Volkswagen to became part of Russian auto industry

A dozen similar projects are planned for the next three years as well. By now, almost all the key players in the international car-manufacturing market have opened production facilities in Russia, largely due to the recent industrial policy pursued by the two agencies responsible for the local auto industry's development - the Ministry of Industry and Energy and the Ministry for Economic Development and Trade. However, it will only be truly successful when auto part plants are mushrooming in Russia along with the assembly operations.

On November 28, major German carmaker Volkswagen said it officially commissioned its assembly plant near Kaluga in central European Russia.

Volkswagen intends to assemble seven VW and Skoda models at the Kaluga plant. The total projected capacity of the plant, 150,000 cars a year, may be doubled in the future. This may be one of the largest foreign car assembly projects in Russia, but it is not the only one.

The companies that placed their stake on joint ventures or the development of their own car assembly plants in Russia several years ago are now among the leaders in the ratings of foreign car sales in the country. They fully enjoy the results of Russians' growing consumer activity, confidently ousting their rivals and expanding their share of the market at the expense of Togliatti-based AvtoVAZ, the former "hegemon" of the Russian auto market. However, two years ago, the Russian authorities gave the latecomers a chance to make up for lost time.

In January 2006, Russia introduced an "industrial assembly" policy allowing for no customs duties on a long list of auto parts brought in for companies launching car assembly projects in Russia. Later, this privilege was extended to the manufacturers of "first-level" auto parts - the most sophisticated car units. The Industry and Energy Ministry and the Economic Development and Trade Ministry deliberately rejected the plans for reviving the national automotive industry by increasing the customs duties on imported new and second-hand foreign cars to the prohibitive levels. As we see it, they proved right.

Within a few months, 14 foreign auto corporate groups and Russian companies signed agreements of intent to launch car assembly projects on the terms of "industrial assembly." There were so many offers from foreign companies that Russian car market regulators had the opportunity to choose. Thus, the Chinese companies were forced to learn this summer that their services were no longer needed: none of the Chinese car manufacturers wishing to launch their car brands in Russia received the desired benefits. Meanwhile, the companies which can really contribute to the development of the Russian automotive industry received them with hardly any trouble at all.

Today, eight foreign car assembly projects are being implemented in Russia. Two more projects will be launched within the next two months: apart from Volkswagen, Japan's Toyota has promised to commission its plant near St Petersburg by the end of the year and Fiat will begin the assembly of Fiat Ducato commercial vehicles in January in Tatarstan's Alabuga special economic zone.

According to the projected yearend results, about 450,000 foreign brand vehicles will be produced in Russia in 2007, although the plants are currently working at two-thirds of their capacities. By 2010, when the launched projects start to pay off and the new ones reach their design capacities, Russia will produce one million cars annually. This means that the country will have a new sector producing modern high-tech products of international quality and reliability standards. In turn, this sector should form a stable demand for auto parts of the same level.

Thus, the main objective of the Russian authorities, who had been handing out benefits for the past two years, was to increase the number of manufacturers of auto parts for foreign cars. Today, when the primary investment stage is over, the main task is to set up integral production clusters comprising both auto part and car manufacturers. It is not enough to be able to assemble a Volkswagen out of ready-made imported parts; a real automotive industry will appear in this country only when we learn to make headlights and gearboxes for that very Volkswagen. So far this task is not solved.

Foreign companies working in Russia have assumed the obligation to reduce the list of imported parts in foreign models by a third within 4.5 years after the start of car assembly. However today they can hardly find replacements for imports. Suppliers of modern and quality auto parts are just starting to appear in Russia, often with foreign assistance. They find it inexpedient to build a plant that will produce only 100,000 auto parts a year. Probably, when Russia starts assembling as many as one million cars a year, the situation will improve.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Projects for launching foreign car production in Russia

Source: the companies and RIA Novosti's data