Foreign OEMs should view Russia not as a difficult market but rather a “different” environment that presents significant opportunities with up to US$5bn estimated to be spent by overseas manufacturers in the next two years.
GAZ Group CEO Bo Andersson made the comments in the opening session of today’s (30 June) Automotive News Congress in Cologne, where he outlined some of the Russian government’s requirements for OEMs.
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“I don’t see it is more difficult to do business in Russia than the US,” he said. “It is different. There are 200 vehicles per 1,000 people in Russia compared to 550 in Germany.”
Russia has imposed stringent parameters on foreign companies such as a threshold of 300,000 units in four years and the localisation of engines, gearboxes and stampings to achieve a 60% local content figure.
Russia introduced the requirements through an automotive decree issued in March led by prime minister Vladimir Putin’s wish to drive increased manufacturing in the country.
By way of illustration how far this had still to run, Andersson noted the automotive sector accounted for jut 3% of Russian GDP, while the country received US$1bn every day from oil exports. GAZProm alone made US$25bn profit last year.
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By GlobalData“When you look at 1.5m [people] working in the automotive industry, it is very small,” said Andersson. “Russia is 20 years behind in manufacturing capability.”
Despite that lag, Andersson revealed he was bringing back “many of the old Soviet values” and had given his 18 unions US$30m to allocate to various employee projects while at the same time making 10,000 managers redundant.
“It is very important for our employees to go back to the old social values,” he said, although he conceded GAZ Group now longer owned staff apartments, a situation he admitted was “not a very popular move.”
The GAZ Group CEO noted he had told Putin Russia lacked “discipline, discipline, discipline”, and that the country’s automotive base needed to learn it. “The proof is in the pudding,” he said.
Part of that discipline involved raw materials, a sphere in which Anderson said Russia was “way behind” on quality. “Everyone in Russia would like to be a millionaire in one day,” he said. “We need to do a lot of checks on raw material quality.”
Despite the challenges, Anderson insisted the Russian market was viable with a forecast of 3.8m vehicle sales by 2015, with consumers having a staggering 505 models to choose from.
