World car giants to destroy Russian cars inside Russia

World car giants come to Russia seriously and for a long haul. It has recently been reported that Ford, Fiat, Volkswagen and General Motors were going to invest five billion dollars in the Russian economy during the upcoming four years. The companies signed an agreement with Russia's Ministry for Industry and Commerce, as well as with the Ministry for the Economic Development. According to the document, it goes about the change of the industrial assembly process. The companies will produce up to two million cars a year. What is in store for the Russian car-making industry then?

Dmitry Levchenkov, an official spokesman for the Ministry for Economic Development, said that Russia would assemble up to 100 modern car models. According to him, Sollers-Ford will invest $1.2 billion in the production to assemble as many as 300,000 cars every year. GM promised to invest approximately $1 billion; Volkswagen - $900 million. As for Fiat, the above-mentioned ministries will arrange agreement with the company in the nearest future. The previous document about the industrial assembly will be taken as a basis for the new agreement. The new agreement will stipulate the increase of the production output - 120,000 cars a year, website said. Investments from the Italian car-maker are expected to reach $1.1 billion.

The new industrial assembly process will give the foreign companies an opportunity to export automotive components on a duty free basis for eight years in case they localize 60 percent of production in Russia. From now on, foreign investors will have to assemble at least 200,000 engines and transmission gears in the Russian Federation.

What is going to happen to the Russian car industry in this case? Will Russian enterprises be able to cope with such enormous work? Will the production in Russia affect the quality of newly assembled cars?

On the one hand, foreign experts say that the Russian car industry has recovered from the financial crisis quickly. Sales volumes in the sector increased by a third last year. Moreover, specialists of Boston Consulting Group believe that Russia will become world's 6th largest car seller by 2015. What kind of car is Russia going to be selling? They are not going to be Russian cars obviously. It already seems that the Russian car industry is doomed.

On the other hand, Volkswagen is going to assemble its cars on the GAZ factory in Nizhni Novgorod. Ford is going to launch the assembly production in the Leningrad region and in Tatarstan. GM will do the same in St. Petersburg and in Nizhni Novgorod as well. It is worthy of note that the Americans have already announced an intention to expand their factory near St. Pete. The initiative will thus create over 50,000 jobs, which is definitely a positive side of the story.

The issue of the quality of cars assembled in Russia has been discussed by many recently. The cars of the above-mentioned brands have become cheaper, but their reliability has been damaged too. Japan's Mazda said, for instance, that it is not going to follow the example of Volkswagen to assemble cheaper cars in Russia. President and CEO of Mazda Motor Europe Jeffrey Guyton said that extra-budget models erode the brand. Consumers may have negative associations about the brand as a result. According to him, cheaper cars can give better numbers in sales reports, but they are not likely to bring much profit to both the company and its dealers.

Artyom Gorbunov


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Author`s name Dmitry Sudakov