Foreign carmakers go into high gear in Russia

6th March 2011, Comments 0 comments

Russia's car market is again tempting the appetites of foreign carmakers lured by the country's vast potential and a rebound from the global downturn.

Several alliances to produce cars in Russia have been announced by foreign and Russian enterprises in the space of just a few weeks.

In early February, US giant General Motors said it had signed an agreement with Russia's GAZ, controlled by oligarch Oleg Deripaska, to assemble the new model Chevrolet Aveo at the Russian group's factory in Nizhny Novgorod.

On February 18, Russia's Sollers announced the creation of a joint venture with Ford to produce Ford vehicles at two jointly-owned factories in Russia's Leningrad and Tatarstan regions.

And GAZ said it inked a deal with Germany's Volkswagen to manufacture at its plant at least 100,000 Volkswagen and Skoda cars per year.

Renault-Nissan said in November it could take control of Russia's AvtoVAZ, in which Renault currently holds 25 percent of the capital.

Foreign groups have decided to go into high gear in Russia after the encouraging rebound of the country's automobile market, which -- thanks to the Russian government's support -- saw a 30 percent increase in sales in 2010 after a drop of 49 percent in 2009.

"Now there are some 15 main global players that have already come to the Russian market and are interested in its further growth," said Stanley Root, an analyst from the Russian branch of the consulting company PricewaterhouseCoopers.

Especially as many analysts agree that Russia is about to become one of major world markets for years to come.

Root said the volume of Russia's automotive market "could double in five years."

"If the market continues to regain the growth rate it had (before the global crisis), we could see sales increasing from 1.9-2.5 million (cars) this year to 3.0 million and perhaps beyond," he said.

"The (car) fleet (in Russia) is aging," said Ivan Bontshev of Ernst and Young, adding that, compared to other countries, in Russia relatively fewer people have cars.

Aware of these encouraging prospects, the authorities have decided not to miss the chance to boost the industry.

"The government realizes that it is really important to keep core industries that employ large numbers of highly skilled engineers," who may participate in the modernization of Russia's economy, Root said.

All the more so since the car industry is a big employer, both directly and indirectly.

Moreover, the authorities know that Russian manufacturers can not survive in a highly competitive international market unless they develop alliances with major foreign manufacturers, Root added.

In this context, they undertook a series of provisions to push major global groups to ally with Russian partners, such as tax reductions on machine parts' import in case at least 300,000 cars are manufactured per year.

© 2011 AFP

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