Will foreign car makers help revive domestic production?"

MOSCOW. (RIA Novosti economic commentator Yelena Zagorodnyaya) - The French car-making concern PSA-Peugeot Citroen has barely managed to jump into the departing train of the Russian car-assembly industry. On January 29, director of the Peugeot Citroen Russian project Didier Alton, governor of the Kaluga region Anatoly Artamonov and mayor of Kaluga Nikolai Lyubimov signed an agreement on the production of cars in the Kaluga region. This is one of the last agreements of this kind.

Such agreements allow global concerns to bring parts for car assembly into Russia with a zero or three percent duty. In turn, the producer assumes a commitment on localization, that is, gradual increase in the share of Russian-made parts in the cars. In adopting a resolution on the industrial assembly of cars in Russia in 2005, the government hoped to attract about two billion dollars worth of investment. This was the estimate of the then Minister of Economic Development and Trade German Gref.

In reality, the figure has proved to be much bigger. At the ceremony of signing the agreement, the current head of the same ministry Elvira Nabiullina said that Russia has concluded 23 agreements on the production of foreign cars and their spare parts on Russian territory to the tune of $6.5 billion. Government officials did a good job by putting off the time when they were going to stop accepting car assembly applications. Initially, they planned to shut the door to the car assemblers in 2006, but eventually left it open until the end of last year.

Peugeot Citroen concluded its agreement with the Russian ministry at the economic forum in St. Petersburg last summer. The documents signed yesterday simply specify the rights and obligations of the sides. The Kaluga authorities will provide 200 hectares of land for the project. The French concern will invest about 300 million euros into it and build a plant with a rated capacity of 150,000 cars a year, employing 2,600 people. Alton said that the plant will assembly medium class cars like Peugeot 308 and Citroen C4. In the first year of production, it will turn out 75,000 cars.

Some delay in making the decision to build a plant has already affected the French concern. The sales of its cars in Russia last year were far from impressive. In the estimate of the Association of European Businesses (AEB), Peugeot sales have gone up by 63%, but moved from the 15th to the 17th place on the list of the best-sold foreign cars (see the table). The numbers are not great, either - 24,951 Peugeots against 175,793 Fords. Sales of Citroens went down by 6% against the average 61% increase in the market of new foreign cars.

But the PSA-Peugeot Citroen concern, as well as Suzuki, Hyundai and Mitsubishi, which signed agreements on commercial assembly with the Russian ministry in 2007, are not yet desperately late. The Russian car market is far from being saturated. In the estimate of Ernst & Young, by 2010, when the new assembly production lines will start working, the market will be able to absorb 3.8 million cars, including 2.5 million-2.8 million new foreign cars. According to the AEB, in 2007 2.3 million new cars were sold in Russia, including 1.6 million new foreign autos.

In general, the forecasts are quite optimistic for PSA-Peugeot Citroen and other 22 participants in the assembly projects. In 1934 Stalin said: "We had no automobile industry, but now we have our automobile industry." Can we repeat this now? Do we have it or not?

Leading global car-making concerns are invited to take part in car assembly projects for two reasons - to meet the consumer demand and to upgrade the domestic car-making industry. Russian car-producers are hoping to import technologies which could be used at numerous plants making car parts and adjacent industries. We are hoping for a synergetic effect.

But for the time being, we have not seen any signs of it. Judge for yourself - all commercial assembly projects provide for 30% localization of production during the first five years of car assembly; 50% localization should be achieved in seven or eight years. Not a single assembly plant working in Russia on these terms is even five years old. Those that are successfully assembling and selling their cars in Russia on other terms have not achieved much in localization, either.

The example of a Ford plant in Vsevolozhsk is indicative. It started assembling cars in 1999. Its agreement with the Russian government provided for 50% localization by 2007. But it transpired in the summer of 2006 that the company could not use Russian-made parts. Its official explanations were very brief but it was clear that these parts were good for nothing. After long talks with the Russian Ministry of Economic Development and Trade, the project was changed in the August of 2006. Ford assumed a commitment to guarantee 30% localization by 2012.

It is obvious that any assembler with similar problems will resolve them at the talks with the ministry, emphasizing the number of new jobs and multi-million investments. They will be allowed to delay localization. Considering hundreds of allied companies, on a national scale this means that we will not be able to revive our car-making industry. The only good thing is that people will get stuck in traffic in comfortable cars.


Sales of new foreign cars in Russia in 2007 (AEB estimate)

PlaceBrandNumbersGrowth compared with 2006(%)

1Chevrolet(incl. GM-Avtovaz JV)190,553 71

2Ford175,793 52

3Hyundai147,843 47

4 Toyota145,478 52

5Nissan116,498 54

6Renault101,166 40

7Mitsubishi100,609 46

8Daewoo 91,302 37

9 Kia 78,616 31

10Opel 66,329232

11Mazda 50,592 57

12Honda 38,631146

13Chery 37,120245

14Volkswagen 32,002 67

15Suzuki 28,597 77

16Skoda 27,535 86

17Peugeot 24,951 63

18Volvo 21,077 94

19Subaru 15,553105

20 Mercedes-Benz 15,330 65

Total (including foreign cars

that are not among the top 20) 1,645,630 61

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