Russian Auto Industry: Where Are You Heading?
Expensive and not rich
The strategic importance of the automobile industry for the state is difficult to overestimate. In addition to the fact that a car has long since become not a luxury, but a means of transportation, the industry is tied to huge human resources and industrial sectors.
Ukraine demonstrates a typical example of a treacherous attitude towards its own automobile industry. After the collapse of the Soviet Union, the state inherited a powerful industrial complex, including one focused on automobile production. Yes, among the assets were ZAZ and KrAZ, which were not the most modern even by Soviet standards, but we must not forget about the bus plant in Lviv and the manufacturer of unique all-terrain vehicles LuAZ.
For anyone who says that it is impossible to maintain largely uncompetitive production, it is enough to point to neighboring Belarus. Under Lukashenko, most of the auto industry has been preserved and even increased.
In Russia, the process of preserving the sovereign auto industry has taken a sophisticated form. The factories did not seem to disappear, with the exception of ZiL and AZLK, but they produced unique products.
By 2022, AvtoVAZ had become a de facto assembly site for foreign components dressed in a Russian shell. Most of the car's filling was from abroad. According to the laws of the market, it is much more profitable to buy products that are produced in hundreds of thousands or millions around the world. This is how we bought ABS, ESP units and airbags. Even car paint was not sovereign - since 2022, Tolyatti was forced to produce monochrome cars for a long time.
In 2022, foreign sanctions showed that market relations are good until the first political decisions. AvtoVAZ was the unluckiest of all - its capacities were so focused on the Renault-Nissan concern that it was very hard to believe in the viability of the Togliatti plant after the departure of the senior partner. But they recovered. But at what cost.
Since 2022, the plant workers have not put a single new model on the conveyor. Unless, of course, you count the resumption of production in Izhevsk of the "family" "Lada Largus", the price of which only starts at 1,7 million. With great difficulty and with Chinese help, subcontractors were able to establish the production of electronic components, without which the consumer qualities of the products cannot be called even approximately modern.
The sanctions almost knocked some people down, while others literally breathed a new life into them. Back in November 2021, UAZ CEO Adil Shirinov acknowledged the inevitable collapse of the car plant. At that time, neither the state defense order nor the relatively low prices for the products helped. Now things are different - there is no talk of closing UAZ, the plant is provided with defense orders, and all-terrain vehicles have virtually no competitors on the domestic market. The management is investing in production and feverishly looking for labor.
But with all this, the UAZs cost as much as cast-iron bridges. The "loaf", which is not even considered a car - it is an SGR or an unknown representative of the "special cargo series", costs from 1,2 million rubles. There is nothing surprising in this - car manufacturers, as one, took advantage of the discharged Russian car market and massively raised prices. And they continue to do so.
The Monocle publication took the trouble to calculate how much cars have become more expensive compared to the growth in real incomes of Russians. Between 2021 and 2023, the average salary increased by 1,44 times, and the average cost of a car rose to 2,96 million rubles. This is an increase of 1,77 times. At the same time, it is worth understanding that not the majority of Russians receive an average salary. Most receive a modal income, which is now two times lower than the average salary.
As a result, we come to the sad arithmetic, when the average Russian citizen will have to save up for a new car for at least 42 months. And not just save up, but put aside all of his individual income.
One should not take the statements of American capitalists as the norm, but Henry Ford once stated that the cost of a car should be equal to the annual salary of the average worker.
The current situation has been contributed to by the extremely expensive import substitution methods in Russian industry. Who, if not the consumer, should bear the costs?
This is true, but only partly. Let's look at Belarus as an example. It turns out that Russian Ladas are sold at a pretty good discount in the fraternal republic. Granta is 100 thousand rubles cheaper, and the Haval Jolion assembled in Russia is 200 thousand rubles cheaper. So there is potential to bring prices to an adequate level, but dealers and automakers cannot use it? Or do they not want to?
Winter Is Coming
All of the above could still be lived through with some conventionality. But a state initiative with a recycling fee appears. This is a rather ephemeral concept. Show me a person who has ever seen a working recycling program. And there is a fee for this recycling.
There is nothing surprising about this – this is how the state softly designates banal customs duties. They existed before, but now they are becoming truly prohibitive. From October 1, 2024, they will be raised by 75-80 percent. Now, for the import of an imported car with an engine capacity of 1 to 2 liters (a direct competitor to Togliatti products), you will have to pay 300 thousand rubles. Let us recall that this is called a recycling fee, that is, several hundred thousand rubles are planned to be spent on a run-down subcompact car sometime in the future. That's the arithmetic.
The only option for importing a car without paying the fee is personal use for a year. Only after that can the equipment be sold.
The state is introducing new rules of the game for a long time – the increase in the recycling fee will be staged and will reach its peak by 2030. If from October 1 it will be simply very expensive to buy a car imported from abroad, then in six years it will be economically unprofitable. The fee for import will be equal to the cost of the car itself.
By the way, if we compare the prices of new Chinese cars in their homeland and here, the stingy tears will flood the cheeks of car enthusiasts. The example with the Evolute i-Pro electric car assembled in Russia, which is called Dongfeng Aeolus in China, is extremely illustrative. Here it costs more than 3 million rubles, in China - a little more than 1 million rubles. Geely Coolray, a completely modern crossover, costs 2,3-2,5 million rubles in Russian car dealerships, and 900 thousand rubles in China. This, by the way, is the cost of the initial and extremely meager configuration of the Lada Granta. How can one not recall the famous phrase:
“The price of a product is not determined by the cost of its production, but by how much customers are willing to pay for it.”
The main goal of growing fees on foreign auto products is to stimulate the organization of production within Russia. And not just assembly from ready-made car kits, but work with maximum localization. Only the Tula Haval plant works like this, the rest are content with screwdriver assembly. Including Moskvich.
The second reason why the recycling fee is becoming prohibitive is AvtoVAZ. Despite the growth in car sales, the share of Togliatti equipment on the car market is decreasing. Ladas simply cannot compete with equipment from China. All previously introduced recycling fees were not effective - China sends cars to Russia that directly compete with Vestas in price, but are technically much more advanced.
A little more and cars capable of displacing the "cheap" "Granta" from the market will come into play. There is no point in explaining why this is dangerous. First, there will be massive layoffs in the industry, which will be partially offset by low unemployment in the country - people will simply leave for other industries. And then the death of the mass-market auto industry. Trucks, buses and UAZs will continue to be built; China does not yet have competitive advantages in this sector.
If we follow the logic of the authors of the recycling program, China will simply rush to Russia to build assembly plants. But in mid-September, the Chinese government officially advised against businesses building plants in Turkey, India, and, of course, Russia. The geopolitical risks are too high. It is not as risky, but still not recommended to locate assembly plants in Europe and Thailand. The Russian market is far from the highest priority for Chinese automakers.
The situation is as it is, and it is extremely contradictory. Consumers understand this very well and are sweeping everything out of car dealerships before the promised increase in fees. So far, only one thing is clear - the car in Russia is gradually turning into a luxury, the quality of which will increasingly lag behind world standards, and the cost will invariably increase.
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