www сайт THE AUTOMOTIVE INDUSTRY IN RUSSIA

www. сайт THE AUTOMOTIVE INDUSTRY IN RUSSIA

Content 1. 1. The history of the automotive industry in Russia. 1. 2. The role of the automotive industry in the economy of Russia. 1. 3. The automotive industry today. 2

1. 1. The history of the automotive industry. 3

1. 1. The history of the automotive industry in Russia. The automobile industry in modern Russia is way behind the rest of the world, with a 10 to 15 year progress gap. The oldest Soviet automaker, GAZ (Gorkovsky Avtomobilny Zavod) was established in Nizny Novgorod in 1929 by Ford “Pobeda” was pro duced in the USSR from 1946 till 1958 In 1956 the new Soviet car “Volga” GAZ 21, also awarded by the Brus sels xhi bi tion. E GAZ 67 was in the mil i tary inven tory of the USSR and friendly nations of East ern Europe. The actual price of this mas ter piece of the Soviet auto mo bile indus try was about 10, 000 rubles. Inter est ing to men tion, an aver age salary of a Russ ian worker was 120 rubles per month. Accord ing to the sta tis ti cal data of 1970 only 2 house holds out of 100 owned an auto mo bile 4

1. 1. The history of the automotive industry in Russia. During the Soviet period, the industry had gained a reputation for extremely slow production of very unreliable vehicles Historical production by year Year Production of Production vehicles total of cars 145, 400 5, 500 1945 74, 700 5, 000 1947 133, 000 9, 600 1950 362, 900 64, 600 1955 445, 300 107, 800 1958 511, 100 122, 200 1960 523, 600 138, 800 1965 616, 300 201, 200 1970 The lack of post Soviet government subsidies has placed most enterprises in danger of extinction. 1940 916, 000 344, 300 1975 1980 Most new cars in Russian cities are foreign. In 1996 government vehicles were exclusively Audi, Mercedes Benz, Saab, or Volvo. Exports of Russian passenger cars declined in the early 1990 s 1, 963, 900 1, 200 2, 199, 000 1, 327, 000 1985 2, 195, 700 1, 332, 300 1990 2, 071, 950 1, 260, 200 5

1. 2. The role of the automotive industry in the economy of Russia. 6

1. 2. The role of the automotive industry in the economy of Russia. In the early 2000 s, the Russian economy recovered. In 2005, 1, 446, 525 new cars were sold, including 832, 200 Russian models and 614, 325 foreign ones. The Russian market is the world's fastest growing automotive market by 2008. In late 2005, the Russian government enacted legislation to create special economic zones (SEZ) with the aim of encouraging investments by foreign automotive companies. Since the 2000 s, foreign companies have been flocking to enter Russia, seeing Russia as a local production location and export powerhouse. Russia's labor, material and energy costs are only 1/6 compared to those in Western Europe. 7

1. 2. The role of the automotive industry in the economy of Russia. Then the global financial crisis came. Russia's automotive industry was hit hard by the late 2000 s recession, which started in the United States. Production of passenger cars dropped. In late 2008, the Russian government introduced protectionist measures, worth $5 billion, to improve the situation in the industry. The tariffs for imported foreign cars and trucks were increased to a minimum of 50% and go up to 100%. The tariffs were linked to the engine size of the vehicle. A brief table illustrates the machinery industry structure of Russia 27. 4% Automotive industry 12. 3% Electric equipment and appliances 10. 3% Heavy machinery, power plant machine building, transportation equipment producing 6. 0% The most efficient anti crisis measure executed by the Russian government was the introduction of a car scrappage scheme in March 2010. 2. 4% 2. 1% 1. 9% 1. 8% 35. 8% Chemical and petrochemical machine building industry Machine building for food and light industry Construction and road construction machine building Tools and plant machine building Agricultural machine building Military machine building and other subindustries 8

1. 2. The role of the automotive industry in the economy of Russia. The Russian automotive industry can be divided into four types of companies: local brand producers foreign OEMs, joint ventures Russian companies producing foreign brands The five most popular cars in Russia in 2009. The economy car Lada Priora topped the list with 84, 779 sold units. Lada Samara was second with 77, 679 units sold in Russia. In the light commercial vehicle sector, the GAZelle van has been very popular. Lada Kalina was the fourth most sold car in The classic Lada 2105/2107 was third with Russia in 2009, selling 52, 499 units that year. sales of 57, 499. 9

1. 2. The role of the automotive industry in the economy of Russia. The fourth and fifth largest carmakers in Russia are Volkswagen and Ford, respectively. In total, the five largest companies of the industry account for 80% of all cars made in Russia's second largest car manufacturer is Avtotor, located in Kaliningrad Oblast. Avtotor performs SKD, CKD or full cycle assembly of foreign models, such as BMW, Kia, and General Motors' Cadillac and Chevrolet vehicles. In 2009, Avtotor produced 60, 000 cars and accounted for 10% of Russian car production. Russia's automotive industry is Avtovaz, located in the city of Tolyatti. It currently employs more than 130, 000 people, and its Lada models dominate the Russian car market. Avtovaz models account for about 50% of Russia's total car production Avtoframos, the third largest car manufacturer, produced 49, 500 cars in 2009. Its plant is located in the south east part of the city of Moscow. . The company manufactures Renault Logan and Renault Sandero models 10

1. 3. The automotive industry today. 11

1. 3. The automotive industry today Russia's automotive industry is a significant economic sector. It directly employs 600, 000 people and supports around 2– 3 million people in related industries. Relaxation of the aggressive schedule of transition to new fuel emission standards Increased state orders to support demand for domestic vehicles In 2010, the Russian automotive market demonstrated consistent growth, mainly driven by: Recovery in consumer confidence "Pent up" demand A light vehicle scrapping program Russian government has been supporting the car industry. It introduced a number of market interventions, including: Direct subsidies and guarantees to help restructure domestic OEMs Subsidized interest rates for the purchase of domestically produced vehicles An increase in import duty on vehicles to give local production an advantage over imports and protect ailing domestic manufacturers Government support initiatives 14

SUMMARIZING 13

Summarizing After the dissolution of the Soviet Union the Russian automotive industry faced a long term crisis due to competitive foreign import. In the early 2000 s the Russian economy recovered and the Russian car market was booming. But it was severely hit by the global financial crisis of 2008 2009. In 2010 the Russian economy recovered. 30% increase in annual sales in 2010 with a volume of 1. 9 million vehicles. Among the most influential works in this field is the report of Ernst &Young. They have compiled a forecast for the light vehicle market for 2010 12, based on materials and estimates of leading automotive analytical agencies and their market understanding. Sales of new Russian cars will fall because of the import of second hand cars from the WTO countries. 12

Summarizing Light vehicle short – term market drivers are: Government support initiatives including car scrapping program. Planned budget allocations in 2011 amount to RUB 5 billion (100, 000 certificates) Aging car fleet and relatively low car density as compared to developed automotive markets "Pent up" demand for cars Further slow imports substitution by local production due to the increased import duties Plans of major automotive manufacturers to increase production volumes and localization ratios in order to comply with requirements of Industrial Assembly State program of subsidizing car lending. Planned budget allocations in 2011 total RUB 1. 75 billion Planned state allocations to preferential car lending budgeted at the level of RUB 1 billion (in 2012) and RUB 0. 5 billion (in 2013) Selection of long term strategy of partnership with foreign producers of passenger cars (within Russian automotive industry strategy 2020), which implies no further increase of import duties EY forecast for the light vehicle market The mid and long term market drivers are: 15

Summarizing All this allows us to conclude that to keep this sector of economy growing, we shall solve existing problems that, if not settled, can result in a decline of car sales and production. 16

Thanks for attention 17