France-Russia Automotive

N° 14

December 2012

Price : 10 € TTC

Français     English     Russian

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

Customs duties came down after Russia joined the WTC but a new "recycling tax" on imported vehicles has appeared. Sales slowed down towards the end of the year; however the market should reach 2.9 million cars and LCVs or the equivalent of the best sales figures before the financial crisis. Renault-Nissan signed an agreement to take over the Avtovaz plant, with Russian Technologies as a partner in a joint venture. Several manufacturers have announced plans to expand their assembly capacity, particularly VW and Daimler on the Gaz site. Yokohama is still cultivating its brand image, whereas Continental is promoting its off-take agreement with a local tyre producer.

The Editor

THE NEW TAX ON IMPORTED VEHICLES CAME INTO FORCE

It is called a "recycling tax" but looks more like compensation for the reduction in customs duties. The new customs barrier is higher than the one it replaces.

Only just into the WTC, Russia has established new customs barriers that are higher than those it has just abolished. The new "recycling tax" will be applied to vehicles when they enter the Russian market from 1st September 2012. It will be used to create a future deconstruction network for vehicles that have reached the end of their life cycle. Both the aim and amount of this recycling tax have been decided somewhat precipitously. Before the Russian government had even decided the method of operation or the economic model of the future deconstruction circuit and before providers had been chosen or even approached, the amount of the tax to fund the operations had already been decided on by the administration. It will be between $860 and $3500 for imported vehicles depending on their horsepower, $5000 on average for LCV utility vehicles and up to $17,000 for trucks. The amount will compensate for the reduction in customs duties which fell from 30% to 25% for vehicles in the summer of 2012 as part of the process for entering the WTC. Subsequently, customs duties will fall progressively from 25% to 15% over the next six years.
Ecological reasons have been advanced to justify the new tax: "Almost 6% of deaths can be linked to ecological causes", said Timur Mikaya, head of the Automobile Department at the Ministry of Industry at a seminar in Moscow in 2012. What is the link between ecology and imported vehicles? The ecological situation in Russia is certainly precarious but this is due to polluting industries and locally-designed over-age vehicles and trucks that cannot satisfy pollution standards. The progressive rejuvenation of the fleet particularly due to imported vehicles will improve the ecological situation. However, civil servants are pointing fingers at importers accusing them of not wanting to be responsible for the entire life cycle of their vehicles. "These are "disposable" companies created for an import contract that will disappear subsequently. They must pay the ecological tax on imported vehicles", announced M. Mikaya. Consequently, he has applied his tax to all imported vehicles by all major manufacturers. These are everything except "disposable"...
Manufacturers already working in Russia will have to implement their own measures aimed at deconstructing their vehicles at the end of their lives. The first measure planned is a network to collect and store vehicles whilst a decision is made about what to do with them.
Since it was introduced in September, the new fiscal regime has already been contested by local coachbuilders who build bodies adapted to the local market using chassis or utility vehicles provided by Western manufacturers. This includes Nizhegorodets, a coach builder from Nijni Novgorod that assembles up to 700 vehicles per month: "Peugeot already paid the recycling tax when bringing our chassis into Russia, but we have a problem with the Ministry of the Interior who is asking us to pay another 150,000 roubles ($5000) on the pretext that we transformed the chassis into new vehicles!", the coachbuilder’s management complains.
At the end of 2012, the European Union presented the WTC with its grievances over the new customs barriers to entry into the Russian market and particularly this "recycling tax" on imported vehicles. The fight against the Russian government's protectionist policy will be a long one.

back to contents

RENAULT AND NISSAN FINALISE THE PURCHASE OF AVTOVAZ

Renault-Nissan and the public holding company Rosstekhnologii (Russian Technologies) have signed a joint venture agreement over the Avtovaz plant. Initialled on 12 December 2012, under the agreement Renault-Nissan will invest $742 million and receive a 67.13% share in the Alliance Rostec Auto BV joint venture by the end of the first half of 2014. The latter will hold 74.5% of Avtovaz. The remainder of the plant's capital is on the market.
Renault, which has already acquired a 25% of Avtovaz in 2008, will invest about $366 million in the new structure. Renault would you like to own 50.1% of the Alliance Rostec Auto BV joint venture by 2014. Nissan, that was not previously a shareholder in Avtovaz, will invest $376 million. The Japanese manufacturer intends to own 17.03% by June 2014. Russian Technologies will hold 32.87% of the joint company at that date. Carlos Ghosn, CEO of Renault-Nissan will become co-chairman of the Alliance Rostec Auto BV Board of Directors. This body will include three representatives from Renault-Nissan and two from Rosstekhnologii.
Avtovaz's Board will increase from 12 to 15 members. Renault-Nissan we have eight representatives on it. The candidates will be appointed at the extraordinary meeting of Avtovaz shareholders to be held in February 2013. Sergueï Tchemezov will remain Chairman of the Avtovaz Board of Directors and will be vice-chairman alternately with Carlos Ghosn from June 2013.
Without waiting for the end of capitalistic transformation, Avtovaz has already prepared a programme of investments that will require something like $5.7 billion of finance. The Russian government has announced that it will contribute up to $2 billion in credit that will be paid by the VEB public bank. Avtovaz currently has almost $2.5 billion in debt (up to $3.5 billion according to other sources) comprising different State help and loans provided before and during the financial crisis.
The Avtovaz Plant has been assembling the Dacia Logan MCV under the local name Lada Largus since the spring of 2012 and Nissan has just started assembling its Almera model on the same site that will also build Renault models in 2013.

back to contents

"Our region has made efforts to welcome Western automobile manufacturers; it had to borrow money to develop sites intended for industrialists. We are now reaping the rewards as Western manufacturers working in the Kaluga region produced 185,000 cars in 2011, or 10% of the entire Russian market's production", said Vladimir Popov, responsible for economic development in the region.
Located almost 200 km to the south west of Moscow, the region of Kaluga is home to VW, PSA and Volvo Trucks plants as well as car part manufacturers such as Visteon and several Western manufacturers in different segments. The presence of manufacturers in this town of 320,000 inhabitants is starting to cause problems in terms of human resources. For example, VW alone employs more than 6000 people organised in three 8-hour shifts. Migrants are used to compensate for the lack of human resources. They come above all from the Moscow, Smolensk and Tula regions. "The presence of migrant workers requires investment in housing. We call on the companies concerned to finance this, it's in their interest", adds Vladimir Popov.
Another black spot in the Kaluga region is the road infrastructure situation. Industrial sites are located along the main M3 road that connects Moscow to Kiev. Despite its importance, this road is broken up by a number of crossroads with traffic lights when it is passing through the industrial zone, about 15 km from Kaluga. This creates traffic jams throughout the day. The increase in the number of manufacturers, particularly with the arrival of the Continental plant, will only make the situation worse. The region's administrators have yet to find a solution to this problem.

back to contents

HAS THE INCREASE IN TAX HELD BACK CAR SALES?

With the 12% forecasted by the AEB, the increase in car sales in the Russian market is still very good, especially when compared to other markets. But this result calculated over the year hides trends that are rather worrying. After an average growth for the two quarters of 2012, the large manufacturers' sales started to stagnate towards the end of the summer. In the autumn, this growth shut down extended to most brands. In November 2012, the market showed no growth compared to the same month in 2011.
"For the first time in two years, the Russian car market did not grow but maintained a volume of sales similar to that of the same period in the previous year The level of dealer's stocks across the country does not provide any reason to hope for a quick return to growth in the coming months" according to Joerg Schreiber, President of the AEB Automobile Manufacturers Committee and also the CEO of Mazda Motor Rus who notes that the intentions to purchase in recent months were not as good as the previous year and is expecting a fall in market performance
Russian drivers are nevertheless still just as fond of Western cars. Trends in the interior market showed no large fall in consumption in the autumn. The slowdown in car sales must have a reason that is specific to this market. This setback had come just at the time when Russia joins the WTC, the coincidence is troubling. Should we see the reason in the unrealised expectations of consumers? For many months, Russian consumers had been expecting an immediate fall in the price of imported cars after Russia joined the WTC in July 2012. They were greatly disappointed. The new "recycling tax” customs barrier set up by the Russian government in August only caused the price of imported cars to rise. Consequently, rather than falling, the price of Western cars has increased by a few percentage points. This includes cars assembled in Russia by Western manufacturers who have been asked to finance herewith the creation of their own collection and recycling networks. Their costs have also increased.
The new protectionist measures could have favoured the sales of local manufacturers. Funded in part by public loans, run by men close to the ruling parties, in theory local manufacturers had nothing to fear from the government measures. Consumers decided otherwise. Avtovaz’s saw sales of its Lada brand fall by 8% in the 11 months of 2012. Izh and Tagaz find themselves with falling sales of 51% and 15% respectively over the same period, even if volumes are not significant this year. Only UAZ, a Sollers group brand, seems to have been spared with a rise in sales of 9%. We will have to wait for a recovery in consumer confidence to see sales increase again.
In the meantime, car dealerships are finding themselves in difficulty. Their stocks of unsold cars started to grow towards the end of the year. For certain networks, this means 2 to 3 months of sales. Mitsubishi, Hyundai and Nissan are mentioned among those concerned. Their sales fell strongly, by almost 25% in the last quarter of 2012, after weak or no growth in the summer. "Manufacturers and dealers were too optimistic in their forecasts for the third and fourth quarter of 2012", says Roman Slutsky, managing director of Alarm Motors, a multi-brand dealership in St Petersburg. He estimated unsold stock of between 200,000 and 300,000 vehicles, or the equivalent of a little more than one month of sales in mid December 2012. If these vehicles will bought by the end of the year, the dealers concerned would face serious financial risk.

back to contents

FORD MOVES IN WITH SOLLERS

Ford is deploying a new local partnership with Sollers in Tatarstan. Sollers plants should be assembling up to five models of the seven that the American manufacturer has planned to assemble in Russia. Sollers will be restarting plants in Elabouga and Naberezhnie Chelni. These have not been very active since its assembly and distribution partnership with Fiat was ended. Sollers will also recruit up to 1000 people to work on its new project with Ford. Sollers recorded $1.01 billion turnover for the first six months of 2012, or a fall of 8.4% on the same period in 2011. The net profit is $85 million. The company's net debt is $359 million.

back to contents

RENAULT AVTOFRAMOS CHANGE THE RHYTHM

Renault's success in the Russian market where the brand is the third largest on its own, before projects with Nissan and Avtovaz are included, is encouraging the manufacturer to increase its capacity on its Avtoframos assembly site in Moscow until the Avtovaz plant gets going. The Avtoframos’s plant capacity will be increased 188,000 units this year. More than 175,000 units were planned in the initial expansion project. The additional capacity was reached by the installation of new machines and by reorganising work times. "We are in the process of moving from three 8-hour shifts to 11 hour shifts, but with the same number of teams", explains Bruno Ancelin, Managing Director of Renault Russia. Shifts will take over from each other at a more complex rhythm than currently with a three day weekend and another one day one for each shift. The new rhythm was introduced progressively, firstly presented to the different management levels and then tested with a team of volunteers before being presented to all staff. It will be effectively introduced after the summer holidays of 2012.
Renault is in the process of purchasing the remaining capital of Avtoframos, precisely 5.9% that still belonged to the city of Moscow. Renault’s partner when it came to Moscow, City Hall provided the land on which the old AZLK plant is located that it inherited when the local manufacturer failed. The operation in progress will enable Renault to consolidate the company's capital.

back to contents

DAIMLER WILL ASSEMBLE ITS LCV AT GAZ

Daimler is preparing to build an assembly workshop for its Mercedes Sprinter LCV in the Gaz plant in Nijni. The future site will have a capacity of up to 25,000 units a year. Part of the equipment will be transferred from the manufacturer's plant in Argentina that assembled the same model. The choice of an old model enables the manufacturer to reduce the price positioning of its LCV and expand the potential customer base. In the long term, Daimler plans to locate production of its OM 646 engine in the Laroslavl engine plant which is part of the Gaz group. The future Sprinter will be commercialised by the Mercedes-Benz Rus network. Assembly should start in 2013.

back to contents

A NEW ASSEMBLY SITE FOR VW

VW launched its new assembly line in Nijni on the site of the local manufacturer Gaz at the beginning of December 2012. The new production capacities will complement those of the existing plant in Kaluga to meet increased demand. The Nijni plant will assemble VW Jetta, Skoda Yeti and Skoda Octavia models, at a rate that should reach 110 units in 2014. The manufacturer has invested almost €100 million to locate its assembly in CKD. It was able to partially reuse machinery purchased by Gaz to assemble its Siber model that proved to be a failure. Parts will come from the manufacturer's plants in Germany, the Czech Republic and Mexico. The plant will employ up to 2700 people. VW had to make a commitment to Gaz to limit salaries to $680 before bonuses so as to not upset the local human resources market.

back to contents

ALL-OUT INVESTMENT FROM GM

GM has planned to invest up to $1 billion over the next five years to increase its industrial capacity in Russia. Its Chevrolet brand is now the second-largest in terms of sales in the Russian market. The manufacturer is expecting to double production in its St Petersburg plant to 230,000 units. The site assembles its best performing models, the Chevrolet Cruze and the Opel Astra. At the same time, GM plans to increase the capacity of its joint venture with Avtovaz that assembles the Chevrolet Niva model. This slightly old Russian-designed 4x4 updated by the American manufacturer is still in demand from drivers in the Russian regions. GM announced that up to $200 million total investment will be intended to increase the joint venture’s production from 70,000 units currently 120,000 units. However, the production on the Chevrolet Niva assembly line has not exceeded 5000 units a month over the last 12 months. GM’s announcements meet the terms of an assembly contract that the manufacturer signed with the Russian government. They set out a commitment to produce 350,000 units per year in exchange for customs facilities.

back to contents

MAZDA WILL SET UP IN VLADIVOSTOK

Mazda Motor Corporation has inaugurated its assembly plant in Vladivostok, a Russian port on the Pacific Ocean. Run as a joint venture with Sollers, the site should start assembling Mazda CX-5 and Mazda 6 in SKD Its initial capacity is 50,000 units a year. In the long term, it should employ 3000 people. The partners have planned to double capacity and move to CKD assembly within two years. The total investment should reach $320 million. The Vladivostok site has the advantage of easy supply by sea from the different plants with access to the Pacific. This advantage turns into an inconvenience when it has to assemble vehicles for the interior market. Isolated from the rest of Russia, the Far East region is sparsely populated. It has 6 million inhabitants and a declining population, a low density and a few practicable roads linking towns that are a long way apart. A single railway line connects the Far East to the Russian metropolis and the national railway operator applies monopolistic prices. The Russian president, Vladimir Putin, who was present at the launch, promised the Mazda-Sollers joint venture "subsidised prices to carry cars assembled in Vladivostok to European Russia". He also added that these subsidies will only be maintained whilst the new company is establishing its business.

back to contents

GAZ STARTS ASSEMBLING IN BELARUS

The Russian manufacturer Gaz has launched a programme to assemble trucks in neighbouring Belarus. The programme will involve its old 4.5 tonne 3307 model that has not been produced by Gaz for two years. The assembly line was installed in the service centre in the suburbs of Minsk. The truck will be fitted with a Euro 3-standard engine produced by the Minsk engine plant. The manufacturer is counting on a 2500-unit market per year. It is also planning to organise a trade-in program for its old trucks. The fleet of out of date Gaz trucks is estimated to be more than 30,000 units in Belarus.

back to contents

YOKOHAMA IS TAKING CARE OF ITS DEALERS

Yokohama’s plant in Lipetsk in the south of Russia started serial production in 2012. "The tyre manufacturer expects to reach its total capacity of 1.4 million tyres a year in 2013." We started producing winter tyres that we have delivered and now we are attacking production of summer tyres. All tyres produced in our Russian factory are sold in the Russian market. We continue of course to import cars from our Asian plants in Japan, Thailand and the Philippines", says Yumoto Mitsuyuki, Yokohama Russia’s Vice-President. Most of the country, from the west of Russia to Irkoutsk in Siberia is supplied by the Russian plant. Everything to the west of Irkoutsk is supplied from Asia.
The tyre manufacturer is taking care of its network of dealers: "There are more than 400 members of the Yokohama Club Network. We are less demanding of our network members than most of our competitors. We want to be as present as possible, we ensure that our points of sale are consistent and we provide support according to volume".
Positioning in terms of image is a concern for Yumoto Mitsuyuki: "We absolutely want to expand and develop our image in Russia. We are above all known as a Japanese company that makes quality products. We want to move towards an image that can be resumed as "Speed, Passion and Trust". We want to continue to use Russian motor sports to do this. In any case, I love motor sports, I was a bike rider previously. We will sponsor the Russian Road Championship and the rally. We provide tyres for Lada and Logan Sport sports vehicles".

back to contents

back to contents

back to contents

back to contents

back to contents

back to contents

back to contents

CARS AND LCVS: A GOOD 2012 BUT WITH NO GROWTH AT THE END OF THE YEAR

2.68 million cars and LCV utility vehicles were sold in the 11 months of 2012 according to statistics from the Association of European Businesses in Russia. Forecasts for November were 239,000 units enabling the AEB to expect sales equal to or greater than 2.9 million units. If this forecast were to prove correct, the market would be the same size as it was in 2008, its best year before the financial crisis.
Sales grew by 12% across the entire year of 2012. They slowed down in the last months to nothing in November. These results are beyond compare with 2011, when the market grew by 41% over the 11 months.
Avtovaz remains the market leader with 494,271 units sold, 8% less than the same period in 2011. The native manufacturer, soon to be part of the Renault-Nissan family, still claims 18% market share. Its share was closer to 22% in 2011 and 27% in 2010. In second place was its challenger for a few years already, Chevrolet sold 189,227 cars, a 20% increase. Renault rose to third place this year, with 172,610 cars sold for the 11 months, an increase of 23%. The French manufacturer overtook Hyundai and Kia that were ahead of it previously. Kia sold 172,578 units, an increase of 21%. Hyundai sold 161,441 cars, an increase of 10%. VW sold 151,392 cars, an increase of 45%, one of the largest growths registered this year. The German group had already displayed the best growth in 2011.
Nissan sold fewer than 42,070 units, an increase of 16%. Toyota: 140,291, up 33%. Ford: 116,648, up 11%. Skoda: 89,072, up 37%. Gaz: 81,009, unchanged since 2011. The Russian manufacturer no longer producing cars for itself, this is its Gazel LCV. Daewoo: 80,159, a fall of 7%. They are followed by Opel, Mitsubishi, the local producer UAZ and Mazda. With 40,942 units sold, an increase of 1%, Peugeot is in 17th place in the bottom half of the table. With 30,538 units sold, an increase of 23%, Citroen is 21st after Mercedes-Benz, BMW and Audi. Fiat performed the worst in the market as it only sold 7667 units, a fall of 70% after its former local partner, Sollars, stopped production.

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

back to contents

COMMERCIAL VEHICLES: LOW GROWTH IN 2012

The commercial vehicles market grew slowly in the nine months of 2012 and even shrinking in relation to 2011 in the 16 tonne or more truck segment according to AEB statistics. In this segment, as well as the 6-16 tonne one, an average growth in imports stopped in September following the introduction of the recycling tax penalising importers.
According to local segmentation, the less than 6-tonne commercial vehicle segment grew by 9% to 135,229 units. Market leader in terms of units, the local producer Gaz did not grow with 64,279 units sold, followed by UAZ with 19,519 units, an increase of 11%. Western manufacturers had slightly more growth: 12,104 units, up by 41% for VW, 8649 units and an increase of 38% forward and 7845 units, a 25% increase for Peugeot. Toyota, Citroen and Mercedes-Benz Vans also recorded increased results. Fiat recorded the biggest fall as it found itself without a partner. The Italian manufacturer sold 4027 units in the nine months of 2012, compared to 10,201 the same period in 2011.
Hyundai remains the leader in the 6-16 tonne truck market with sales of 3273 units in the nine months of 2012, a fall of 19% over the same period in 2011. Mitsubishi Fuso more than doubled its sales with 1649 units. The Chinese manufacturer Foton reported a rise of 146% to 1365 units. It is followed by Japan’s Hino with 1274 units, an increase of 78%. Isuzu and Man registered reduced sales in this segment.
Man is leader in the more than 16 tonne truck segment with 6085 units sold, an increase of 34%. The local manufacturer URAL sold 3740 units over the nine months of 2012, losing 47% of its sales in comparison with the same period in 2011. Scania sold 3673 units, a fall of 18%. Mercedes-Benz sold 3104 units, a 78% increase and Renault Trucks sold at 1334 units, an increase of 47%. All importers in this segment recorded falls of between 15% and 30% in September 2012 compared to their average over the previous months.
Sales in the bus market were dominated by local manufacturers LIAZ, PAZ and KAVZ, with respectively 1449, 1313 and 372 units sold in the nine months of 2012. Hyundai sold 256 units, a fall of 23% and Man sold fewer than 42 units, a fall of 11% compared to the nine months of 2011.

back to contents

IN BRIEF

Peugeot wants to extend its network in Russia to 85 sales outlets by the end of 2012. This will enable the manufacturer to cover 91% of the country. The 408 will be the first model to the assembled in the Kaluga plant according to complete manufacturing cycle rules.

Renault won the GIPA Russia prize awarded for the trust the drivers put in the brand’s dealerships to maintain their cars. This trust was 38% on average in the Russian market for all manufacturers. Renault's results of almost 63% trust were the best in this category. Some 3500 questionnaires were distributed by the GIPA when carrying out the survey.

As Ford was having a few problems getting components to assemble the Mondeo, its Vsevolojsk plant had to shut down for 24 hours in November.

The Izhavto plant in Izhevsk, part of the Avtovaz family, should be asked to assemble cars for the Renault-Nissan-Avtovaz alliance. Depending on the project, it will assemble up to 300,000 cars per year from 2016.

Renault has rented a Kangoo fleet to the Russian Post Office. The public company is in the process of testing vehicles in four regions, including the capital.

The tyre maker Nokian’s Vianor network of service centres grew to 500 in CIS countries, 350 of which are in Russia.

The Russian Ministry of the Interior has launched an $11.12 million tender to acquire 12 vehicles for the traffic police. The local press were quick to point out that the details of the tender - 300 hp, a top speed of 250 kph and nought to 100kph in less than 5.5 seconds - seemed to resemble those of the latest 3-litre Audi A6. "Directed" tenders are common with Russian administrations.

The latest MIMS Automechanika exhibition welcomed 950 Russian and foreign exhibitors in August 2012 in Moscow. More than 600 of them were Chinese. Chinese companies are actively looking to enter the Russian car industry market.

back to contents

back to contents

AGENDA

Automechanika powered by MIMS : from 26 to 29 August 2013 at Moscow, Expocenter Krasnaya Presnia.
Automotive equipment, car accessories and vehicle maintenance.
mims.ru

Comtrans 2013 : from 10 to 14 September 2013 at Moscow, Crocus Expo.
The International Exhibition for Commercial Vehicles.
www.mediaglobe.pro

back to contents

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

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