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The Growth of Auto Industry in Russia
June 7, 2011 14:53

The Ministry of Economic Development has signed four agreements with global automakers to boost country's auto industry.

Sollers-Ford, Volkswagen, GM and the consortium AvtoVAZ-Renault-Nissan-IzhAvto-Kamaz Mercedes-Benz Trucks East, according to these agreements, will invest in Russian car industry more than 5 billion dollars during the upcoming four years.

According to the B Net, most of the future growth in the auto industry will happen in the developing world and Russia will get 30% growth in this business.

The Ministry for Economic Development reports that Russia is going to assemble up to 100 brand new car models. Sollers-Ford will invest $1.2 billion in the production of 300 000 cars per year. GM will probably invest $1 billion, Volkswagen will invest about $900 million.

Thus, the foreign companies will get an opportunity to export automotive components on a duty free basis for eight years in case they localize 60 percent of production in Russia, according to Pravda. The newspapers notes, that foreign investors will have to assemble at least 200,000 engines and transmission gears in Russia.

The leading car manufactures in the world started opening their enterprises in Russia several years ago, according to the Voice of Russia. Under set conditions, they were entitled to increase gradually the share of the Russian-made components. These cars were not second to those assembled in EU and in the U.S. Later the car industry was hit by the crisis and a fall in sales came for a short period of time. But then the car production started showing a growth.

As we know, the old agreement on industrial assembly was to encourage foreign car assembly plants to procure parts and materials from Russian suppliers, as well as to attract foreign auto component manufacturers in the country. Foreigners got benefits for the import of components and promised to invest more to open a full industrial production.

Foreign companies coped with some tasks, but a bad luck came out with the promise to increase the productin of local car components. A poor quality of Russian components and inability of local enterprises to provide the concerns with broad variety of car parts played a great role. That's why the authorities decided to change the rules of the game, offering new terms of industrial assembly. The consortium of AvtoVAZ-Renault-Nissan-IzhAvto, KAMAZ, Mercedes-Benz Trucks East plans to produce more than 1 million cars a year, but Forbes doubts that this is a final decision.

If we take as a working hypothesis all the data, we will get 2 million cars. This is a perceptible amount for our market (for comparison, last year there were sold 614, 500 new cars assembled in the country, 621, 700 imported cars and less than 600, 000 vehicles of Russian brands).

So what will happen to car prices then? According to the Forbes, cars will not be low-priced, the only thing that could happen is that prices will not rise. Russian car market is still far away from saturation and the demand for cars still grows, in such conditions noone will reduce prices.


Author: Ksenia Dzhalagonia

Tags: Russian industry Russian companies    

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