; they remember the Soviet period with nostalgia;
they dream of retirement and count on the State to ensure their daily
happiness. The young middle class often chose public service and are not
greatly attracted by the idea of having a career. The values of the
majority of the Russian middle class are more like those of the less
well off classes in European society. The medium to high class are few
in number.
Analysts describe the typical Russian middle class as having a higher
education qualification and individual income levels of 216 to 380
euros. According to different sources, this description applies to 20 -
28% of Russians. The local banks, who identified this type of client
very quickly, usually attract them with offers of gifts such as
household electrical goods when opening an account.
IN PRACTICE
THE MARKET IS SIMILAR TO GERMAN MARKET
Car sales in Russia exceeded 1.65 million units in the first six months of 2008, according to Price Waterhouse. This represents 41% growth compared to the same period in 2007. In terms of value, the market reached 33.8 billion dollars for the same period, an increase of 64% from the previous year. Foreign brands accounted for 27 billion dollars, 80% of the market. The Russian motor car market now has a similar volume to the German market where 3.2 million cars should be sold in 2008, according to the German trade association: the VDA.
EXPERIENCES
RECRUITMENT: 'THE PROBLEM IS NOT THE PEOPLE BUT THE INFRASTRUCTURES!’
Recruiting and retaining managers in the regions is not a simple matter. Explanation from Andrei Philipov, partner at the recruitment specialists Horton International.
Auto Franco-Russe: What is the position where
recruitment can be difficult?
Andrei Philipov: All key positions. Finance, HR, logistics, IT systems,
purchasing... for some positions, there are no competent local
candidates and you have to expatriate them. This involves mainly general
management, finance and purchasing.
However, it is preferable to find local candidates for HR, IT systems
and logistics... because the market is so specific for these functions
that there is a risk that expatriates will fail.
The trick is to find a competent local production manager and send
him/her for training for one or two years on the mother company's sites
so that he/she can be impregnated with the company's culture.
- What are the specific problems related to expatriate managers?
- The problem is not the people but the infrastructures. In the
provinces, there is a shortage of decent property. The expatriates find
themselves all staying in the same hotel which is not viable over the
long term. The market for rental apartments is also weak. Some companies
prefer to purchase accommodation which they renovate and use for their
own managers who have to stay for more than six months. This type of
solution is used in towns such as Kaluga, Samara, Nijni Novgorod… other
construct 'compounds', villages exclusively for expatriates such as the
Rossinka site at Moscow.
- Can you recruit local managers in the provinces?
- There is a flow of managers between the main industrialised regions,
for example between the Samara-Togliatti and Nijni Novgorod regions, the
two traditional motorcar industry regions. Another flow moves managers
between St Petersburg and Moscow. However, there is no mobility from
Moscow towards the regions because the number of job offers is lower in
the provinces and limits career prospects. Consequently, the quality of
managers is also lower.
It is difficult to find middle managers who are prepared to move
geographically. You will generally take a few managers for key
positions, pay them a bit more than the market, train them as required
and then wait for two or three years - they will know how to find and
recruit other managers...
- Once the managers have been recruited, how do you retain them?
- It's quite difficult because managers are constantly solicited and
their main motivation is financial. However, a programme of forward
bonuses, spread out over tile, can be developed for senior managers.
After three, four or five years, the employee can have his/her MBA paid
for. After a certain time, offer them stock options. And after ten
years, offer them an apartment - a present that is always appreciated.
It should be noted that a condition for the company paying for the
training is that the employee agrees to stay for a certain number of
years or repays a proportion of the costs if they leave. However, this
system is not always effective because it is difficult to make an
employee comply with an agreement when they are in the process of
leaving.
To retain middle managers, you will not use financial incentives but
will propose retirement plans and organise corporate celebrations, etc.
Whatever you do, you can not retain your employees for ever - but you
must provide them with career progressions at least every two years and
not every two to three years as in Europe.
l Who is Horton International?
Horton International consists of
five consultants who have been working on the Moscow and St Petersburg
markets since1999. They recruit several dozens of general managers and
managers per year.
horton-intl.ru
IN BRIEF
Renault plans to start
producing French brands at Togliatti from 2014: Laguna, Clio, a 4x4 and
also a specific Russian model which will be presented at the MIMS motor
show at Moscow at the start of September 2008. Currently, 48% of the
company's sales are concentrated on the Moscow region.
At Avtoframos, the Renault subsidiary at Moscow, the local
content rate for components sourced from local suppliers is now nearly
40%, according to the management. At the same time, they comment that it
is difficult to make comparisons with other manufacturers: some of their
Russian competitors include wages and even electricity costs when
calculating the value of locally source inputs. Avtofamos only
counts component costs.
Renault should start assembling the Sandero in its Avtoframos
factory at Moscow. This vehicle is derived from the Logan and is already
manufactured in its Brazilian factory.
Ford has updated its Focus assembled at Vsevolojsk, near St
Petersburg, and has started Mondeo assembly. The US company also plans
to start construction of a second Russian factory. The Vsevolojsk
production capacity is already being increased from 75,000 to 125,000
units in 2009.
General Motors intends to launch production of its new Chevrolet
Cruze in the St Petersburg factory in summer 2009. The factory is still
being built but should become operational in autumn 2008.
The waiting time for buyers of some GM vehicles is 6 to 12 months
after having payment has been made. The company uses a system of quotas
for each country. However, in order to satisfy this exceptional demand,
all GM stocks that have been ordered but not accepted by other
countries are being diverted to the Russian market.
Toyota intends to modify its logistic circuits for its factory in
the St Petersburg region. Supplies should use the rail freight instead
of the current practice of maritime freight. Containers will use the
legendary Trans-Siberian railway from Vladivostock, the Russian
port on the Pacific Ocean, to the European part of the country. The
company could save time: Transit via the Trans-Siberian railway
will take about three weeks compared to sixty days by sea.
The installation of component manufacturers did not achieve the
objectives contained in assembly contracts. For local company TAGAZ
who has produced Hyundai models since 2001, the rate, planned to
be 50%, is no more than 27% according to the local magazine 'Rynok
Avto'. For Ford, the reported rate is about 40% - compared to
50% in the contract. At Izhavto who has assembled Kia Spectra
since 2005, the rate of locally produced content has reached 30%.
Tadanobu Nagumo, Yokohama Managing Director has just
announced plans to construct a tyre factory in Russia. The possibility
of a joint venture was mentioned without further details.
Belgian company Bekaert has decided to install a steel cord
factory at Lipetsk. This factory should supply both the Russian and
European markets. Its previous project in partnership with Orelcord,
from Severstal Metiz, was not able to be completed.
French company Norauto plans to transplant its auto centres to
Moscow in 2009.
Local company Sollers has opened its first distribution centre at
Golitzino near Moscow. The centre displays the three brands for which
Sollers has assembly and distribution partnerships for Russia:
Fiat, the Japanese, Isuzu, and the Korean, SsangYong.
Not forgetting the local brand UAZ 4x4. The company plans to open
up to 16 distribution and service centres across Russia before the end
of 2009.
Given the increase in world steel prices, the government is discussing
the possibility of ending customs duties on laminated steel intended for
use on the automobile industry. This measure is aimed primarily at
protecting the interests of Avtovaz. The assembly plants for
foreign brands are still being supplied with bodywork parts directly
from their usual suppliers outside Russia. However, Avtovaz
manufacture parts locally from imported laminated steel because the
local industry has never managed to produce steel of an adequate quality
for use in the automobile sector.
The Interior minister would like to help local constructors
attract customers. Currently, every vehicle must pass a technical
check-up before its initial registration. However, Viktor Kirianov, who is
responsible for the Highway police, has said he would like to see
locally produced vehicle exonerated from this check-up to reduce the
inspectors' workload. Purchasers of Lada produced by local manufacturer
Avtovaz would no longer have to go through a formality which, by
its nature, is useless. However, its the Avtovaz cars that have
the greatest number of defects on leaving the factory.
Russian companies are contacting foreign banks more and more frequently
for their financial needs according the magazine DP. Russian
banks are very numerous and there are over a thousand of them but the
conditions that they propose and their high interest rates do not meet
the needs of business clients. This involves not only the larger
companies but smaller operators for whom access to foreign currency
finance can be an argument in favour of a partnership.
Exhibitors at the planned MIMS 2008 will have to pay almost 200
dollars per square metre for an unprepared stand, plus entry rights.
AGENDA
- The Russian Automotive
Industry
March 17th - 19th 2009 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
MILESTONES
- The car and van tyre replacement market in Russia should reach 48 million tyres by 2013, according to a Nokian Tyres forecast. Half will be in segment A which is currently growing at 20 - 30% per year compared with only 7% for the overall market.
- The Russian automobile industry changed to the Euro 3 standard on January 1st 2008 and could adopt the Euro 4 standard in 2010. Demand for catalytic converters is increasing.
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