Russian car market after WTO accession


MOSCOW. (RIA Novosti political commentator Alexander Yurov.) Russian carmakers are waiting with apprehension for Russia's entry into the World Trade Organization (WTO), which will bring new rules of the game, harsher requirements and tougher competition.

Foreign carmakers regard the Russian automobile market as a desirable niche. The Russian Ministry of Industry and Energy sets car sales at 1.6 million last year and 1.8 million in 2005 and forecasts an increase to 2.6-2.8 million cars by 2010, with revenues topping $30 billion. Foreign producers expect to sell some 600,000 cars in Russia this year.


The rein of Russian cars is coming to an end. Modern rules of the global economy force countries, including Russia, to open their borders to foreign producers. Trying to keep pace with progress, Russia is learning to work in new conditions.


As a result, almost all of the national car producers are negotiating the assembly of foreign cars. They have at long last accepted the government's broad hints and are learning new principles of working in the market.


Volga's car-making companies set the tune, which is logical. Located in Togliatti on the Volga River, GM-AvtoVAZ joint venture has been gaining strength turning out the Chevy-Niva 4WD. GAZ in Nizhni Novgorod is preparing to turn out an Indian cross-country vehicle, and a car plant in Izhevsk is producing a new South Korean KIA Spectra sedan.


The last to fall was Severstal-Avto, which has announced plans to assemble the SsangYong Rexton offroader in the plant that had produced the cheap Oka midget. The company's plants will gradually diversify the output of foreign cars to at least three cross-country vehicles in different price categories by 2007. Moreover, Severstal-Avto intends to mount the traditional UAZ 4WD on the Rexton undercarriage.

This frantic activity by Russian carmakers is quite explicable. They know that the Russian government will not revise the near-zero import duty on car components and will soon introduce prohibitive duties on the import of used foreign cars. This means that a giant niche will appear in the Russian car market by yearend (over 150,000 used foreign cars were sold in Russia from January to June 2005).


There are not enough Russian-made cars to fill this niche, which is why carmakers are searching for foreign partners who see the benefits of such cooperation. The Russian car industry has competitive advantages, as the production of foreign cars at Russian enterprises is much cheaper than building a new plant from scratch. Severstal-Avto has announced that overhauling its facilities to assemble the SsangYong Rexton would cost $56 million, while the production of Ford's Focus model from scratch cost at least twice as much in Russia.


This current change in the industry does not mean that it will stop producing Russian cars. But the carmakers are learning to play by new rules. The Gorky Car Works (GAZ) not only searched for a partner to produce promising models but also learned to market its own output better. Last year, it exported 9,998 automobiles or 14% more than in 2003 (exports to the Commonwealth of Independent States increased by 20.6%).

Survival of the car industry is not an issue now. Although the Avtozavodsky residential district of Nizhni Novgorod is inseparably linked with GAZ (it was built after the construction of the car giant began there), nobody thinks that Russia's accession to the WTO will return it to a primeval state.

GAZ was one of the first in Russia to find its own path to modernization. It is preparing to produce new models and is holding talks on the creation of a joint venture to turn out car components. Japan's Nissan has shown interest in the project.


In short, the Russian government has gradually convinced the car industry of the unavoidability of WTO accession. The heads of auto works have their reservations about the future, but the only thing they are waiting for now is the reduction of the import duty on foreign cars from 25% to 15% of the cost after the end of the transition period.


In August, a car show was held in Moscow and it demonstrated positive trends in the industry. Firstly, several Asian cars were shown there: China brought two Great Wall offroaders and one midget car, and India showed a whole group of Tata trucks and buses. Iranian producers demonstrated an Iranian car and three Iranian-assembled Peugeots.

Visitors photographed these models, which they had never seen before, but soon their attention was drawn to the Russian-made cars. Nearly all of the Asian cars proved too small for most Russians and their quality is not much better than that of Russian cars, despite a higher price. The exhibits of the Russian carmakers looked better compared to the Asian models. Nearly all of the six Russian car-making companies introduced new models.


Experts are not worried over the planned reduction of import duties on foreign cars. Market players have calculated that prices of foreign cars would not go down much, which means that Russian cars will have their share of buyers. However, competition will certainly become tougher, but this will benefit the industry as a whole. Upgrading their cars to foreign standards will subsequently improve technical, security and environmental standards of Russian-made cars.

- Source from RIA Novosti (Dec 06, 2005) -