Main Automobile Industry in Russia


Automobile industry is the main industry for machine building which effect for increasing of processes of economic and social development of Russia. Russia belongs to the fastest growing automotive markets. While demand for quality new vehicles in the country continues to optimistic forecasts, domestic manufacturers are leading towards saturation of production capacity.

On the other hand Russia is one of the world's fastest growing automotive markets and in 2007 it predicted total sales of two million units. Recently most of international car manufactures said they have established assembly facilities in Russia and planned to increasing of the volume of automotive investments in 2008 because in central and eastern Europe's automotive industry is rapidly growing compare to the Russian market. And also growing of local automotive industry is less percentage within the last few years.

As a result of this, Russian car industry can get experience of international suppliers and as well as upgrade the local suppliers. Russian car market has to face the challenges of a robust entry of foreign manufacturers. Many of the car manufacturers in Russia currently establishing small assembly lines, producing below 100000 passenger's car year. Most of individual car assembly plants are put restrict for rational of suppliers they face more valuable business obstacles than large international car manufacturers and local infrastructure constraints including land, shipment logistics and the reliability of power supply.

Trends in the global automobile industry

The automotive industry is cyclical, a fact that was forgotten by many in the industry, especially after witnessing years of excellent global growth. The automotive industry in industrialised spearheads the manufacturing sector. This sector has a direct impact of stabilisation of the processes of economic and political development than other industry and provides several of significant shares of jobs.

The global automobile industry in Russia was creating a major part for the world's automobile industry in earlier times. In 2003, Russian ownership of cars increased to 152 vehicles per 1000 inhabitants, almost thrice the 1993 rate of 59. Annual car sales in Russia have increased from 800000 in 1992 to 1.5 million in 2003. According to statistics of the first quarter of 2004, the growth trend will continue, and it is increasing household incomes are creating a demand for cars.

Since August 1998, Russian economy has entered strong economic structure by increasing of oil prices the income of the people has been growing such as wages and the expansion of consumer credit, people can afford car purchases. In 2005, the rate of growing automotive industry was 14 percent. Bur because of price increases the total of Russian brands decreasing 27 percent in 2007 and in 2006 it was 38%. In 2004 it was hit by 14%. And also Russian brand declined by 14 percent because of import of new cars, 14% of used cars and 16% by foreign cars.

When we focus on the car industry at present, two year old vehicle fleet has significantly reduced during the half-year, to about 3.3 million cars, according to Teresshenko. As a result, dealers' proceeds from serving will increase by 10-20 % in 2009, and up to 50% in a year. Now the principle task of dealers is to hold clients, including those with expired warranty period that is why it is necessary to develop special programs cutting prices for servicing of 'aged' vehicles. According to a tentative prognosis, Gorky Automotive Plant (GAZ, can produce up to 70000 vehicles in 2010.

The Passenger Car Market

Russian passenger car market is estimated at 1.76 million vehicles in 2004, up 10.5% year on year. While the import of the getting decreasing, 20% of overall consumption, the production of international car distributors more than tripled, to over 133000 units, which represents 7.5 percent of overall Russian car market in 2004.

Passenger Car Market Compared

As you can see on the figure 1, it was clearly said in the passenger car market that Russian production and import use cars were decreasing while foreign production and import use cars increasing in 2002 to 2004.

According to the data in the Russian Statistics Committee, January to May in 2005 comparing with in 2004 (January to May) inventions of the passenger cars in Russia decreased by 5.7% and reached 415000. Meanwhile the "foreign" total volume of Vsevolozhsk "Ford" plant increased by 5.1% (up to 10.375 thousand cars), and the total growth of the Joint Company "GM-AutoVAZ" reached 3%. Production growth at Kaliningrad "Autotora" is much more impressive - 56%; and this figure at "TarAZ" is even larger - 131% (up to 14.5 thousand cars).

In 2006 January to June new production of passenger's cars increasing up to 646000 vehicles compare to in the same period in 2005 which increases in a percentage of 9.5. Most of the productions car manufacturing by the companies named, OAO Avtoframos, ZAO Ford Motor company, OAO IzhAvto, OOO TAGAZ, ZAO GM-AvTo VAZ, OAO Severstal-avto and ZAO Avtotor. Meanwhile Russia is start to import foreign cars to the country and it is growing faster and faster than domestic inventions. The situation on the market was effected by import of used cars and it has shown that imported new and used foreign cars total was increasing by 60% in the same year. (2005)

Most of the motor vehicles and machinery productions are created with the enterprises of electro-technical, metallurgical, electronic, chemical, and light and other branches related to industrial. Development of automobile industry is connected with the economy. E.g. Doubling the GDP.

When Russian car manufacturers are slightly going down, we can see that first three world largest car manufacturers which are USA, Japan and Germany, have stayed their positions in the provisional ratings. The improvement programs developed or used by Japan and brought to the United States are,

  • Zero defects
  • Quality circles
  • Continual improvement
  • Total quality control
  • Statistical quality control

At the same time China managed to reduce production with Germany from 1 million to 500000 cars. And also china is the first world's largest producer of commercial motor vehicles in early 2004 and 2005.

Commercial Vehicles and Logistics

1. In 2010 GAZ group will launch production of a new GAZelle modification. First restyled LCVs will roll of the assembly line in February. In total, about 20000, new GAZZelle vehicles will be manufactured next year.

2. According to tentative prognosis, Gorky Automotive Plant (GAZ), can produced up to 70000 vehicles in 2010.

3. OAO KAMAZ and Daimler AG are establishing two JVs in Russia. As it was reported to Russian automotive Market Research by OAO KAMAZ press service ,on November 23, 2009 in Stuttgart (Germany) OAO KAMAZ .

The enterprises are organized on a party basis, with equal investments and equal joint shares of both parties in each enterprise. The Ministry of Industry and Trade of the Russian Federation has prepared a 'pilot' project proposal for vehicles utilization in 2010. It is proposed to carry out and experiment on stimulation of buying new vehicles instead of those which have been taken out of operation and utilized, since January 1, 2010 till January 1, 2011. Moscow, Moscow region, Saint-Petersburg, the Krasnodar territory, Sverdlovsk region, Rostov region, the republic of Bashkortostan, Samara region, Chelyabinsk region, the Republic of Tatarstan, Nizhny Novgorod region, Novosibirsk region, the Krasnoyarsk territory, the Primorie Territory, Leningrad region, the Republic of Udmurtia, Kaliningrad region, Ulyanovsk region and Kaluga region have been chosen experimental sites.

Key criteria for region selection are,

  • The region vehicle fleet should not account for less than 2% of the entire Russian car fleet.
  • High concentration of auto business in the region.

It is planned, within the 'pilot' project, to accept for utilization vehicles over 10 years, both Russian and imported, which have been registered to the last owner for not less than 1 year.

When delivering a car for utilization, the customer will receive a 50000 rouble certificate, which may be used for purchasing of a new vehicle, made in Russia, including industrial assembly.

Russian car manufactures

The company called 'Avtovaz' is firstly associated with Lada model is one of the main Russian car manufacture but not the biggest car manufacturer in Russia which is most frequently met Russian car model on the roads. And also Avtovaz is the leading car manufacturer in the country and currently they produce a wide range of models with supper quality and most popular in some cities in Russia such as Niva, Oka, Lada.

This manufacturer was established in 1966 and at that time they started a new car-making plant which was combined with Italian Fiat cooperation on conjoint development of an automobile design. The city of Togliatti was the first city, plant Volzhsky was built. In April 1970 first six cars VAZ 2101 were produced and plant had released 350 cars per day by the end of the year. Therefore majority of Soviet people like VAZ cars and they have been repeatedly awarded and receive the reputation of the most public cars. Currently Avtovaz is the key Russian passenger car manufacturer and cooperates with General Motors. Chevrolet Niva is the most user friendly car model of the two companies.

The biggest car manufacturer which was formed in 2005 due to RusPromAvpto is Gaz group and at presents the following enterprises are comprised with it. Pavlovski Avtobus, LDV Holding, Itd, Golisynki automobile works, Yaroslavl motor workshop, Ulyanovsk motor workshop. The place of Gorkovsky automobile works is the front rank. In 1929, American Ford Motors produced Ford A-class passenger cars in the Soviet Union and over 9000 self propelled mounts, 12000 tanks, 24000 motor launchers over 3000 missiles launchers Katyusha.

Kamaz is another car manufacturer in Russia which was established in 1990 as a descendant of industrial association 'Kamaz'. It is a large building company including 13 large special purpose plants developing, producing, assembling vehicles and components and marketing end products. Automobile Moscow Society was established in 1916 which is manufacturing F 15 trucks under the licence of Italian company 'FIAT'.

At present (taking from BBC world news)

  • Russia's biggest car plant in the city of Toliatti in the centre of the country has seen sales fall by 60% this year.
  • Tens of thousands of people at AvtoVAZ have lost their jobs. Efforts are now under way to generate new businesses.

Economic transition in Russia

The economic transition of Russia can divided in to three main transformations from early 1860s to 2000.

1. Tsarism, involved the breakup of the feudal framework of land ownership and move toward capitalist relations

2. System power of state ownership and administration (communist revolution of 1917- sui generic type of war - economy state capitalist.)

3. Aiming at reshaping the inherited economic fabric of private ownership. (started in the early 1990s-still unfolding)

The former president in Russia early 1990s Mr Boris Yeltsin,in the first direct presidential election in Russian history. In October 1991, as Russia was on the verge of independence, Yeltsin announced that Russia would proceed with radical market oriented reforms along the lines of shock therapy and today that of Vladimir Putin, Russia has opened to international trade, investment, the media, tourism and the internet. Contrast to the Soviet Union, at present Russia is publishing variety of economic, social and demographic information to the world. When we concern about the transitional economies in the world, Russia has the second largest economy with a GDP about one fifth that of China. Concerning the direction of Russian transition it has sharply different emphasis that the opposing sides place pointing toward market oriented change. The debate highlights disagreement about the reliability of official data. Russian real GDP growth rate has been increased up to twice of the average of other G8 members within 18 years of the time.

Since 2000 foreign debt has been decreased from 50 percent of GDP to less than 30 percent. In 2005, there was debt of 3.3 billion of US dollars to the international Monetary Fund, were repaid. Of the 40 billion owed to its creditors in the Paris Club, Russia has paid 1.5 billion US dollars and foreign exchange reserves have more than tripled, to more 250 billion USD.

However, after the dissolution of the Soviet Union (15 union republics) became independent and are commonly doubled as the former Soviet Union. Eleven of these states aligned to form a loose confederation known as the Commonwealth of Independent States. Viktor Stepanovich Chemomyrdin (1993) formed a new government with Boris Fedorov, who was an economic reformer as well as deputy prime minister which they announced so called anti crisis programme to control inflation through tight monetary and fiscal policies. The government mostly maintained its commitment to tight fiscal constraints and budget deficits remained within prescribed parameters in 1995 and at that time the government had face two kind of problems which was to fund wage arrears and to improve the increasingly tattered social safety net.

Russia was progressing and the inflation was brought under control in early 1997. In the past decade in Russian economy, oil and gas prices and internal developments are reflecting and some of agencies recent detected that Russia's sovereign debt rating from junk to investment grade. Inflation continues to hover around 10 percent and capital flight and indicator of weakened confidence in the Russian economy was more than 9 billion USD in 2004 and it was increasing in 2005.

Banking is the main economy transition for a country. In Russian bank industry, in earlier 1998 there was a serious crisis the restructuring of the bank industry is proceeding slowly. Because of that Central bank of Russia decided to increase minimum capital from one million Euros to five million Euros and it is expected that no of banks will going to decrease. At present there are nearly 1300 banks in Russia and the authorized capital is below the minimum in about 1000. But most of the foreign banks in Russia minimum capital is higher compare to the others.

The no of car owners in Russia had inclined by nearly half with 12 million cars on the road in 1993 and 17.6 million in 1997. At the earliest of 2001, 1.25 million automobiles were invented in Russian factories and some 100000 new and 60000 used vehicles were imported.

Comparing of foreign cars and Russian car manufacturers

Most of Russian people prefer Fords, Toyotas and Mitsubishi to domestic Lads and Nivas. Ford is the most popular foreign car which had sold over 22,000 automobiles in Russia last year. The second best was Chevrolet which was sold over 20000 cars and the 3rd place was taken by Toyota with 16000 cars were sold. The 81% of foreign cars were increased at that time and when we compared to the results of last year, it was raised by 167000 cars.

In 2008 General Motors started a new plant working under St. Petersburg and producing off roaders Captiva and C class sedans which invent 100000 cars annually. According to the information reviled from Ministry of Economic Development and Trade and Russian GAZ group, there are seven more foreign car making plants going to build in Russia within next three years and the total no of cars going to be increase up to one million automobiles a year.

Finally we can say that foreign car is going up while Russian car manufacturers falling down and some cars like LADA are losing their popularity with every passing year and day by day people desire to buy foreign cars than local cars. Unfortunately domestic manufacturers can't produce good cheap cars and this tendency is change in the nearest future.

When we talk about international car manufacturers in Russia, recently many of international car manufacturers have established assembly facilities in Russia because they want to know about the entry of large number of foreign car manufactures can assist the automotive industry in Russian Federation. And also they did priority for the import substitution.

Fiscal indicators for federal government(% of GDP, unless otherwise indicated; end-year figures for debt)

During the Russian transition the employment situation has getting worst. The unemployment rate was rising up from 4.9 % in 1992 to 11.7% in 1999 and after that it was rapidly decreasing by 7.1% in 2002. At that time unemployment rate was much higher and the average wages reached by 4500 rubbles in 2002. In 1992 to 1994 the inflation of Russia was risen hyperinflationary levels and during 1995 to 1997 the situation was not changing. But inflation rare was increased up to 11% in 1997. In earlier 1998 the financial crisis was becoming bad again and essential products prices that we need our day today life was rapidly went up by 80% during that year. Since that time the stability of new level of inflation has been reached at a rate of 15.1% in 2002. The foreign trade in Russia was going up since 1992 and the fuel prices inclined a record of 60 billion dollars in 2000 which helped to finance the negative services, investment income, capital and financial accounts of the country. After the 1998 financial crisis the Paris and London club creditors helping with contributing payments situation.

Any western technology and product range being brought into the Russian car industry has to be a good thing and will have to be managed properly, but the logic is that it will drag parts of the Russian car industry into the 21st century.

Monetary indicators

Russian enterprises have suffered from low local purchasing power, specially the ruble devolution in 1998. But in 1999 to 2000 it was in increasing. Exporters of energy are giving more valuable for the economy and as a result export earning is increased. The profitability of Russian enterprises is very difficult to assess in comparative western terms. Russian enterprises are suffered from another problem which is large share of payment arrears and batter transactions among them. The Russian automotive industry has always been more vertically integrated than its counterparts in Western or Asian countries, with domestic manufacturers getting 80% of their component needs from internal sources. Russian economic development is monitored by the Russian and other international institutes. RECEP Russian European Centre for Economic Policy in Moscow giving some information on main economic developments in monthly as well as quarterly (Russian Economic Trends)

At the end of the February, St Petersburg hasted Autoinvest, an annual international conference aimed at attracting investment to the Russian car component market. And also the head of the automotive segment at Ernst and Young believes that Russia is one of the least saturated car markets in the world. As only 20pc of Russians own a car, the market is bound to resume growth within next two and three years.

The global automotive industry structure only occurred as the industry adapt to the economic pressures in its export markets because,

1. Changes in transport costs

2. Labour/material costs

3. Custom duties/tariffs/government restrictions

Original Equipment Manufacturers (OEM) is always looking as local manufacturer not as a foreign producer, to secure market. Today in central, Eastern Europe and Russia are the main manufacturers at present due to little reputation of local car manufactures from the central planning period. For an example, Skoda Auto in the Czech Republic is the example of a local car brand with a poor reputation from the pre previous period which was turned around and present increasing automotive market share in the car markets in Western Europe including Germany. But today OEM is build a new Greenfield facility in Slovakia or Romania and it is not build in Russia which means they decide on their level of comfort feeling about the Russia and also the strength of the business case for a new Greenfield plant.

Future of the Russian car industry

Future of the Russian car industry will be a big challenge and government increased the duty on imports of foreign cars more than seven years old and it will strongly effect for the Russian automating industry. This industry is the only industry have survived since 1990 compare to the other sectors like consumer goods, production, such as televisions or refrigerators.

Russian car industry predicts that their market will be increased by 50% in 2010 with foreign brands acquiring more than an 80% market share because they Russian car market mostly based on the past trend of a strong growth rates in car sales and low density of cars per capita. Currently in Russian car density is around 180 per 100 people compared to Germany around 552, United Kingdom it is around 512, 389 in the Czech Republic and 328 in Poland. The growth in incomes and liberalization of the credit market believe that the market estimate could be conservative with the economy of Russia going to be move forward at the same rates in the past five years.

Foreign brands are most important at present which made in Russia come from comparatively small production at present. Ford is producing nearly 70000 units and it has the largest local presence. Chevy Nina joint venture of GM with Avtovaz is producing 60000 units. 1n 2010 there will be four produces with more than 150000 production facilities and it will also predict in 2015 there will be three producers are going to reach above 300000 capacity. And also expansion of the plants going to be increase rapidly.

At the moment Russian automobile industry is going to meltdown and the Russian Ministry of finance predicting that economy of country is starting to collapse as well as decline at total percentage of 11 in last week. Last July 2009 car sales were decreasing by 60% which was same like last year results. The Avtovaz industry which was the biggest Russian car sector has shut for the whole in August. The car companies in Russian such as Renault, GM, Nissan and Toyota have also lain off their workforces. The ford car factory shut diwn for three weeks. In August 2009, there were 47 suppliers making redundancies and biggest manufacturer of car radios has been bankrupt. In Avtovaz plant in Tolliata have been told that they going to work only half time with half wages at least from September to December and most of the people can earn only a few amount of money, which is not sufficient for their day today life. And also Avtovaz management planning up to 30000 redundancies. Russian government is trying to blame the Avtovaz for their poor handling.

The government has definitively approved the decision about the state support to Avtovaz in the amount of 12 billion rubles and it will allocated to 'Rostechnologies' which will loan without interest to Avtovaz for payment creditors and suppliers of components. They can begin recycling of old cars by the middle of 2010. Avtovaz has begun transfer of workers to affiliated companies. The volume of new cars sold to companies is set to increase by more than a third by 2011, creating opportunities for relatively undeveloped fleet market.

Now union federation is facing a huge challenge. They are more concerning about, how to fight layoffs, redundancies and wage cuts in the crisis rive in car industry. CWI is one of the representatives on the National Council of the MPRA adopted some radical aspects to its programme in January this year.

Russia has rescued Opel but German car maker will be expected to return the favour by saving the Russian car industry. GAZ is one of the Russian car manufacturer joined the consortium as a non equity industrial partner, and will provide manufacturing facilities and access to the Russian vehicle market.


Analyses investment opportunities are arising from the projected growth of Russia's automotive market until 2011. Automobile industry assesses market opportunities ranging from vehicle assembly and manufacturing of components, through to leasing and management of corporate fleets. As I said earlier Russia is one of the fastest growing car markets in the world at the earlier times but it's declined at present and going to be worst in the future. Russia is one of four eminent emerging markets known as BRIC. Foreign car manufacturers are doing a main role of Russia and local manufacturing about car industry has gone down. International public finance is lending a hand.

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