Automotive industry in Russia
Automotive production is a significant industry in Russia, directly employing around 600,000 people or 1% of the country's total work force. Russia was the world's 15th largest car producer in 2010, and accounts for about 7% of the worldwide production. In 2009 the industry produced 595,807 light vehicles, down from 1,469,898 in 2008 due to the global financial crisis. The largest companies are light vehicle producers AvtoVAZ and GAZ, while KAMAZ is the leading heavy vehicle producer. Eleven foreign carmakers have production operations or are constructing plants in Russia. As of August 2012 Russia is the largest car market in Europe
The Soviet Union possessed a large automotive industry. In late 1987, the industry produced 2 million cars, satisfying 45% of the domestic demand. However, the quality of production was not very high, and after the dissolution of the Soviet Union the industry faced a crisis due to competitive foreign imports. Japanese brands overtook the lower-end Ladas; on the high-end sector, Volga sales dropped in favor of German-built Mercedes and BMWs. By 1993, total output was down 14% compared to 1990 levels.
2000 to 2008
In the early 2000s, the Russian economy recovered. Macroeconomic trends were strong and growing incomes of the population led to a surging demand, and by 2005 the Russian car market was booming. In 2005, 1,446,525 new cars were sold, including 832,200 Russian models and 614,325 foreign ones. Foreign companies started to massively invest in production in Russia: the number of foreign cars produced in Russia surged from 157,179 in 2005 to 456,500 in 2007. The value of the Russian market grew at a brisk pace: 14% in 2005, 36% in 2006 and 67% in 2007—making it the world's fastest growing automotive market by 2008.
To boost the market share of locally produced vehicles, the Russian government implemented several protectionist measures and launched programs to attract foreign producers into the country. In late 2005, the Russian government enacted legislation to create special economic zones (SEZ) with the aim of encouraging investments by foreign automotive companies. The benefits of operating in the special economic zones include tax allowances, exemption from asset and land taxes and protection against changes in the tax regime. Some regions also provide extensive support for large investors (over $100 million.) These include Saint Petersburg/Leningrad Oblast (Toyota, GM, Nissan) and Kaluga Oblast (VW). Kaluga has been especially successful in attracting foreign companies, as has been Kaliningrad Oblast.
Since the 2000s, foreign companies have been flocking to enter Russia, seeing Russia as a local production location and export powerhouse. Russia's labor, material and energy costs are only 1/6 compared to those in Western Europe.
Global financial crisis
Russia's automotive industry was hit hard by the late 2000s recession, which started in the United States. Production of passenger cars dropped from 1,470,000 units in 2008 to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period.
In late 2008, the Russian government introduced protectionist measures, worth $5 billion, to improve the situation in the industry. This included $2 billion of bailouts for troubled companies and $3 billion of credits for buyers of Russian cars. Prime minister Vladimir Putin described the move as vital in order to save jobs. The tariffs for imported foreign cars and trucks were increased to a minimum of 50% and go up to 100%. The tariffs are linked to the engine size of the vehicle. The increased duties led to protests in Russian cities, most notably in Vladivostok, where the importation of Japanese cars is an important sector of the city's economy. To compensate for the losses of the Vladivostok businesses, Prime Minister Putin ordered the car manufacturing company Sollers to move one of its factories from Moscow to Vladivostok. The move was completed in 2009, and the factory now employs about 700 locals. It was planned to produce 13,200 cars in Vladivostok in 2010.
The most efficient anti-crisis measure executed by the Russian government was the introduction of a car scrappage scheme in March 2010. Under the scheme, buyers of new cars could receive a subsidy of up to 600,000 rubles (20,000 USD). Sales of Russia's largest carmaker Avtovaz doubled in the second quarter of 2010 as a result, and the company returned to profit.
By the end of 2010, automotive production had returned to pre-crisis levels. Nine out of the ten most sold models in Russia in 2010 were domestically produced, with Avtovaz's Lada models topping the list. In the first 7 months of 2010, sales of Lada cars increased by 60%, the Korean KIA reported a jump of 101%, and Chevrolet's sales rose by 15%.
In 2010, Russia was the world's 15th largest producer of cars. The Russian automotive industry currently (as of 2010) accounts for about 7% of worldwide car production.
The Russian automotive industry can be divided into four types of companies: local brand producers, foreign OEMs, joint ventures and Russian companies producing foreign brands. In 2008, there were 5,445 companies manufacturing vehicles and related equipment in Russia. The volume of production and sales amounted to 1,513 billion rubles.
The four most popular cars in Russia in 2009 were all AvtoVAZ models. The economy car Lada Priora topped the list with 84,779 sold units. Lada Samara was second with 77,679 units sold in Russia, and the classic Lada 2105/2107 was third with sales of 57,499. Lada 2105 was expected to considerably increase sales following the car scrappage scheme launched in March 2010. The higher-end Lada Kalina was the fourth most sold car in Russia in 2009, selling 52,499 units that year.
In the light commercial vehicle sector, the GAZelle van, manufactured by GAZ has been very popular, occupying a market share of 49% in 2009 and selling 42,400 units. The Avtoperevozchik magazine declared GAZelle as the most successful vehicle of 2009 in the Russian automotive market.
In recent years, Russian automotive industry companies have launched several new projects, some of which are highly ambitious.
Marussia brand, produced by Marussia Motors, became the first modern sports car and the first supercar produced in Russia. The Marussia B1 was launched on 16 December 2008 in the New Manezh Hall in Moscow. On 10 September 2010 the first Marussia Motors show room opened in Moscow. Marussia Motors is led by Nikolay Fomenko, a notable Russian showman, singer, actor and racer.
In 2010, the company acquired a 'significant stake' in the Virgin Racing Formula One team, which was renamed Marussia Virgin Racing from 2011. This team is to become the first ever Russian-owned team in Formula One.
Another ambitious Russian project is Yo-mobile, a city car that can burn both gasoline and natural gas and is connected to a pair of electric motors. The car was introduced on 13 December 2010 in Moscow, a product of a joint venture between Yarovit, a producer of trucks based in St. Petersburg, Russia and the Onexim investment group, headed by Mikhail Prokhorov, who is the leader and financier of the project. Prokhorov plans to invest around €150 million (US$200 million) in the venture, intending the vehicle to "break the stereotype saying Russia can't produce good cars."
The largest company of Russia's automotive industry is Avtovaz, located in the city of Tolyatti. It currently employs more than 130,000 people, and its Lada models dominate the Russian car market. Avtovaz models account for about 50% of Russia's total car production.
Russia's second largest car manufacturer is Avtotor, located in Kaliningrad Oblast. Avtotor performs SKD, CKD or full-cycle assembly of foreign models, such as BMW, Kia, and General Motors' Cadillac and Chevrolet vehicles. In 2009, Avtotor produced 60,000 cars and accounted for 10% of Russian car production.
Avtoframos, the third largest car manufacturer, produced 49,500 cars in 2009. Its plant is located in the south-east part of the city of Moscow. Avtoframos is a joint venture between France's Renault and the Moscow city administration, but is majority owned by Renault. The company manufactures Renault Logan and Renault Sandero models. The ratio of Russian-made parts is 54%. The figure is expected to rise to 74% by 2012.
In the heavy vehicle sector, the largest company is the truckmaker KaMAZ. It is also one of the largest companies in the whole Russian automotive industry. In 2010, KaMAZ sold a total of 32,293 trucks; 28,254 in Russia and 4,039 in foreign countries.
Another very important company is GAZ, which makes vans, trucks and busses, among other products. Its most popular product is the GAZelle van, which has a market share of 49% in the light commercial vehicle market. In 2009, the company launched an improved version, called GAZelle Business. In the bus sector, GAZ occupied a market share of 77%. It sold 6,169 buses in the small-class, 1,806 in the medium class and 1,156 in the large class.
Economic and political significance
Russia's automotive industry is a significant economic sector. It directly employs 600,000 people and supports around 2–3 million people in related industries. It is politically a very important part of the country's economy: firstly, due to the large number of employed people and secondly, because many citizens depend on the social services provided by automotive companies. For example, the well-being of the giant AvtoVAZ factory in Tolyatti is massively important to the city or to the region of Samara Oblast. Tolyatti is a typical monotown, a city whose economy is dependent on a single company. The factory employs around 100,000 people of the city's population of 700,000.
In 2009, former President Dmitry Medvedev launched the Medvedev modernisation programme, which aims to diversify Russia's raw materials and energy-dominated economy, turning it into a modern high-tech economy based on innovation. Following this, Russia's automotive industry has been in the spotlight due to its great potential for modernisation.
Former Prime Minister and current President Vladimir Putin has taken a personal interest in the automotive industry. In a symbolic gesture of support, Putin made a highly publicized road trip on the new Amur Highway in August 2010, driving 2,165 kilometers in a Lada Kalina Sport. Putin described the car as "excellent, even beyond my expectations", and praised it as "comfortable" and "almost noise-free." The event was intended to show support for AvtoVAZ, which was recovering from the serious economic crisis.
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