Good bye, Volga!

Today, the director general of GAZ (Gorky Motorcar Work, in the city of Nizhny Novgorod), Dmitry Strezhnev, signed an order to stop the assembly line of vehicles. The line will be stopped on July 26 – August 3.

The reason of this decision was the abrupt increase of the prime cost for metal, which is bought by GAZ from Severstal works. It should be remembered that GAZ is controlled by the Basovy Element company of Oleg Deripaska, while the head of Severstal is Alexei Mordashev. These two structures seem to have agreed in their time about so-called spheres of influence: Severstal ceded GAZ to Basovy Element, in exchange for the right to supply metal. However, the peace turned out not to last long. Both companies laid their eyes on Zavolzhsk Motor Works (ZMZ), supplying engines both to GAZ and to UAZ (Ulyanovsk Motorcar Work belonging to Severstal). After a long conflict with numerous court examinations, representatives of Deripaska gained control over ZMZ. However, Severstal seems not to have been humbled and delivered a responding strike by increasing the prime costs on metal for GAZ.

One more reason for the stoppage of the production line was the change of the Russian motorcar market structure. GAZ cannot compete with products of VAZ (Volga Motorcar Work), whose cars are still cheaper inspite regular increases in prices. GAZ and VAZ products are certainly aimed for different segments of the market.The Volga seems to be the car of the representative class, while VAZ products are aimed at less well-to-do citizens. Though, the motorcar market in Russia is not fully formed, and car producers not always can say for what category of consumer their production is aimed.

Moreover, foreign motorcar companies could in the nearest future seriously press both GAZ and VAZ. Recently, in the city of Vsevolzhsk, a factory was launched by the Ford company. Ford Focus cars produced by the work will cost $10,990. Therefore, the Focus will compete with the most up-to-date makes of VAZ and GAZ (up-to-date for the Russian market). And who will win? You can guess.

In the meanwhile, the government has not yet passed any decision about the introduction of higher import duties for foreign cars over 7 years. Prime Minister Mikhail Kasyanov said that he does not want to solve the problems of Russian motorcar producers at the cost of consumers. Though, it is very probable that the government will return to this idea. GAZ already stopped its production line (however, competition with import cars is not the main reason of it), but what will happen if VAZ stops its production line?

For the time being, GAZ representatives say that they are looking for alternative suppliers of metal. And how long will they look?

Vasily Bubnov PRAVDA.Ru

Translated by Vera Solovieva

Read the original in Russian: http://www.pravda.ru/main/2002/07/16/44240.html