Best Protection Against Foreign Cars

Do the new owners of GAZ consider car production unprofitable?

Why do Russian car producers want  customs duties on used foreign cars  to be raised? If top managers cannot define the demand for cars, they should be fired and those who can count and plan should be employed instead. Why do metallurgical giants seize a car-producing giant when they have neither the necessary personnel, nor strategic or tactical plans to develop the car industry? Does this mean that the Russian auto lobby forced the government to adopt  high customs duties on old used cars in order to confirm its weakness? In fact, the situation is a bit different.

When top managers of Siberian Aluminum (Basic Element) were working on the actual takeover of the Gorky Automobile Plant (GAZ), they paid special attention to PR. First of all, as PRAVDA.Ru has discovered, contracts were concluded with the Russian central media to avoid articles covering  what was to happen at the enterprise.  Then, the top managers of the enterprise were shocked: every day, the leadership of the enterprise was severely pressed upon, but the media (even the old partners that earned a lot from publishing GAZ advertisements) remained silent. Nothing was mentioned about the unprecedented events at the enterprise on TV,  in the newspapers, or on  RuNet.

When the new owners took over GAZ, they first fired those managers who in fact supported the production process; new top managers from the aluminum, oil, and bank sectors were quickly appointed instead. It is astonishing, but there were no people from the car industry in the new top management of the enterprise. The media, which was friendly disposed toward the new owners of the enterprise, started publications about the corruption of the former GAZ management; it was even reported that cars were assembled under the supervision of bandit groups, the enterprise was under  mafia control, and money earned at GAZ went to criminal groups instead of the Russian budget. It is very likely that it was the Siberian Aluminum PR-department that spread information that the top authorities had recommended Russian Aluminum magnate Oleg Deripaska to take the car industry upon himself. It’s  already impossible to find out to what extent the publications were true of false.

However, it became clear very soon that the new leadership understood completely nothing about car production and were shocked with the amount of expenditures and disappointed with the profit margin. It is quite logical, as the automobile industry radically differs from production of bauxite and raw aluminum. That is why all  measures taken at the enterprise proved ineffective.

In July, the production of Russia’s popular Volga sedan was stopped at the enterprise. According to Siberian Aluminum director Oleg Deripaska, this was done because of two factors.  First, Russian producers of the metal necessary for car production demanded  high prices for their products. That wasn’t the main thesis by the way. Second, he said that too many used foreign cars are being imported. That, in its turn, was a signal for Russian automobile producers to attack the authorities.

As we remember, at the very beginning, the auto lobby  demanded that customs duties be raised not only on foreign cars seven years or older, but even for those 3-5 years old. Moreover, it was also demanded that the  period of use for such cars  be limited. It was suggested that right-hand drive cars should be banned as well. The demands meant that the majority of the Russian car fleet was to be struck out. As a result, the auto lobby even suggested to cut down on the  period of use for domestically produced  cars. However, the suggestion sounded really impudent, which bewildered even  Russian Minister for Industrial Science Ilya Klebanov, the man known as favorably disposed toward the Russian auto lobby. He understood perfectly well that  Russian car producers wanted in fact to ban the present-day Russian fleet of cars, severely cut down on car imports, and force Russians to buy cars produced by Russian automobile plants and sold at very high prices. And this is despite the fact that these cars are not widely popular. Russian Prime Minister Mikhail Kasyanov even had to ask the monopolists to present their strategic program to develop the Russian automobile industry; he also wanted them to provide guarantees that  ten years after introduction of higher customs duties on used foreign cars, a competitive domestically-produced car will appear on the market.

Rashly, the automobile producers agreed to such conditions and partially got what they demanded: customs duties on used foreign cars  seven years or older were raised. However, as it turned out later, even such extreme measures can’t save the situation with domestically produced cars, because people aren’t  inclined to buy them. This is because Russian businessmen dealing with car sales are better planners than the high-paid top managers at GAZ. They brought quite a large supply of used foreign cars to Russia, which, in its turn, all the same restrained sales of domestically produced Lada and Volga cars. On the contrary, incredible overstocking occurred. The production line of VAZ was stopped, and GAZ is next in line.

The GAZ management saysthat it’s currently unprofitable to produce cars in Russia. Marketing experts of the enterprise have calculated that the demand for Volgas won’t be more than 50,000 cars per year. But to maintain the production on a profitable level, at least 90,000 cars need to be produced per year. It is perfectly evident that Russians won’t be able to buy so many cars. In other words, it is meant that the GAZ production will be stopped at all. For some definite period. And as the raised customs duties are already in force, and the other day the Russian deputies refused to cancel them, this may mean a large-scale operation for the liquidation of the Russian automobile market will be launched. When the car deficit in the country reaches catastrophic levels, Russian car producers, GAZ and VAZ, will empty their warehouses, which are already completely filled. And this will be done at any price favorable for them.

It is perfectly clear that these plans have nothing to do with the market economy and competition. This is obvious monopolism. The Russian automobile producers are not idiots: they were fighting for the increase of  customs duties on used foreign cars not to protect the Russian car industry. This is obviously done with the purpose to make the majority of Russians buy domestically produced cars, which are sometimes compared with tin cans on wheels.

Dmitry Slobodanuk

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Author`s name Michael Simpson