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a review of news
from automotive equipment manufacturers, with Autobusiness
TIMES FOR LOCAL MANUFACTURERS
Events have succeeded each other since the autumn in
the automotive sector. There has been a violent upheaval in local
manufacturers' positions and market shares.
Local businessman Oleg Deripaska's holding, Russkye Mashini, has
withdrawn from its investment in the Canadian equipment manufacturer
Magna International. The holding also owns the automotive manufacturer
GAZ, one of the market leaders with annual production of 270,000 cars,
trucks and buses and annual sales in excess of 4 billion dollars. The
25% stake in Magna was purchased for about 1.5 billion dollars in 2007
using a loan. The Magna shares were used as collateral with the bank,
BNP Paribas, who financed the deal. However, in early October, the large
drop in the share price forced the bank to ask for early repayment of
the loan, in accordance with the contract. Russkie Mashini preferred not
A few days later, Magna International announced that it had cancelled a
component factory project at Shushari near St Petersburg. The site was
scheduled to produce bodywork parts, bumpers and seats
Another victim of the crisis is the planned merger between two local
tyre manufactures, Sibur Russian Tyres and Amtel Vredestein, which will
not now take place. Under this agreement, Sibur Holding, part of the
Gazprom - Gazprombank conglomerate, should have acquired the heavily
indebted Amtel and merged it with its tyre making entity, Sibur RT,
through a complicated set of share deals. The merged group would have
controlled almost a third of the tyre market and have annual sales worth
approaching 2 billion dollars. The project planned an initial increase
of Amtel's capital of about 150 million dollars to eliminate its short
term debt and allow it to pay for raw materials; the company's total
debt exceeds 800 million dollars. Unfortunately, the banks involved in
the transaction backed off and the Amstel recapitalisation became
impossible so the project was aborted. A short time later, the Amstel
factories had to shut down due to a lack of cash for raw material
purchases. This is the third time they have stopped during 2008 and a
restart is not forecast.
Sibur RT's mother company, Sibur Holding, has also suffered It was in
the process of being bought by its management who were going to use the
shares as collateral for a bank loan. However the share value has fallen
and, finally, the banks were unable to go ahead.
Given this worrying background, almost every local manufacturer has
problems with their suppliers, especially for steel. Given the
increasing number of unpaid debts, suppliers have decided to stop
deliveries to the GAZ assembly lines and other stoppages can not be
This disastrous situation is due to the financial fragility of the
Russian industry. For many years they have enjoyed a rich life style and
accumulated acquisitions relying on a demand that was in constant
growth. The resulting debt has now become a handicap. They have asked
for State support - which has promised to be understanding but is not
hiding its hopes to renationalise several large companies. However,
public money is currently very much in demand and Rome was not built in
During this period, the western companies present in Russia appear to be
maintaining their objectives. It is true that the demand for their production
is such that growth, even if reduced, remains positive for the segment -
whilst sales of local brands have virtually ceased. The current storm
could accelerate the discontinuation of old locally designed models to
the benefit of the western brands.
financial crisis, the public company Rostekhnologii intends to create a
holding next year that will be dedicated to automotive components that
could be worth as much as 3 billion dollars. Its clients will include
the Avtovaz factory and the western brand's Russian assembly plants. The
planned Togliatti Technopark will be a key part of the holding. This
return to centralised state controlled production should help solve the
problem of a shortage of components in the market.
Rostekhnologii intends to form a
holding specialised in automotive components before the end of 2008 with
a value of 2.5 to 3 billion dollars. It will be formed on the base of
the OAO 'Obiedinennie avtomobilnie technologii' (OAT) which is owned by
the investment bank Troïka Dialog. This bank has also invested in
Avtovaz. Its board and Avtovaz's board will decide on the list of assets
that will form OAT towards mid-December.
The holding will receive the component factories that are currently part
of Oboronprom, which is already controlled by Rostekhnologii. It will
also receive Avtovaz's component factories and probably those belonging
to Kamaz. It could also acquire some assets from the market and create
some Greenfield component production facilities based on the Togliatti
Oboronprom's assets will not be purchased but taken in lease-management.
For its part, Avtovaz could transfer seven factories to OAT for a total
of over a billion dollars including the foundry, the matrices, the
presses and the component engineering that is currently done by the
Avtovaz research centre.
Vladimir Avetissian, OAT general manager offered Avtovaz shareholders (Rostekhnologii,
Renault and Troïka Dialog) the possibility of becoming shareholders in
OAT in exchange for the assets being transferred. This will allow OAT to
count amongst its shareholders Renault and Avtovaz minority investors.
According to sources close to Avtovaz management, this proposal has been
well received by those involved, including the French manufacturer.
The list of assets to be acquired has not yet been finalised. According
to Vladimir Avetissian, OAT is in discussion 'not just with the SOK
group (see sidebar) but also with independent manufacturers such as the
OAO BalakovoRezinoTechnika. BalakovoRezinoTechnika manufactures
different types of rubber for the automotive sector and its clients
include Avtovaz, Gaz, Kamaz and Ouaz. Vladimir Avetissian has not
provided the complete list of companies that are under negotiation.
Kamaz could also become a shareholder provided its adds its component
production to the holding.
OAT will become a shareholder in the planned component Technopark that
is to be created at Togliatti 'with the active support of the Samara
Region and foreign investors' according to Rostekhnologii sources. OAT
is counting on foreign equipment manufacturers to create production
facilities at Togliatti that are not just aimed at supplying Avtovaz but
also western manufacturers' Russian assembly plants. Rostekhnologii and
OAT promise that this project will have government support and it can
count on Vladimir Artiakov, governor of the Samara region who is also an
ex-Rostekhnologii employee. OAT and Rostekhnologii have already reached
agreement with the Region for the land on which the Technopark will be
built, near the Avtovaz research centre, and also for land in the
Stavropol district in the same region. They are Greenfield sites without
facilities and the Region has said it is ready to finance the
The Technopark project is jointly managed by Vladimir Kapoustin,
industry minister in the regional government and an ex-Avtovaz employee,
Maxim Nagaïtzev, development vice-president at Avtovaz, and Alexandre
Vinogradov, project manager. The involvement of Maxim Nagaïtzev in the
project's beginnings indicates that the Avtoivaz factory and
Rostekhnologii expect it to provide significant growth. Victor Baunov,
who previously headed up the project, did not have sufficient influence
on the company's decisions despite being an Avtovaz vice-president The
Technopark project will be managed within OAT by Dr. Frank Detlef Wende,
who will run the negotiations with western equipment manufacturers, and
Vassili Nikonov, Vladimir Avetissian's deputy and production manager at
Are these projects real?
However, nobody can say with any certainty what part of the promised
support will actually materialise. According to an Avtovaz source
'Currently, the Technopark is nothing more than fine words. However,
nobody is dealing with the legal problems, especially those related to
the ownership of the land that it is planned to use for the project.'
Given this uncertainty, the construction of a tyre factory by Pirelli is
on standby. Pirelli has formed a JV with Rostekhnologii with the aim of
producing over 4 million tyres per year. According to tyre market
sources, Pirelli is ready to terminate its partnership with
Rostekhnologii. It is noteworthy that the most recent statements from
OAT state that 'the Pirelli project will not be part of the holding in
the short term and will be dealt with separately.' According to sources,
Pirelli looked at the possibility of buying Amtel-Vredestein in
September. The Russian-Dutch manufacturer is in a situation that is
close to a judicial liquidation. However, Pirelli walked away from this
project towards the end of October. At Amtel-Vredestein, questions are
answered with 'our company is discussing potential partnerships with
several western manufacturers including Pirelli.'
In addition, the level of involvement of the Samara region in the
Technopark infrastructures has not yet been clearly determined. Avtovaz,
one of the region's main tax payers, is suffering from a sales crisis
with enough stocks of unsold product to last two months. No bank has
committed to financing the Technopark project according to sources close
to Avtovaz. Troïka Dialog has previously announced the possibility of
attracting up to a billion dollars for the Technopark project. However,
no one in the company is now able to answer the question as to the
project's feasibility in the current crisis conditions. Mr. Avetissian
and Troïka Dialog limit their comments to generalities and suggest that
'it's a long term investment project which should not be shelved even
under current conditions.'
Who is Rostekhnologii?
The State holding Rostekhnologii was created in 2007
based on the public company Rossoboronexport which was responsible for
Russian export arms sales. Rostekhnologii's business is regulated by an
ad hoc federal law and its financial results are confidential.
Rostekhnologii is currently amassing shares of 450 enterprises in
different sectors including electronic manufacturers, chemical producers
and defence sector companies. Shares in some companies have been
transferred to Rostekhnologii by special presidential decrees. This is
what occurred with the Vertoleti Rossii aeronautic holding, the AirUnion
air freight company, the GOK Erdenet mining complex, the Russpetzstal
steel manufacturing holding…
In the automotive sector, Rostekhnologii now owns Avtovaz, which owns
25% of Asia-Avto in Kazakhstan, and is negotiating the acquisition of
the IzhAvto factory at Oudmourtie. Avtovaz sales revenue was 7.2 billion
dollars in 2007 generating a net profit of 140 million dollars. Forecast
sales are nearly 770,000 cars.
In addition, Rostekhnologii controls the Oboronprom holding which owns
several equipment makers supplying Avtovaz:
- DAAZ at Dimitrovgrad in the Oulianovsk region, manufacturing injection
systems, neymann and non-ferrous items.
- SAAZ at Skopino in the Riazan region, manufacturing suspension
- SMZ at Serdobsk in the Penza region, manufacturing components for
engines and drive trains.
Rostekhnologii is also hoping to control several component factories
that are currently part the SOK group (see sidebar), notably
Vazinterservice, Schetmash, Osvar, Motor-Super and also Rossavtoplast
(steering, suspension, plastics), Avtosvet (lights), Belzan (fixings).
According to Rostekhnologii's own forecasts, the State company could
eventually control 40% of the automotive component market; a market that
is estimated to be worth 4.5 million dollars.
Rostekhnologii has recently suggested the creation of a joint company
with the Belarus government: this could involve the joint operation of
the MAZ truck factory at Minsk.
Who are the Rostekhnologii people?
- Dr. Frank Detlef Wende:
before joining OAT as deputy general manager he was the managing
director at the OOO Avtokomponenty holding (seven factories and 25,000
employees), which owned the State company Oboronprom which, in theory,
consisted of manufacturing companies working in the interest of the
military sector but was not limited to that. The DAAZ, SMZ and SAAZ
component factories were also part of it.
- Vladimir Artiakov: Governor of the Samara region, ex-deputy
general manager of Stae company Rossoboronexport responsible for arms
exports. He worked under the Rossoboronexport General Manager Sergueï
Chemezov. Vladimir Artiakov has been Chairman of Avtovaz since 2006
where he was responsible for creating the links with Renault. Sergueï
Chemezov has now replaced him as Avtovaz Chairman and Vladimir Artiakov
has been named regional governor.
- Vladimir Kapustine: Industry minister for the Samara region
(his title is regional government minister even though the region has no
independence in this respect). An ex-Avtovaz employee where he arrived
in 2005 when the State company Rossoboronexport took control of the
factory. He was previously industry department director at Rossprom, the
federal industry agency, that was run at that time by Boris Aleshin –
who is now Avtovaz Chairman. Vladimir Kapustine did not have any
specific title at Avtovaz. However, he managed the development of a new
range of cars. He then led the negotiations with Daimler Chrysler for
the purchase of the Tritec factory in Brazil The project was not
completed. Since then, Vladimir Kapustine has been involved in the
project to reorganise production at Avtovaz and the creation of the
Technopark. Both projects are at a standstill.
- Maxim Nagaïtzev: Avtovaz development vice-president who was
previously a 'vehicles' sector researcher and teacher at MGTU, a leading
Moscow business school. Since arriving at the factory in 2005, he
participated in the negotiations with the Canadian Magna to develop a
new C class model and was then involved in negotiations with Renault
about the development of a new range. According to sources, the 'C'
project presented by Avtovaz during recent motor shows is mainly the
work of Maxim Nagaïtzev's team and Magna has only had limited input.
According to Avtovaz statements, Renault has accepted its request to
continue to develop a new model based on the 'C' project.
Who is SOK?
The SOK group originated in Samara and is controlled by Iouri Kachmazov,
a local businessman. Its sales revenue is close to three billion
dollars. It consists of several sites dedicated to motor vehicles and
Avtovaz in particular, and the main ones are IzhAvto (assembly of old
Avtovaz models and Kia), Vazinterservice (air conditioning, clutch
plates, etc), Avtonormal (fixings), Motor-Super (suspension parts,
gearboxes, brakes…), Schetmash (dashboards), Syzransky (bodywork,
seats), Kinelagroplast (heating, fuel tanks, interior parts), Osvar
(lights), Sokia (Kia distribution)…
In addition to the automotive sector, the group also produces telephone
cables, glass and ceramics in the Samara region.
AVTOFRAMOS HAS EXPRESSED INTEREST IN AVTOVAZ'S DEALERSHIPS
Since Renault bought 25% of
Avtovaz, Avtoframos, the French company's local subsidiary, has been
developing new projects. 'We would like to use the Avtovaz dealership
network that is well developed in towns with populations that are
greater than 100,000' explained Jean-Michel Jalinier, Avtoframos General
Manager, during the MIMS motor show at Moscow in August 2008.
Avtoframos's own network currently consists of 82 dealerships and 115
sales outlets. The French-Russian company was created with a minority
participation from the Moscow town hall who provided the land for the
factory and is now working on a project to enlarge its site with the aim
of increasing production to 160,000 units by the end of 2009 to cope
with increasing market demand. 'We have done 25% more this year but the
market grew by 32% so we are behind by 7%' commented Jean-Michel
In parallel, Avtoframos will increase the rate of integration of local
suppliers in its products. 'The integration rate is currently above
40%in terms of parts but it is over 50% in terms of roubles which
includes salaries, etc. This means that our vehicles can now be
considered a local model under international trade rules’ observed
Jean-Michel Jalinier. The Avtoframos has been on the Russian market for
a number of years already and enjoys working with local managers,
'talented people', but complains about the high staff turnover and
salary dumping on its market.
LOGISTICS: THE AVTOFRAMOS SUPPLY CHAIN BRAIN TEASER
Avtoframos factory is within the Moscow city limits and receives
logistic flows from Romania, France and Russia. It is trying to install
a quality logistics culture in it s local suppliers.
The local Renault subsidiary,
Avtoframos, has gained a lot of experience in organising logistic flows.
Initially, Logans were assembled at Moscow using parts that came
exclusively from the Dacia plant at Pitesti in Romania. However, the
manufacturer has wanted to progressively increase the share sourced from
local suppliers. Not just for the pleasure of working with them but, as
Olivier Grisselin, Avtoframos logistics director, explains: 'Russian
production is more expensive than Romanian production because labour is
more expensive. Russia is not a low cost country! Purchasing parts here
is 5% more expensive at the factory gate than for the same pars made in
Romania. However, there is a saving on logistics costs and customs duty,
which is 2% for parts covered by Decree 166 and about 11% for parts
excluded from the scope of Decree 166.
Currently, Avtoframos logistics managers are managing flows from
Romania, the Amiens warehouses and the various Russian suppliers whose
numbers are growing. Deliveries from Pitesti travel 1850 km. They are
split between road and rail. Road transport represents 70 trucks per
week shared between 5 fright companies. This means of transport provides
great flexibility and a delivery time that is fairly short but variable.
'The average delivery time is five days but it can be more or it can be
less' according to Antoine Zeiger, Avtoframos logistics project manager.
This method also has several problems in November and December when the
transport 'pipelines' are full of fresh goods for the year-end festive
season and there is also the winter weather to contend with.
Rail freight from Pitesti carries 44 to 88 containers per week that are
delivered to the Paveletskaya railway station at Moscow and then carried
by road over the short distance remaining between the railway station
and the factory. The advantages of this transport method include:
constant availability throughout the year and stable delivery times -
but a bit too long from Avtoframos's point of view.
Deliveries from Amiens represent seven trucks per week.
Finally, deliveries from Russian suppliers represent almost 100 trucks
per week. They are organised by the suppliers themselves. The average
distance for a delivery is 450 km. The failure to meet delivery times
and the internal height of the trucks, which is 2.6 m, are amongst the
most inconvenient problems with this delivery method. Avtoframos hopes
this limit will be changed to 2.9 m for some of the fleet in the future.
Organising logistics from the local suppliers was not easy. 'We were
confronted with junior managers with university degrees who spoke
English or French in the Russian equipment manufacturers. It was
difficult to explain to them that high levels of quality are not
possible unless there is also a high quality logistics!' sighed one of
the Avtoframos managers. Avtoframos has set an objective of achieving
98% compliance with both quality and time commitments in its logistics
circuits towards the end of 2008.
There is no doubt that the world economy
is facing a major crisis and the automotive industry is one of the most
affected: the European Automobile Manufacturers Association latest market
statistics revealed a 14,5% drop in sales for October 2008 versus October 2007,
after -8,2% in September and -15,6% in August. Since January 2008, the overall
European passenger cars market has receded 5,5%. The North American market is
even more badly hit, with a drop in sales of 32% recorded in October in the USA.
What about Russia? Well, Russia also is experiencing difficult market
conditions: according to a leading French weekly news magazine “Analysts think
that the Russian market is very much exposed to the crisis, as its growth is
strongly related to the availability of credit for potential buyers. Sales
growth of foreign brand cars in Russia is only 22% in September 2008, versus 50% in
In October 2008, according to the Automotive Committee of the European
Association of European Businesses, foreign brand cars sales in Russia were
still progressing 9% versus October 2007.
One can not hide from the fact that the Russian passenger car market is facing a
crisis: the 30% or 40% monthly growth rates we got used to the last few years
are now history. But even in the middle of huge turbulences on the world car
sales market, the Russian figures are still positive!
Russian consumers are getting their hopes up: according to a November 2008
Deloitte research, only 20% of Russians think that the financial crisis is
likely to affect them personally.
For car manufacturers and spare parts suppliers already invested in Russia too,
there are plenty of reasons to keep hope alive...
General Motors has just
inaugurated its new factory at Shushari near St Petersburg. Its intended
production capacity is 70,000 vehicles per year and it will employ 1,700
people. It will initially produce the Chevrolet Captiva and the Open
Antara. 'Russia should become GM's leading European market in 2009. We
are already forecasting that we may have to enlarge this factory in two
years time.' announced Carl-Peter Forster, GM Europe Director.
Previously, GM had manufactured a model based on the Avtovaz 4 x4 at
Togliatti but the partnership conditions had been unsatisfactory for
some time. The American manufacturer also had two small volume
production sites for top of the range models at St Petersburg and
Kaliningrad with Avtotor. Its Russian logistics were initially managed
through Finland but have gradually become concentrated on St Petersburg.
Hyundai has launched the
development of a segment C model that is aimed specifically at the
Russian market. According to its local management, it may install a new
factory in the St. Petersburg region to produce the planned model.
Deloitte has been contracted to work on this installation project. New
vehicle sales in segment C represent about 40% of the market whilst the
economic segment B accounts for 38% of sales. Hyundai is currently
present on this market with models in the economic segments assembled in
the Tagaz factory at Taganrog in the Rostov region of southern Russia.
The factory is owned by the Doninvest holding which is owned by
businessman Mikhaïl Paramonov. Hyundai's local partners complain
regularly of insufficient supplies of assembly kits supplied from the
Korean company's factories. In addition to the six Hyundai models, Tagaz
also assembles the SsangYong 4 x 4 under its own branding and a model
from Chery. It also owns the ROAZ factory at Rostov that is specialised
in buses. The company has recently announced plans for several factories
with one more in the Rostov region and another at Vladikavkaz in North
Ossetia. This latter project is ostensibly political and will create up
to 6,000 employees in the region that was the subject of the conflict
between Russia and Georgia during summer 2008. However, the size of
these projects and their financial details are not yet known. Tagaz
sales were 79,620 units in 2007. It announced sales revenues this summer
of 1.1 billion dollars for the same period and a loss of 20 million
Continental and Sibur RT disagree on the future of their joint venture
The Matador-Omskshina tyre factory
was selected to supply the assembly lines of the planned Siber car from
Gaz. It is a joint venture between Continental and local company Sibur
RT producing 2.5 million tyres per year and already supplies VW's Skoda
at Kaluga and Avtoframos's Logans at Moscow with factory fitted tyres.
The Sibur RT management have announced that they would like to increase
the joint venture's production to 4 million tyres per year. However,
Continental has not confirmed this project. Given the probable changes
in the market towards higher segments, increasing the production of the
Matador-Omskshina factory, which is specialised in the economic segment,
is not priority. Since Continental bought Siemens's VDO equipment
manufacturing division, which has several factories in Russia, the
emphasis has been on developing this equipment division.
Avtovaz is finalising its plan to
purchase the IzhAvto factiry at Izhevsk in Oudmourtie from the SOK
group. The company has just obtained approval from the monopolies
service for the project. The negotiations started two years ago and the
final sales price will be about 350 million dollars. SOK asked for 500
million dollars for this site with a production capacity of 220,000 cars
per year. It assembled 78,802 cars in2007, mainly Kia models. The
factory's has debt, approaching 100 million dollars, and the condition
of its equipment have obviously contributed to the transaction price
being reduced. Avtovaz plans to transfer production of its old models to
IzhAvto to free up capacity in its Togliatti factory for future ranges,
especially those developed with Renault. Avtovaz has also offered
Renault the option of participating in the refurbishment of the Izhavto
plant with a view to assembling a French model there but Renault does
not appear to have jumped on this proposal.
Sales of locally designed vehicles
collapsed on the first days of the crisis. To such a point that even in
October Avtovaz had almost 100,000 unsold vehicles which is the
equivalent of two months production. And this figure does not include
unsold vehicles in dealerships. At the same time, Avtovaz failed in its
attempt to sell its dealership network to Lada Service. No one offered
it a price that matched its evaluations in a market in distress.
Consequently, the Togliatti based company has found a reason to justify
keeping this network of 140 dealerships which is accounts for 25% of its
sales. It is the distribution channel that can not refuse the
manufacturer's vehicles even when it is unable to sell them.
This has led to Avtovaz asking the government for a billion dollars of
financial aid in order to open addition lines of credit for the dealers,
according to the official explanation. The problem is that the dealers
do not need lines of credit to sell more because they are unable to sell
their own stocks. In reality, the lines of credit will allow the factory
to keep on working to fill the storage areas. Having observed Avtovaz's
attempts to obtain public finance and the Gaz approach that is similar,
the managers of the Kamaz truck factory have also asked for aid: a
billion dollars - this is obviously the magic number for the Russian
automotive sector. More than half this aid, should it be obtained, is
intended to finance sales via leasing. Apparently, Russian manufacturers
have found a means of financing their distribution networks with
Do you know the 'inch-up'? This is
the current market trend: replace the wheels and tyres by the next size
up in dealerships when a top of the range vehicle is purchased; Between
the tyres at 400 dollars each and the customised wheels at 1,000 to
1,200 dollars each, the option means that dealers can invoice 6,000 -
7,000 dollars more than the sales price. The trade is so profitable that
some dealers no longer offer some top of the range models without the '
RUSSIAN CONSUMER WANTS TO KNOW EVERYTHING ABOUT THE TYRES THAT THEY ARE
GOING TO BUY!'
Eric Faidy, general manager of Michelin
Russia et CEI, is trying to gain market share in winter tyres thanks to
products specially adapted to the local climate. Its Davydovo factory, a
hundred kilometres east of Moscow, was inaugurated in 2004 and is
working at full capacity.
France-Russia Automotive: What is the development
dynamic for your tyre ranges on the Russian market? How is the demand
Eric Faidy: Russia is a country that is important for us due to the size
of its market and its growth. The annual market represents over 40
million tyres of which about 35 million are replacements. It is growing
by 5 - 7% per year and even faster in our target segments. We are
currently the leader in the summer tyre market and are growing very
quickly in the winter tyre market. The performance of both our summer
and winter tyres is recognised by the specialised press in the tests
that it publishes regularly. Over the last few years, we have mobilised
our design teams to offer the market tyres that are specially adapted to
the Russian winter.
Amongst the market trends, we have observed strong growth in the premium
and winter segments. Russia is by far the biggest European market for 4
x 4 tyres.
- What do you consumers look for first? A price segment, a brand, the
product's technicality or the 'Made in France' label?
- The main characteristic of the Russian consumer is his/her curiosity.
He/she wants to know everything about the tyres that he/she is going to
buy. In our jargon we talk about 'knowledgeable shopper'. In lots of
countries, clients are looking for the lowest price. Here, he/she wants
to know what they are buying. We are recognised for the performances of
our tyres in all weathers and all climatic conditions and for the
technologies that we use. Michelin in Russia, as elsewhere, stands for
- How are locally manufactured tyres from western companies perceived by
- Initially, the public doubted the quality. This was so strong a
feeling that the automobile magazine 'Za Roulem' wanted to compare
Michelin tyres manufactured in our Davydovo factory on the outskirts of
Moscow with those manufactured in Western Europe. The result did not
surprise us: The quality was the same! Our tyres are Michelin tyres
before they are Russian, French or Italian. Nowadays, all global car
manufacturers manufacture or are going to manufacture here. 'Made in
Russia' is no longer a problem for consumers; they trust the main brands
that gain their reputations on a daily basis all around the world.
- Your Davydovo factory produces almost 2 million tyres; Is this its
cruising speed or are you looking at expanding it?
- The factory is now working at full capacity. It is intended to service
the Russian market and produce a good share of winter tyres. We also
import tyres because the factory capacity is not enough to supply the
market. The factory's future depends how the market develops. Our
Chairman, Michel Rollier, stated that we would continue to make
commercial and production investments in Russia last year during a visit
- What are your intentions for the Tyre Plus network? What services do
you think should be developed as priorities on this market where the
supply is still weak?
- We launched the Tyre Plus network in Russia in order to introduce the
idea of tyre related services which had not been developed. Car owners
were used to buying tyres in an open air market and then fitting them
themselves or having the work done elsewhere. Tyre Plus means we can
guarantee the same service quality throughout the country. We certify
the standards, which correspond to global benchmarks, through regular
audits of sales outlets. This is possible for Michelin because of our
very large distribution experience with our European, US and Asian
brands and our thousands of sales outlets. The network currently
consists of over a 100 centres for private vehicles and heavy goods
vehicles. We are continuing to develop this network but our priority is
the quality of new sales outlets rather than the number of new openings.
- What advice would you give to western equipment makers who are
thinking about the Russian market?
- Russia and the CIS is a very dynamic zone and merit close attention. I
think that every equipment manufacturer knows that the Russian
automobile market became the largest European automobile market this
year. Not so long ago, the consensus was that this would happen in 2011
or 2012... It’s already happened!
for products entering the Russian market requires detailed preparation.
Explanations from Serge Kisselevsky, Eastern European sales engineer for
France-Russia Automotive: What
are the role of the importer, the carrier and the other providers of
Serge Kisselevsky: The importer must be a Russian company. It is the
only form that is entitled to pay duties and taxes in Russia, the
exporter can not do this. A representative office in Russia owned by a
foreign company can not obtain customs clearance. You importer must be
registered with the appropriate customs post for the type of products
that you intend to deliver. Some types of products are dealt with by a
specific customs post. e.g. jewellery passes via the Aktzisnaya customs.
The exporter has to provide the importer with a list of formatted
documents: the certificate of origin, one or more 'Gost R' conformity
certificates, etc. It needs a team of specialists in order to obtain
these documents. There is a general rule for certificates but more and
more often each customs post will ask that you include specific
information on the documents. Customs clearance can be fast and
efficient and you can even clear customs in 24 hours - but its takes a
week of preparation! Customs do not accept inaccuracies.
The carrier or freight forwarded will deal with the customs formalities
and export. It will provide the company with a copy of the declaration
for the French tax authorities.
- Is the practice of 'grey' customs clearance with reduced prices
- Some brokers continue to promote this 'grey' opaque customs clearance.
People who use them may pay less because the tax burden in Russia is
higher than in France. However, the costs of 'grey' customs clearance
are increasing and the risks or getting caught are growing all the time.
- What means of transport are used most often?
- The major pat is road transport using full truck loads or by
consolidation. The trucks go via Belarus when carrying industrial parts
or via Finland for perfumes and fashion products or anything that is at
risk from theft. Because of the layout of the road network, most truck
routes go via Moscow. Everything is carried by truck as far as the Urals
and sometimes as far as Irkoutsk. After that, it's the railway.
- And for small deliveries?
- We organise consolidation loads. This works well for destinations as
far as Moscow but the delivery is a bit more difficult to destinations
further to the east.
- Do you have automotive sector clients?
- When Gaz bought an engine production line in the Lyon region, we
transferred it to Iaroslavl. We also work with them on warehouse
management. We also transferred the Michelin factory to Davidovo. We
currently work with equipment manufacturers such as Inergy and Faurecia
for the Russian market.
- What is the hardest thing about the Russian market?
- The end of year period. There is more freight and fewer trucks
available so the prices increase. They increased by 20% or even 25% in
2006 but will certainly be a bit more sensible this year.
Who is Daher?
Daher sends about 6,000 trucks to
Russia. It also works with Kazakhstan and the Ukraine and for leading
industrial companies. The Daher subsidiary in Russia has its own
broker's licence. The company also proposes services such as customs
engineering, searching for legal customs duty and sales tax exonerations
as part of exemption programmes for foreign investments, e.g. for
transferring a production line.
The US equipment
company intends to increase its market presence thanks to an off-take
(with another manufacturer by under its branding) production in a
neighbouring country. Inna Selivanova, Goodyear Russia marketing director
Auto Franco-Russe: What is
Goodyear's rate of growth in the Russian market?
Inna Selivanova: We have been present in the market since 1998 and have
enjoyed double figure growth for the last four years. Segment A is in
good health and growing at 18 - 22% per year. However, I think the
Russian segment A is now close to saturation. It is primarily the
segment B that will allow us to increase our sales volumes. We are in
competition on this segment with Korean and Japanese tyres, the 'second
lines' from the major brands and also the Cordiant range from the local
company Sibur Russian Tyres.
Growth rates vary from region to region depending on local income
levels. There is high demand for low costs products in some regions. We
have created the Medeo range to better reply to this demand and
penetrate these regional markets; it was produced in take-off by Sibur
- How is this collaboration developing?
- Our collaboration with Sibur has had its ups and downs. It's a
complicated story that has lasted for almost three years. It has now
ended. But we have not abandoned the idea! We are now working with a
partner in a CIS country to develop a new off-take production. This
range will be positioned above the 'budget' low cost products. I can not
say more at present but the project should become a reality soon.
- What is your distribution model?
- We work with the main regional wholesalers. We are also looking at
developing our own retail sales. We have created a service centre
franchise called Premio. We expect to have 70 such outlets by the end of
2008 and the development will continue further.
- What advice would you give to western companies that are interested
by the Russian market?
- Russia is a risky region. It is sometimes difficult to take decisions
and their financial impact can be great. However, the Russian market
changes very quickly so the decision making process must adapt to this:
shorten deadlines and know how to make courageous decisions. I know it
is not always easy for western companies with their traditional
hierarchy. And you need to think hard about developing your own
distribution network. It’s a very expensive exercise and the business
model has to be well defined to avoid making any mistakes.
Fiat is going to start
assembling the Bravo and Grande Punto in the Sollers factory at
Tatarstan towards the end of 2009. It has a partnership with Sollers
(ex-Severstalavto) who currently assembles the Albea, Doblo and Ducato
vans. Fiat Linea assembly should start in early 2009.
PSA should manufacture the Prologue at Kaluga, along with other
models, from 2011. The first phase of the factory will supply only the
Russian market.. Following the planned extension, the factory may supply
vehicles for export to neighbouring countries where the needs and client
expectations are similar to those found in Russia.
The VW factory at Kaluga has celebrated the completion of the
50,000th vehicle assembled on the site, a Skoda Octavia, at the
end of October 2008.
Dodge is discussing the assembly of the Caliber with Gaz,
probably in small quantities.
German company MAN is looking at an opportunity to open a truck
factory in the Briansk region in western Russia.
Daimler is in negotiations to obtain a stake in Kamaz.
According to Russian press reports, the German company could acquire up
to 42% of the company. Almost 38% will remain state owned via the
Rostekhnologii industrial holding who is also the majority owner of
Avtovaz. Kamaz produced 52,000 trucks in 2007.
Mazda has just inaugurated rail transport of vehicles by using
the Trans-Siberian railway for a journey of over 9,000 km. The
secure convoys left the Pacific port of Zarubino, near Vladivostok, and
arrived at the Mikhnevo terminal, near Moscow. The new ship-rail
itinerary will allow vehicles to be delivered from Japan to Moscow in 18
days compared to 50 days by the standard itinerary using ships to
European ports then trucks via Finland. The company plans to transport
up to a third of its deliveries by this new route which is more
expensive than the old one. The logistics were worked out by the local
company RailTransAvto, a subsidiary of RZD, the Russian
railway company. According to press reports, Toyota is testing a
Anvis has started construction work on its new factory at
Togliatti. The company is a subsidiary of Arques Industries AG
and manufactures anti-vibration devices for the automotive sector. The
factory is planned to be operational in summer 2009 and will supply
Russian car manufacturers which probably explains why it is located next
door to Avtovaz. The sales forecast is 25 million Euros in 2012.
The Ford dealership, Genser, has promoted the option of
buying the Ford Focus in a 'European assembled' version in a
recent ad campaign. It is not alone in emphasising the non-Russian
provenance of its vehicles: the 'Made in Russia' label is always seen by
consumers as synonymous with a quality that is potentially lower than
Even though it has slowed, the Russian market is still
surprisingly resistant. Sales of western brands reached 169,115 units in
October 2008 which is an increase of 9% compared to the same month in
2007, according to the automotive committee of the Association of
European Businesses that represents the western car and equipment
manufacturers in Russia. Whilst sales in European markets are falling
(-6% in France, -8% in Germany and as much as -23% in the UK) for the
same month of October, the Russian market is still showing positive
growth. Sales have increased by 36% over the first ten months of the
year compared to the same period in 2007.
Amongst those losing sales we find the economic models that had the
greatest falls in September 2008: - 22% for the Ford Focus
assembled at Vsevolojsk, -15% for the Renault Logan assembled by
Avtoframos at Moscow, - 28% for the Hyundai Accent
assembled at Taganrog. These models are aimed at the middle class and
their sales rely heavily on bank loans. The availability of loans to
private individuals was the first casualty of the current crisis.
The government has promised to increase customs duty from 25% to
30% in the near future for imported new and used cars less than three
years old Duties for used trucks and buses will also be increased.
Tyre maker Sibur Russian Tyres has asked the government to
increase customs duties on imported tyres from 20% to 30% for car tyres
and from 15% to 25% for truck tyres. At the same time, its local
supplier of steel cord, Severstal Metiz, has asked the government
to stop the 5% tax on raw material, specifically steel wire, where
almost all is imported due to a lack of local production.
Several manufacturers are examining assembly projects located in the
extreme east of Russia. The current fleet is about 1.25 million
vehicles in this region that is far from the automotive production
centres. 60% of it consists of used vehicles from Japan that are right
hand drive according to data from Ernst & Young. The low price of
these imports makes the market harder to penetrate for new vehicles in
the economic ranges. Sollers (ex-Severstalavto) would like to set
up an assembly plant in the region for models from Korean company
SsangYong and Japanese company Isuzu. This local company
hopes to save on transport costs for the assembly kits that currently
enter via Vladivostok, the region's main port.
The union at the Ford factory at Vsevolojsk has taken the company
to court to claim back pay of additional payments for night work. The
union evaluates the back pay at about 350,000 dollars. Its leader,
Alexei Etmanov has made it known that he does not expect to take the
dispute further than the court. This in-house Ford union is
affiliated to the small independent MPRA-Edinstvo and is one of
the most active in the automotive sector. Following several strikes,
they are now using more conventional methods for making their claims.
'According to our calculations, the national market for counterfeit
components is now larger than the market for original components'
according to a statement made by Frank Detlef Wende, Managing
director of Avtokomponenty, during a trade forum. This
pessimistic estimate reflects the situation of his company as well as it
has been directly affected by this scourge. The bulk of the
counterfeiting involves spare parts for Avtovaz vehicles,
Avtokomponenty's main client. Almost 30% of the holding's production
is destined to be factory fitted in the Avtovaz factory with
another 20% for the aftermarket for the same vehicles.
The three main local manufacturers Avtovaz, Gaz and Kamaz seem to
be accumulating unpaid bills with their steel suppliers. According to
information published in the magazine Kommersant, the
Magnitogorsky-MMK metal works has temporarily stopped supplies to
Gaz. For their part, the automotive manufacturers are protesting
against the high price increases for laminated steel practiced by their
Gaz had to stop the assembly lines for the Gazel
commercial vehicles for two weeks. The workers were sent home on two
thirds pay. The production line restarted in November.
The multi-brand Atlant M dealerships, one of the leaders on the
national market, has announced that it is to stop importing the brands
Brilliance, Changfeng, JMC and Shuanghuan.
It is now going to concentrate on European, American and Japanese
brands. The Incom Avto dealership made the same choice and, to
get there faster, it discounted its remaining SsangYong stocks.
This greatly displeased Sollers (ex-Severstalavto) who assemble
these Korean models in their Tatarstan factory.
Avtovaz has forecast a significant fall in its financial results
due to the crisis conditions. Its net profits for the first nine months
of 2008 were 32 million dollars compared to 300 million dollars for the
same period in 2007. It is probable that the result will be a small loss
this year. At the same time, Avtovaz has warned that assembly of
the small MCV and Van commercial vehicles based on the Renault
Logan will not start until 2011 instead of 2010 as previously announced.
The delay is undoubtedly due to the shortage of available cash.
The Ukrainian, Bogdan has interrupted its plans to build an
assembly plant at Borsk, near Nijni. It was intended that this factory
would assemble the Chevrolet Lanos which Bogdan already
assembles in Ukraine for the Russian market.
- Automechanika: March 3-5th
2009 in Moscow
The third edition of the International Exhibition Automechanika will be
organized in Moscow by the German Messe Frankfurt. It focuses on service
stations, car equipment, accessories and services.
- Tires and Rubber: March 10-13
2009 in Moscow
This event will gather Russian and international tire manufacturers,
wholesalers, as well as some special equipment manufacturers.
- The Russian Automotive Industry: March 17th -
19th 2009 in 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.
issue of Auto Franco-Russe contains a review of news from Nijny Novgorod
automotive equipment manufacturers. This article is a gift to our
readers from the Russian magazine Autobusiness, a financial publication
that specialises in the automotive market and industry in Russia and the
CIS countries. Autobusiness is published in a paper version ten times
per year for Russian speakers; an electronic version in English is
available by subscriptions for western readers.
NIZHNY NOVGOROD REGION
which specializes in producing of coolants, brake fluids and car care
products, became the supplier of brake fluid for OAO IZhAvto. The
company has been supplying RosDOT brake fluid for KIA Spectra vehicles
since July 2008. Tosol-Sintez supplies its RosDOT brake fluid to AVTOVAZ,
GM-AVTOVAZ, UAZ, PAZ and MAZ (Belarus) and also other automotive
factories from the CIS. According to Tosol-Sintez, their products have
already been tested at KAMAZ, UZ-DAEWOO and AVTOVAZ.
At the beginning of the summer Tosol-Sintez started producing new
products: antifreeze concentrates X-Freeze Carbox and Classic. The
antifreeze concentrates are intended for making coolants to be used in
any modern cooling systems (including aluminum and alloy) of cars,
trucks and buses. The concentrates are made out of high-quality ethylene
glycol with anti-corrosion, anti-foam, anti-oxidant, anti-cavitation and
According to the manufacturer, coolants made with the help of such
concentrates are durable, have high lubricating properties and protect
the cooling system from corrosion and scale formation. The concentrates
are up to the standards of Audi, BMW, Mercedes-Benz, Volvo, Opel,
Volkswagen and also up to the following international standards: ASTM D
3306, SAE J 1034.
The manufacturer has also presented another ‘summer’ novelty: a washer
fluid Chistaya Milya Letnyaya (Clean Mile Summer) to be used in summer.
At the beginning of the current year OAO ZMZ introduced new motor oils
into the ZMZ motor oil range. Among the new products there were: a semi-synthetic
motor oil ZMZ-Master and ZMZ-Professional intended for Euro-2 and Euro-3
ZMZ engines. The new oils were a successful supplement to the ZMZ-Original
and ZMZ-Standard mineral oils for ZMZ petrol engines. These mineral oils
came onto the market on February 2007.
According to the manufacturer, the composition of the new oils was
developed by OAO ZMZ in cooperation with ZAO NAMI KHIM. The oils
underwent all necessary tests to meet the AAI-GSM requirements. The ZMZ
products are up to the SG/CD and SL/CF-4 grades. The oils are soled via
the distribution network of the company.
In February 2008 ZMZ was certified in accordance with the ISO 14 001 –
2007 international standard and obtained the corresponding Environmental
Management Certificate. The Certificate was given on the basis of the
successful results of the certification audit.
According to Vasiliy Dunayev, the Technical manager of Ekosootvetstviye
(the Central Office of Voluntary Ecological Certification System), ‘from
now on there will be no ‘ecological’ obstacles for ZMZ products abroad.
ZMZ was given the go-ahead on all eventual markets’.
The Certificate remains valid till February 2011; however, after half a
year from the moment the manufacturer has got the Certificate, it has to
undergo another surveillance audit.
In July 2008 ZMZ confirmed the validity of conformity certificates for
manufactured engines. These certificates cover petrol 8-cylinder engines
and all versions of these engines and also 4-cylinder engines of the ZMZ-402
family and all versions of these engines. The certificates give ZMZ the
right to sell these engines on the secondary market.
As of today ZMZ got 20 engine models certified, including Euro-3 petrol
engines of the ZMZ-406 family and diesel engines ZMZ-5143 and also about
60 types of spare parts, which are sold via the distribution network of
Some changes occurred in the warranty policy for engines. According to
the manufacturer, since July 1 2008 the warranty period for Euro-3 4-cylinder
engines ZMZ-405 (2.5 liters) used in Volga, Gazelle and Sobol vehicles
is three years. At that, the warranty mileage for the ZMZ-405 engine
used in Volga cars was set at 100 000 km, in light commercial vehicles –
80 000 km. Since July 1 2008 the warranty period for Euro-3 8-cylinder
petrol engines ZMZ-5231 used in medium-duty GAZ vehicles is set at 2
years or 60 000 km.
Warranty does not cover only petrol engines but also gas engines. At the
same time, the manufacturer des not take any responsibility for defects
caused to engines during installation of the corresponding equipment
into Gazelle and Sobol vehicles.
«Autobusiness» is the unique analytical edition about automotive market
and automotive industry in Russia and the CIS countries.
Contents of magazine «Autobusiness»:
- The analysis of the regional markets
- The analysis of perspective and current demand
- Statistics of sales of cars, trucs, buses, components
- Statistics of manufacture of cars, trucs, buses, components
- Legislative changes
Actual marketing researches in each issue allow to estimate a situation
and to forecast. The subscription to magazine «Autobusiness» allows you
to cut down costs on purchase of expensive marketing reports.
Magazine «Autobusiness» helps to find and select: customers,
distributors, investors, business partners, suppliers, etc.
Therefore advertising in magazine «Autobusiness» is the optimum way for
promotion on the Russian market
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