“Just clowns in our market”
The government behind the scenes is thinking how, if necessary, to apply sanctions to the Western auto industry. Newspaper VIEW together with experts presents several possible options. As you can hit the automotive industry in the West and whether the native domestic automakers will benefit from this, the LOOK newspaper understood.Following the ban on food imports from a number of Western countries, the government said it was considering the “neat” sanctions in the industry, in particular in the aircraft industry, the automotive industry and other industries. Earlier, the newspaper VZGLYAD already tried to simulate the economic war of Russia and the West in the region aviation. Now, together with experts, he presents a model of possible sanctions in the automotive sector.
If for aviation, possible sanctions were called sources in the government and Medvedev himself, then what particular sanctions in the auto industry are reflected in the Kremlin are not given.
The first version of the sanctions
It is logical to assume that, speaking of the sanctions in the automotive industry, we can talk about a ban on the import of cars, the import of automotive components and the work of foreign car factories in the Russian Federation.
However, the dealers, fearing that the Kremlin could really follow this path and prohibit the import of foreign cars, suggested an alternative option for businesses that are less sensitive. It is necessary to prohibit government purchases of foreign cars from the United States, the European Union and Japan, not only imported, but also assembled in foreign factories in Russia.
Exactly the same proposal made by the Communists. After buying these cars, Russia thus supports the economy of countries that have imposed sanctions on Russia, the author of the amendments to the bill on the supply of goods for state needs, the deputy from the Communist Party of the Russian Federation Vadim Solovyev, explains the logic. In addition, it will help support its own auto industry and become economically independent, he said.
By the way, imported foreign cars for state forces have already been banned in July, and experts suggest essentially extending the ban to foreign cars localized in Russia. Such sanctions can really inflict a point strike, especially on German marks, which officials love. Thus, the share of corporate purchases in total sales of Mercedes, BMW and Audi is as much as 35%, in Japanese Toyota - 18% of the brand’s sales in 2013.
However, it seems doubtful that the officials will change from Mercedes and Toyot to Lada. It is more likely that Korean automakers will not benefit from such a ban. The choice will, however, still Chinese cars, for example, the Great Wall or Chery. It cannot be ruled out that in the light of the lurch from the West to the East, the Chinese auto industry may quite seriously settle in Russia (until now it was not much complained about here in an attempt to protect AvtoVAZ, GAZ and KAMAZ). But while Chinese cars are still in the same category with domestic ones, so if you choose two of them, then “your own” should be closer.
Of the world's automakers to choose from, the officials will only have Hyundai and Kia, who in the end will be able to significantly increase corporate sales. And the Koreans are now in retail business and are going up the hill. If Ford is reducing production at its plant in Vsevolozhsk, then Hyundai, on the contrary, wants to increase the machine assembly volume near St. Petersburg to 300 thousand cars this year. At least, the concern has already asked Smolny to expand the territory of the industrial zone under new capacities, the authorities of St. Petersburg claim.
Yes, and sales of Koreans on the background of a falling market is surprising. In July, as the Korean Automotive Research Institute says, Hyundai and Kia even sold more cars in Russia than AvtoVAZ. Koreans accounted for 16,5% of total sales, while AvtoVAZ accounted for 15,5%. Research institutes do not exclude that Koreans can outrun domestic producers in terms of sales for the whole year, and second place, they say, is in their pockets. And it's not even the fact that Russians like the budget Hyundai Solaris, but the fact that sales of Lada continue to fall.
The second option sanctions
By analogy with the ban on food imports, the Kremlin may ban the import of not all foreign cars, but only from the USA, EU and Japan, which imposed sanctions against the Russian Federation. By and large, it will be a ban on the import of almost all foreign cars, because it is these two countries and the union that are home to the majority of the world's automakers. The form can be any - from increase to prohibitive levels of duties to a simple ban.
However, in the automotive industry a slightly different approach can be applied, market participants do not exclude. This suggests sanctions against automakers that have invested little in the Russian market.
“I think a series decision can be made, if the auto company has contracts with the Russian Federation, if it has invested, it has factories here, which gives the right to consider it essentially a domestic manufacturer, then we will not touch these. If the auto company only imports cars, then sanctions can be imposed against it (on the part of Russia), ”believes Oleg Datskiv, director general of the AvtoDiler.ru project. In this case, the sanctions will hit primarily on American, not European automakers, he said.
“Such logic suggests sanctions against American companies. They have moderately invested and are present in our market. GM had more investment talk than business. They told about billions in investments, the construction of factories, but not all of this in practice, everything is so in words and left. And Ford made its investments back in the 1998 year, and its plant has already beaten off those investments many times, and the company does not go on, ”Datskiv notes.
GM, however, has a plant near St. Petersburg, however, and so a small production of Chevrolet Cruze and Opel Astra models is falling there, not expanding, its share is steadily decreasing. The situation is similar at the Ford plant.
“Chrysler with Jeep, Dodge and now Fiat are just clowns in our market. We will not lose anything, and they will not suffer much from the fact that sanctions will be imposed on them, ”the expert adds. "So it will be possible to bring the political hype, and globally at the same time nothing will change," the source of the newspaper LOOK explains the logic.
This will indeed be a relatively neat warning. General Motors will lose the market in 170 thousand cars (sold so much last year), Ford - in 100 thousand cars. And Chrysler sold in Russia in general only 5600 of imported cars of the Chrysler, Dodge and Jeep brands, and 98% of the cars sold accounted for the latest brand.
For American concerns, world sales of which number in the millions, this will be a blow, but clearly not fatal. For GM, Ford and Chrysler own home market is much more global. However, overproduction and overstocking, as well as rising unemployment will be provided for them. The global auto industry has not yet recovered from the crisis, so it will not be so easy to find a new market to replace the Russian one.
“GM is not represented by American brands at all in Russia. Chevrolet and Cadillac, which they have in the states, we practically do not sell. We have Korean Chevrolet and German Opel, ”Datskiv notes.
The situation with European companies is more complicated, because almost all of them have opened their car factories in Russia, collecting the most popular and popular models of cars for them. “For example, German Volkswagen has already invested about 1,5 billion euros in the Russian economy and continues to do so. The Concern and the Olympics sponsored, and the Russian national football team supports it, ”reminds Datskiv. Therefore, it is more logical to strike at American companies that have not done anything particularly outstanding for our market.
However, the mood at any time may change. If the same Germany will force the EU as a whole to some kind of tough measures in relation to the Russian Federation, then nobody will stand on ceremony with European foreign cars, as well as with American ones.
The ban on the import of foreign cars on Europeans will hit much harder. The EU car market has not been growing for a long time, and the auto business is developing only thanks to export and foreign markets. For European carmakers, the Russian market is much more important than for the US. “And the crisis did not end there, some countries are still in the red, others are in the black but small. This is for them the loss of jobs, income and taxes, ”the expert reminds. The first retaliatory sanctions of Russia on foodstuffs have already undermined the European economies, the sanctions on the import of foreign cars will add to their problems.
Losses for all can amount to tens of billions of dollars. So, in 2013, cars were imported to Russia (including Korean and Chinese, which are unlikely to fall under sanctions) for 28,5 billion dollars (estimated by PwC).
For Russia, the losses will be relatively small. They are affected only wealthy above average Russians. “Only those cars that are sold in small quantities are imported now, so it’s not profitable to assemble them here. This is not a mass segment, mainly premium and luxury foreign cars, ”said Sergey Udalov, executive director of AA Avtostat. Budgetary foreign cars that are produced domestically will not be affected in this case. Therefore, the majority will be on what to drive and what to buy, although sales may be reduced. At the same time, the market is now falling quite seriously without sanctions.
Russian car dealers will lose even more revenue. “Since the lion’s share of car dealerships is selling and servicing imported cars, not only sales but also maintenance will decrease, all service and repair areas will suffer, and, of course, the number of personnel employed in this area will decrease the level of wages, ”Anton Kovalev, a member of the Presidium of the Association of Young Entrepreneurs of Russia, tells the newspaper VIEW.
The business of banks and insurance companies, for which the automotive market is a gold mine, will also shrink. The state will lose revenues from customs duties and VAT on the sale of cars, Kovalev said.
At the same time, domestic producers can receive nothing on these sanctions. “AvtoVAZ will not necessarily win. Even most likely, not him. Win Hyundai and Kia, which are unlikely to fall under the sanctions. Especially since they invested 500 million in the plant near St. Petersburg with Kia. They have the largest budgets for promotion and activity, ”says Oleg Datskiv.
The third option sanctions
The worst sanction in terms of consequences is the ban on the import of components and spare parts. And for both sides - Russia and the EU in particular. Therefore, it is even difficult to guess which of them will be the first to follow this path. Such a ban can be introduced both by Europe in response, for example, to restricting imported cars, and by the Russian Federation, having decided that the time for accurate sanctions has already passed.
“If they impose restrictions on the import of components, then many foreign concerns that have come to Russia simply cannot produce cars. Because their localization level is still insufficient, ”says Sergey Udalov.
Under industrial assembly agreements signed with the Ministry of Industry and Trade, foreign automakers should bring the localization level to 60% only by 2018 – 2020 years, including localize engines and gearboxes. Now foreign cars, though, are assembled in Russia, but more than half from imported components.
“Only one AvtoVAZ will work, but also not fully, because there are already a lot of imported components in the Renault-Nissan-AvtoVAZ alliance. AvtoVAZ unifies its components with the French and the Japanese, so something is localized here, and something is imported, ”says Sergey Udalov. Even if the share of imported components at AvtoVAZ is all 3 – 5%, production may still stop, he adds.
So, according to Avtostat’s data on 2013, Kaliningrad’s Avtotor and St. Petersburg’s GM have a localization level of only 15%, and a Nissan plant has 31,7%. At the Russian Ford plant, the Focus model is built on 70% from imported components, Mondeo - on 90%. Only VW and Hyundai have succeeded in this business from foreigners. They collect cars half of the imported parts, half - from the Russian.
Even GM-AvtoVAZ will have fewer problems with the ban on imported components than AvtoVAZ itself. Because Lada Largus, for example, only on 62% is a Russian car. Lada Granta is also on 15 – 20% consists of imported components (according to the data of the plant at 2011 year). GM AvtoVAZ is probably the only plant where the level of localization tends to be almost 100%.
AvtoVAZ, where Renault-Nissan is now the main shareholder, links its future with the fact that it will continue to use components that are common with the French and the Japanese in their new models. So, in 2016, AvtoVAZ intends to begin production of XRAY and XRAY Cross cars. Both of these cars are developed on the Renault platform, only the design will actually remain from the Lada. And this the head of AvtoVAZ said this week.
If Western car plants in Russia stop due to sanctions, the car market will lose more than 1 million Russian-made foreign cars by almost 36 billion dollars (sales data for 2013 a year).
Following will be put an end to the development in the country of its own market of automotive components. Unfortunately, even now it cannot be said that manufacturers of auto parts, engines, etc. hurry to gain a foothold in Russia. And this additional investments, new factories, jobs and taxes. However, some succeed, for example, VW actively lures its auto component partners in the Russian Federation.
“Here we have trouble. There is no base, it was not built. And the Westerners, though hard, but went. The Ministry of Industry and Trade and Alexei Rakhmanov (Deputy Minister) in recent years have stimulated the creation of enterprises that produce components. If this market, which has not yet been formed, now strikes, stops this procession, then it will be possible to forget about this market forever, ”Datskiv believes.
“Destroying what has been created in 20 years will be easy. Investors, not only Western, but also domestic, will not work at a loss and leave the market. Millions of people will lose their jobs. The state will receive less in the form of taxes and deductions. According to our calculations, the approximate annual turnover of the automotive industry is more than 100 billion dollars. This is a serious blow for the entire automotive industry, ”says Andrei Petrenko, president of the Russian Automobile Dealers Association, to the VZGLYAD newspaper.
However, Russia has the opportunity to make the consequences of such sanctions less significant. “In fact, a lot can be imported through China, which is Russia's friend. In China, there are almost all production, including Western auto companies. It may just change the logistics of delivery of components to Russia. It can be the transportation of all the same components and spare parts as now, only with a hook. Yes, maybe the cars from the West will start coming to us through China, ”Oleg Datskiv finds a loophole for the market.
“In terms of components for popular models, I think China will be able to provide replacement, and quite quickly,” agrees Anton Kovalev. “Spare parts for the Porsche Cayenne are unlikely to be produced immediately, but I think it’s easy for the Toyota Corolla or the Ford Focus.”
Experts in general doubt that the sanctions war in the automotive sector will be able to play at least somehow into the hands of the age-old Russian automakers - AvtoVAZ, KAMAZ or GAZ. “The same KAMAZ is struggling so that special equipment or heavy trucks are not imported into China from China. Because it immediately stops the sale of its products. The Chinese are competitors for Lad too. When AvtoVAZ had cars for 150-200 thousand rubles, they went well, and as soon as everything went up in price, the quality and the model range changed, and there were problems with sales. They do not pick up one and a half times the volumes they were counting on, ”says Datskiv.
Even if for some time only AvtoVAZ can produce cars, this does not necessarily help him raise sales of the LAD. “I don’t think that those who drive foreign cars now will immediately rush to change them to Russian Lada. They ride a year on their foreign cars. The term of ownership and operation of a car will simply increase, ”says Sergei Udalov. So, if in recent years owners of premium-segment cars changed their cars every 3 – 4 of the year, now they will do it a year later. The same tendency will be characteristic of GAZ with KAMAZ.
Help domestic plants can, if you raise the salaries of state employees, suggests Datskiv. “If money starts to flow into the military-industrial complex, for example, then theoretically people working in it can come to the salon for Lada,” he says.
Moreover, even AvtoVAZ can no longer be called completely domestic, at least because foreigners have control. “At the same production sites in Tolyatti, cars of foreign brands are assembled, factories are equipped with imported equipment, and the majority of the components are imported,” says Andrei Petrenko from ROAD.
To deprive Russians of foreign cars, even Russian-made, is a politically dangerous idea. Motorists, as practice shows, are the most active citizens who love to protest. And although AvtoVAZ is still the best-selling car brand in Russia, it has long been no master in this market. Foreign cars as a whole have long been prevalent, while Lada has a market share of all 15 – 16%.
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