France-Russia Automotive

N° 12

December 2011

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France-Russia Automotive (Auto Franco-Russe) is an economic newsletter focusing on the development of the Western automotive groups’ business in Russia. France-Russia Automotive is distributed both on paper and electronically. To receive the next issues for a free trial you only need to subscribe on our website: www.autofrancorusse.fr. France-Russia Automotive is published by Agence du Fil SARL Company, whose publications are devoted to the Franco-Russian trade.

In this issue

The Russian car market is regaining its strength. It was to reach a total of almost 2.6 million passenger vehicles and LCVs in 2011. However, it still has to catch up with its pre-crisis level. This is expected in 2012.
The Renault-Nissan-Avtovaz alliance moves up a gear, with the commencement of assembly of Western models in Togliatti. GM and Ford increase their factories’ capacities. Mazda seeks a partner on site, while Fiat is still looking for a location where it can set itself up.
After conquering the passenger car market, the manufacturers are interested in other segments. Peugeot and Citroën are targetting the LCV market. Volvo Trucks, Scania and Mercedes are gaining a foothold in the truck market.
Russia’s accession to the WTO, scheduled for 2012, could change the whole picture in terms of the interest of Western manufacturers in Russian assembly sites or the rules for setting them up. But this is not for some time.

The Editor

START OF PRODUCTION OF DACIA UNDER THE AVTOVAZ BRAND

A model developed by Renault for Dacia, will also be assembled at the premises of its partner Avtovaz. Several other models should follow, under the brands of Renault, Nissan or Avtovaz, on a fully renovated assembly line.

Renault-Avtovaz is about to start production of a model by the French manufacturer at the Russian partner’s factory in Togliatti. This is the Dacia Logan MCV, originally developed for the Renault factory in Romania. In Russia the Logan MCV will be sold under a local name: Lada Largus. It is the first Renault model to be assembled at the Avtovaz factory which was previously limited to the production of locally designed vehicles. The model transfer is part of the agreement between the French manufacturer and its Russian partner. The contribution of Renault at the time of the recapitalisation of Avtovaz by the Russian government was valued at 220 million Euros.
In preparation for the production of the Largus, Renault has completely replaced the equipment of an assembly line in the factory. This operation cost nearly 400 million Euros, according to the management of the French manufacturer. 240 million Euros of this was provided by Renault, which plans to use this line to assemble its own models from 2013. 60 million was provided by Nissan, which will also assemble there under its brand from the end of 2012. As for assembly under the Lada Avtovaz brand, three versions of the Largus will eventually be produced: 5 seat, 7 seat and utility (LCV).
The new line is similar to that used by Renault in Romania, according to the manufacturer. It demonstrates a rate of 60 vehicles per hour, compared to the rate of 30 vehicles per hour normally accepted in the local automotive industry. The assembly of the Largus will be provided from the logistics hub of the Renault factory in Romania that produces its original, the Dacia Logan MCV. This platform already supplies the Renault Avtoframos factory in Moscow, which assembles several models of Dacia Logan sold in Russia under the Renault brand. The city of Togliatti is located 1000 km east of Moscow which will lengthen the chain.
The aim of the manufacturer is to produce 20,000 Largus in 2012. Meanwhile the Avtovaz factory will continue to produce its older models and assembly of the new one has begun largely in new buildings or using abandoned buildings. According to the Renault’s management, the future production resources will be established uniquely on Greenfield sites, including one production unit for engines and gearboxes for the Largus. So it will gradually build a new factory next to the the old one.
Renault-Avtovaz has just hired Britain's Steve Mattin for the position of chief designer, commissioned with designing the future line of Avtovaz cars. Renault put forward the list of candidates who were available and "poachable" but it was Igor Komarov, the boss of Avtovaz, who made the final selection. "Steve Mattin has worked for Mercedes and Volvo, two very popular brands in Russia which are easily identifiable to our consumers. This was a major argument, and a major factor in our choices," explained Mr Komarov.
Mr Mattin took up his new position in early October 2011, with a three-year contract. His task is to design a line of cars that can also be exported, and not only intended for the domestic market, with freedom regarding the design. "He has a completely free hand and may invite the team that he wants", emphasises Mr Komarov, and adds that Mr Mattin must help create the Avtovaz design studio which will be located in Moscow and not in Togliatti, the location of the factory. The first concept car to come from his work should be presented at the Geneva Motor Show in 2012.

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MAZDA FORESEES AN ASSEMBLY JOINT VENTURE WITH SOLLERS

Mazda is discussing the creation of a joint venture (JV) with the Sollers group for the assembly of the manufacturer’s models in Russia. The project plans to use the Sollers assembly factory in Vladivostok, the Russian port on the Pacific. Mazda wants to develop an assembly capacity of 30,000 units per year. The manufacturer signed an assembly agreement with the Russian government in the summer of 2011. It is noted that the agreement was signed notwithstanding the rules in force, and which provide for a minimum capacity of 300,000 units per year to qualify for customs exemptions for the free entry of components intended for assembly. The manufacturer sold 31,930 cars in Russia in ten months of 2011. Opened in late 2009, the Sollers factory in Vladivostok moved into a disused workshop at a local shipyard. It assembled approximately 13,000 Korean SsangYong vehicles in 2010. And in 2011 it would start assembling the Toyota Land Cruiser, with a capacity of approximately 12,000 units per year. The company enjoys very favourable subsidised rates for the transport of vehicles assembled in Vladivostok to the rest of Russia. These rates are given in the context of economic development programmes for this economically failing region. Mazda intends to receive the same benefits.

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CITROËN AND PEUGEOT COEXIST ON THE LCV MARKET

Citroen and Peugeot, competitors and partners, have taken the same approach to the Russian LCV market. This market is currently estimated at 200,000 units and its potential is strong. As explained by François Poirier, Managing Director for Peugeot Russia: "Today LCVs represent 7% of the overall passenger and LCV sector. But the European average is 12% so the potential for development is therefore very strong. We believe that the Russian market will reach 8% to 10% in a few years' time".
Peugeot has established partnerships with local bodywork specialists to seek out niches. "Our approach is to build on the same chassis of vehicles intended for transportation, ambulances, dump trucks etc. We provide the chassis, bodywork specialists take on the monitoring and servicing" continues François Poirier. "There are more than 50 bodywork specialists in total, but not all meet Peugeot standards, they are sometimes basic mechanics. And yet we need some bodywork specialists who can respond to specific requests, go to the customer, consider its request and develop an appropriate response", he adds.
The local partner is called Irito. Situated in Gzhel in the Moscow region, it is originally a retailer of Chinese manufacturers Great Wall, BYD and Foton. Specialising in the 4x4s of the brand, it had long cherished the plan of starting up a large assembly factory in partnership with Great Wall. But in 2007 these projects were countered by the Russian government, under pressure from local builders who did not want Chinese assemblers setting themselves up in Russia to compete with them on the entry level segment. Irito consoled itself by starting up a bodywork shop based on the Chinese FAW chassis. Now it works with Peugeot. The French manufacturer also uses two other local bodywork specialists, in Nizhny and Ryazan.
Peugeot has a network of nearly 80 retail outlets, showrooms etc. with 35 "business centres" which provide sales, service and business customer management. They have post lifts suitable for the weight of the Boxer, the model which is on the rise in the market for utility vehicles in Russia.
Citroën Russia implements essentially the same approach, calling on local bodywork specialists to dress the chassis of the Jumper. And there is demand. "We made over 112% last year, but we started out very low down," smiles Jean-Louis Chamla, Managing Director of Citroën Russia. Its flagship model on the Russian market: a shared taxi based on the Jumper Minibus. "The concept of the shared taxi is very popular especially in provincial towns, where it eases the public transport deficit", notes Jean-Louis Chamla, "some cities are beginning to tighten regulations with regard to ecology and safety. This will spur on the exit from the market of the Gazel fleet of local minibuses which are designed locally and manufactured by GAZ in Nijni and which are considered dangerous. So the market shows strong potential". These models based on the Jumper are manufactured in partnership with local bodywork specialists: Irito in Gzhel and Nizhegorodets in Nizhny. Not surprisingly, these are the same partners as those of Peugeot. Citroën was to expand its network to 20 "business centres" intended for sales and service for business customers, towards the end of 2011.

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VOLVO TRUCKS USES LEASING TO ATTRACT

Volvo Trucks has just launched a leasing programme with Sberbank. This state-owned bank, heir to local savings banks, has the greatest presence across the country. "The Russian market has great potential especially regarding replacements", confirms Peter Andersson, Managing Director of Volvo Trucks. "We are beginning by offering operators the replacement of their Russian trucks with used Volvo trucks. And then, their replacement with new Volvos". This two-step approach is provided by a network of dealers, specific to the brand.
The manufacturer sold 5,000 units in 2009 and only 2,000 in 2010. Since then, business has recovered well: 2000 trucks sold in the first six months of 2011, uniquely under the Volvo brand. What is its position in Russia? "The segmentation of the truck market here is different from that in Europe, as the segments are defined according to weight, "heavy" or "medium". Volvo Trucks is usually present in the "heavy" segment," explains Peter Andersson.
The manufacturer has pursued a process of internal promotion to provide human resources at its assembly factory in Kaluga. Before building this factory, Volvo Trucks was already operating a small assembly plant in Zelenograd in the Moscow suburbs, configured to assemble up to 600 units per year. "The staff at this factory was already experienced. When the site had to be closed, most agreed to move to Kaluga. It became the core of our qualified staff. With additional training they traded up to management roles," explains Peter Andersson, before adding: "But we feel a certain pressure on human resources since PSA opened its site in Kaluga. And this will be all the more so when they expand their factory."

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SEVERAL NEW MODELS AT RENAULT AVTOFRAMOS IN MOSCOW

Renault is ready to start assembling the 4x4 Duster at its Avtoframos plant in Moscow. The start of production is scheduled for the month of December 2011. The manufacturer plans to assemble yet another 4x4, the Renault Koleos there from 2012. It is positioned on the upper segment contrary to the Duster which sits at entry level. Renault responds to strong market demand: the factory has just undergone an expansion that has allowed production to be doubled in 2010. It is now close to 160,000 units per year. The new capabilities have allowed Renault to begin assembly of the Fluence and Megane models on the site in 2011, in addition to the Logan and the Sandero. And after future developments related to the establishment of the assembly of 4x4 models and the large Latitude saloon, Avtoframos's capacity should reach 175,000 units with seven different models in 2012, according to its management. The factory assembled 98,778 units over nine months in 2011, an increase of 72% compared to the previous year. It now provides the majority of Renault sales in Russia, which amounted to 111,720 units for nine months of 2011, and 139,993 units for eleven months of 2011.

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THE BANK SBERBANK SEEKS A PARTNER FOR DERWAYS

The state-owned bank Sberbank is looking for a Western car manufacturer which could establish itself in the factory of local manufacturer Derways. The assembly factory is located in the town of Tcherkessk, in the autonomous micro-republic of Karachayevo-Tcherkessya in the North Caucasus. The company was founded in 2002 by Stanislav Derev, a local businessman who made his fortune producing vodka. After his death, the company's capital was divided between several members of his family.
Derways has tried to assemble several models of Chinese brands: the Huanghai Aurora, the Dadi Shuttle, the Lifan Breez, the Geely, the Great Wall Hover and lastly the Haima. Its production amounted to 7,200 units in 2008; it fell to insignificant amounts during the crisis. The company no longer able to meet its debts, Sberbank took control of it in 2010. A new production of the Haima 3, a Chinese version of a model of Mazda, started in early 2011. Nearly 2,660 vehicles were assembled between January and October 2011.
Sberbank is looking for a partner for the Derways site. But this site suffers from a remote location, far from transport routes, as well as too small a labour pool. The bank had suggested it to Fiat, still on the look-out for a location for its future factory. The Italian manufacturer has not responded yet.

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NEGOTIATIONS BETWEEN MAZ AND KAMAZ ARE STILL DIFFICULT

The proposed acquisition of MAZ, a manufacturer of trucks located in Belarus, by KAMAZ, its Russian competitor, has not exited the deadlock. Announced in 2008, it is still being negotiated. An audit carried out by Ernst & Young in autumn 2011, had estimated the value of the company at 800 million dollars. Instead of simplifying the result, this audit has led to strong opposition from both sides. The Russians, through their ambassador in Minsk, accuse the Belarusian State, sole shareholder of MAZ, of halting the talks in order to drive the price up well beyond the estimate. The Belarusians suspect the Russians of wanting to pay much less than the audited value. A situation that could have been settled through negotiations. But behind this dispute on the value of the factory a continuous political conflict has been emerging over the last decade, and in which the Russian government seeks to have control over parts of the economy of Belarus, which it still regards as its "little brother". As for the other party, it uses MAZ’s promise of sale as a comforter to ease the Russian position in the various additional negotiations, including regarding the prices of oil and gas. One might think that the negotiation can only be resolved by an agreement at the presidential level of both countries. MAZ assembled up to 20,000 units before the crisis, mainly trucks and some buses. The Russian market is its main client, absorbing nearly 65% of its production for HGVs. The Belarussian company had sold nearly 3,000 trucks in Russia in the first quarter of 2011, according to its statements.

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MICHELIN CONQUERING THE HGV MARKET

Michelin is interested in the Russian HGV market, estimated at 7.1 million tyres, 3.2 million of which are all-steel, by the manufacturer in 2011. In 2012 it is expected to reach 7.8 million tyres, 3.8 million of which will be all-steel, this being an increase of 15% on the all-steel segment against an increase of 10% on the market as a whole. "We are uniquely positioned on the all-steel market. And we intend to support growth in domestic transport volume which is expected to reach 10% in 2011, this being the same level as in 2010," explains Thierry Chiche, Managing Director of Michelin Russia and CIS.
According to the analysis of the French tyre manufacturer, regional transport now accounts for 40% of the Russian market, compared with 60% in Europe. It is therefore here that the potential for development is at its greatest. The share of domestic transport is 34% and will grow with the growth of the national economy. International transport weighs in at 14%, and the building segment, 11%. "Michelin is focusing on the "national" and "regional" segments, where we expect an increase in demand of more than one million tyres in the years to come. Across these two segments, the transporters need tyres that can be effectively used in a wide temperature range," notes Thierry Cliche.
Located in Russia since 2004 with a factory in Davydovo, about a hundred kilometres from Moscow, Michelin has already won Russian drivers over with its car tyres. Now it is interested in the new markets which are opening up with the localisation of the assembly of trucks from Volvo, Scania, Hyundai, Isuzu and Mercedes/Kamaz.
Another line of development in the industry: re-treading. The casing for Michelin tyres has a lifespan of one million kilometers, which offers a high potential for reuse. The tyre manufacturer has started up a re-treading system with a capacity of 50,000 tyres, installed in its factory in Davydovo. The figure may seem low compared to estimates of demand. "But it's a good start," says Thierry Chiche, who estimates the market potential for re-treading at 250,000 units. All operations will be conducted internally, which allows the tyre manufacturer to provide customers with the brand guarantee.

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THE FRENCH GNFA TRAINS RUSSIAN AUTOMOTIVE TECHNICIANS

The French National Group for Automotive Training (Groupement national pour la formation automobile français - GNFA) exhibited at the last Interavto-Automechanica trade fair which brought together industry professionals in Moscow in late summer 2011. And for good reason, the GNFA has a subsidiary established in Russia as a joint venture with a local operator. The Group provides training for all business services related to the car: sales, trading, reception, warehousing etc. It offers the training of expert technicians. "In Russia we attend training schemes in agricultural and automotive mechanisation. The trainees take up positions as workshop foremen", explains Patrice Martin, Director of the GNFA’s International Department. Several institutions are involved in its services, including the ZIL College, the institution that trained the staff of the former car factory in Moscow. But also institutions in Kaluga, St. Petersburg, Samara; wherever there is demand for qualified automotive personnel. The operator was listed by the Russian Ministry of Education. It is a good calling card for visiting regional universities. The GNFA has a Pilot Centre in Moscow from where training is provided according to the programmes of its French centres.
What type of company is interested in staff trained in this way? "Among the dealers, the demand for qualified staff is strong. The trade is looking increasingly towards the development of services. The crisis is not entirely unrelated, and the multi-brand dealers who were positioned mainly on the margin generated by the sale of cars, generally did not survive, or were bought out. We also provide training in certain automobile production jobs, typically end-of-assembly-line inspectors, or bodywork inspectors", Patrice Martin replies. Among its customers are national networks of dealers such as Rolf or Avtomir, but also those of manufacturers like PSA in Russia, where the GNFA is also in talks with VW.

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LOHR VOSTOK ADAPTS TO EASTERN MARKETS

The car transportation market in Russia is a delight for specialised manufacturers. One of which is Lohr Vostok, the subsidiary of a French company, and which exhibited at the last Comtrans commercial vehicle trade fair in Moscow. This company provides car transporter trailers for the Russian market and that of neighbouring countries. "The characteristic of these markets is that their regulations allow the distribution of car transporters of 20 metres, a larger size than that permitted in Europe", it is explained to us at Lohr Vostok. Stamped "regional transport", these car transporters are required by national and regional carriers who perform deliveries of Western brand cars assembled in Russia, to the local dealers. As for the transportation of imported vehicles, for example in transit through Finland, car transporters of 18.75m must be used for distribution on the European road network. The car transporters intended for the Russian market are manufactured at a subsidiary of Lohr in Serbia. And, the French brand is having great success with nearly 2,000 units being sold every year in Russia.

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MECAFILTER SEEKS PARTNERS

Addressing the Russian market is not easy for a medium-size supplier. Solaufil Mecafilter, a French company specialising in filters, was present at the Interavto-Automechanica trade fair in Moscow looking for new opportunities. "We have an agent in the Russian market, and we supply a local wholesaler. But that does not make for large volumes; some tens of thousands of parts and the volume is not increasing. It is very little relative to the market", is explained to us at MECAFILTER. Its market is now occupied mainly by Chinese suppliers, and by some German brands. "The fleet is important, but in the provinces the old Lada dominates. These are low-cost cars, and nobody contemplated spending five or six euros on a filter!" And then there is the difficulty of establishing contacts locally, even in the context of a specialised trade fair: "At the trade fair, it's not simple ... People pass by, they take catalogues, but no one speaks English. Making contact is not easy".

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NORAUTO FAILS TO SETTLE IN

Norauto, a French rapid auto repair chain still cannot establish itself in Russia. This company had to set up its auto centres in the parking lots of Auchan hypermarkets. Both companies belong to the same family group Mulliez, and in France the Norauto centers are usually found in Auchan parking lots. But in Russia, the management of the local subsidiary of the hypermarkets has come to oppose it: "We need additional parking spaces. Sorry, we do not have 350m² to offer you". The Auchan hypermarkets display the greatest production per square metre of all large Russian retailers. And it is one of the best performances among the various Mulliez group companies. The voices of Auchan Russia leaders must carry considerable weight in the group's decisions.

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A SURVEY FOR DUMPING ON THE LCV MARKET

The Ministry of Industry and Trade has just initiated an investigation following suspicions of dumping on the market for imported LCVs. Sollers, a local assembler, is responsible for the investigation. This company accuses the manufacturers "from Germany and Italy," according to information from local newspaper Commersant. Sollers was a Fiat partner, assembler and importer of Italian manufacturered LCVs up until spring 2011, therefore its management knows what it is talking about. Sollers broke the partnership with Fiat, prefering to supply Ford, with whom it has set up an LCV assembly in Russia. The local operators of the assembly fear a forced reduction of trade barriers following Russia's entry into the WTO. Including the LCV segment where customs duties, of 25% today, would proceed to 10%. The LCV market reached 121,000 units for nine months of 2011, according to the AEB. This segment is today dominated by local company GAZ which has assembled almost 65,000 locally designed utility vehicles under its brand Gazel. While Sollers settled for 17,600 units under the UAZ brand, also locally designed.

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BUSINESS CLIMATE: CORRUPTION, MY DEAR

Russia moved up to 143rd place in the global classification system, "2011 Corruption Perceptions Index". Established by the NGO Transparency International, this index reflects the perceived level of corruption as witnessed by business people and analysts from the 182 countries involved. It takes accounts of administrative and political corruption, in the public sector, during procurement and so on. It also points the finger at the governments which "do not protect their citizens from corruption, whether this relates to the misappropriation of public funds, the payment of bribes, or an opaque decision-making process." New Zealand tops the rankings in 2011, as the least corrupt country in the world, followed by Finland and Denmark. France remains in 25th place, just behind the United States. Russia was in 71st place in 2002. Since then it has gradually shifted to the rear of the rankings: to 146th place in 2009 and 154th place in 2010. In 2011 it was tied with Uganda, Nigeria, Belarus and Azerbaijan. The authors of the Index politely note that Russia receives the worst score among the G20 countries.
Russia also occupies a prominent place in the global classification system, "Bribe Payers Index 2011" established by Transparency International According to a survey of 3,000 executives around the world. This classification includes 28 leading countries of the world economy according to the propensity of their companies to try to use corruption in their export activities. Here Russia occupies the 28th and last place, making it the country whose companies are most inclined towards corruption throughout the world. Not surprisingly, Russian companies abroad apply the rules to which they are accustomed within their own borders. This is in particular with regard to their relationships with public authorities. Russia is closely followed by China in this ominous ranking. Then come Mexico and Indonesia, but with significantly lower corruption scores.

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Russia's accession to the World Trade Organisation is now scheduled for 2012 and will have an impact on customs duties. It is too early to give precise figures, but the duties on imported cars will fall, by a minimum of a dozen points. This will not be without consequences for on-site assembly projects. So far the Russian government has been using pressure from customs to force manufacturers to install production facilities on-site. But factories which are already established will not move. However the latest assembly agreements, which are too restrictive, could be reviewed. This is with particular regard for the high rate of "localisation" of production, because the customs duties on car components should also be revised downwards. Moreover, the method of calculating the "localisation" will change. Today it includes the price of components used during assembly. With the adoption of international trade rules, it should extend to all costs and expenses incurred by the manufacturer during production and marketing. The manufacturers interested in the Russian market will have new decisions to make.
But the changes will not occur immediately. Aware of a possible policy shift of Western investors, the Russians are negotiating hard to delay deadlines. They hope to obtain a "transition" period before the strict application of WTO rules. In particular they are requesting a period of up to seven years from the effective accession of Russia to the WTO and the revision of all customs duties for the automotive sector. A period which may seem unusually long.

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CONTINUED RECOVERY IN 2011

The Russian market for passenger vehicles and LCV is expected to reach 2.6 million units over the whole of 2011, according to figures not yet finalised by the AEB (see below). This displays a dramatic increase throughout the year, with an increase of 41% for the eleven months of 2011 compared to the same period in 2010. This upward trend was even stronger at the beginning of the year, with +77% in the first quarter of 2011, but it had subsided to +26% in November. The market seems to be regaining its pre-crisis health.
With sales of 535,215 units for the eleven months of 2011, Avtovaz is still in first place. However, its growth of 13% is low in relation to the market. The manufacturer of the Lada had increased sales by 48% in 2010 thanks to the "cash for bangers" scheme funded by the Russian government. The effect of the scheme was responsible for roughly half of its sales. With the end of this grant in July 2011, Avtovaz sales showed a slight decrease reaching 17% less in November 2011 compared to November 2010.
The main Western challengers show a much stronger dynamic. Chevrolet: 157 064 units, up 51% over eleven months of 2011. Hyundai: 146,981 units, up 89%. Kia: 142,196 units, up 47%. Renault: 139,993 units, up 65%. Nissan: 122,425 units, up 77%. Toyota: 105,548 units, up 49%. Ford: 104,831 units, up 33%. VW sold 104,227 units in Russia in 2011, posting an increase of 100% compared to 2010. This is the strongest growth among the major western manufacturers.
AEB had already announced its outlook for the Russian market in 2012: 2.8 million passenger vehicles and LCVs. If this forecast were to materialise, the market would reach a size similar to that of 2008, which was then 2.9 million passenger vehicles and LCVs.

The Automobile Manufacturers Committee of the Association of European Businesses in Russia publishes the monthly statistics for sales of cars and commercial vehicles, of all manufacturers, Western and local, operating on Russian territory. Without distinction, the statistics cover the sales of new vehicles assembled on-site or imported.
www.aebrus.ru

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YOKOHAMA: «We rely on multibrand retailers»

Yokohama is about to start production in its new tyre factory in Lipetsk in the south of Russia. On the occasion of the last Interavto trade fair in August 2011, the tyre manufacturer had organised a series of events to publicise the forthcoming opening of its factory: a meeting for resellers, an auto racing circuit, an exhibition of photographs of the Fukushima disaster, a fundraiser in aid of the victims, etc. Junichi Okishima, President of Yokohama Russia LLC, thereby wanted to educate the partners and consumers at the start of local production.

France-Russia Automotive: When will you begin to sell tyres produced in Russia?
Junichi Okishima: Sales will begin in January 2012. Winter tyres will account for just over 60% of production which will amount to 1.4 million units.

- You seem to focus on winter tyres - is there a shortage of these products on the market?
- This year we became aware of a huge deficit in winter tyres. We were unable to supply all of our customers. I feel that Russian consumers are focussing more on Yokohama tyres, and also those of Bridgestone, which are cheaper than those of Michelin and Nokian and of equal performance.

- Does production of 1.4 million seem sufficient to you for the Russian market?
- I think we will add new production lines at the factory within a year or year and a half.

- You organised a great event for partners during the last Interauto trade fair. How important is the network to Yokohama?
- We have invited more than 300 partners, above all retailers. And that does not account for all of the partners - not everyone could come. We are not developing an integrated retail network in the Russian market, like, for example, the Nokian Vianor network. We favour multibrand retailers. Shops, small assembly stations - those who take 40 or 50 tyres - are our main asset.

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CONTINENTAL: «We are pleased with the off-take partnership with Nizhnekamskshina»

The German Continental is working on plans for its future tyre factory in Kaluga. However, it already has production facilities in Russia: a line of tyres for trucks that it has set up at the local tyre manufacturer Nizhnekamskshina, in Tatarstan, where Continental is deducting part of the production. Explanations of Martin Zaloudek, Commercial Vehicle Sales Manager at Continental.

France-Russia Automotive: How is your partnership for off-take manufacturing at Nizhnekamskshina developing?
Martin Zaloudek: We can deduct up to 20% of the production of the line in Nizhnekamskshina in off-take, or up to 200,000 tyres under the brands of Continental and Matador, half/half. But we are far from this volume today. As a reference number we are at 12 for a total of 24 planned in the project. Every other month we add new products, all from our old range. Because it is not our plant, it is that of a competitor, we are not going to make the products of the latest range there. The tyres coming from off-take go to dealer channels, and a portion goes to the MAN factory in Uzbekistan. We have other OEM projects, and contracts under negotiation for these tyres. Including with Volvo for the factory in Kaluga. MAN also plans to set up an assembly factory in Russia and we are positioned on this project.

- Does the maximum production of 200,000 tyres seem like enough to you for this market?
- For now it is enough. On our segment we compete with Michelin and Bridgestone as well as some Chinese and Korean companies, but we are the only ones to produce on-site. Our customers also prefer the tyres of the old series, and those of the Matador brand. Only the "rich" transporters, those who make trips to Europe or on the Moscow - St Petersburg route, take all of the tyres in "Series 2" Continental. And also those who transport passengers by bus. All of the others settle for more economically priced products. As they often use poor quality roads, they prefer to lower the risks.

- You planned to set up a re-treading line for truck tyres. What stage is this project at?
- We plan to install a re-treading line but not straight away. The local market does not lend itself to it because the roads are difficult, the tyre casings suffer shocks. They are not all in a suitable condition for re-treading. We have studied this question of supply and even by bringing the casings available in Western Europe we will not achieve the necessary quantities for a line of re-treading. And it would be startling to import old casings to Russia!

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IN BRIEF

Fiat Group Automobiles takes up direct sales and maintenance of the fleet under its brand from the beginning of 2012. Its partnership with the local company Sollers, terminated at the initiative of the latter after five years of operations, will stop altogether at that date. Developed in partnership with Sollers, the brand network included 107 dealers in autumn 2011.

The GM factory in St. Petersburg will increase its production capacity. Of 60,00 units during the operation in 2008, it has been given 98,000 units today after the production of new models of Chevrolet Cruze in autumn 2011. The operation caused a series of labour conflicts in the factory. The new maximum capacity has not yet been reached, but the company is already planning an expansion to bring the theoretical capacity to 230,000 units at end of 2014.

GM has just received a fine of 770,000 dollars issued by the Russian Federal Anti-monopoly Service. The reason: sales of a Chevrolet model with a bodywork colour named "Olympic white". This is a violation of the rights of the Russian Olympic Committee, according to the Anti-monopoly Service.

The Ford factory in St Petersburg is expected to reach production of 125,000 units in 2012, its maximum capacity. Ford sold 93,676 vehicles over ten months in 2011, up 34% compared to the same period in 2010.

Hyundai forecast a sharp increase in Russia. The manufacturer has revised upwards the production targets for its factory in St Petersburg. It should assemble 120,000 cars in 2011, instead of the 105,000 initially planned. The rate will be increased in 2012: the factory is expected to reach 200,000 units or its maximum production capacity.

Avtovaz-Renault is working on a project to assemble Lada models in Kazakhstan. The project should take the form of a joint venture (JV) between Avtovaz, the local public company Ertis and Asia Avto, a local assembler. The latter would take a 50% stake in the company. The factory is expected to start production in 2015 with an initial capacity of 90,000 units that can be increased to 120,000 units. The investment required is estimated at more than 500 million dollars. Assembled vehicles will not be used solely for the local market which today does not exceed 30,000 units per year, but especially to neighbouring countries where part of the population is accustomed to old Avtovaz models. Kazakhstan is tied to Russia by a customs union.

The ZMZ engine factory had assembled 37,000 engines during the first six months of 2011, or 22% more than in the same period of 2010. Located near Nizhny on the banks of the Volga, this factory of the Sollers group was the regular supplier of the GAZ Group, whose main factory is located in the same city. It assembled up to 250,000 engines before the crisis. But now relations have become stretched. Most of the ZMZ orders are intended for the UAZ factory which is part of the Sollers group: 27,000 engines. GAZ orders did not exceed 623 engines for that period, or 23% less than the year before.

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