Global crisis aside, foreign carmakers flock to Russia
No ‘Rust Belt’ in sight at Russia’s ‘Little Detroit.’
People are starting to call this central Russian industrial town “Little Detroit.” Unlike its American namesake, the car factories here are not only still working, but they’re going forward with ambitious expansion plans.Skip to next paragraph
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Russia already has a home-grown auto industry, but the new factories are distancing themselves from the clunky Soviet days – meaning experienced Russian auto workers need not apply. Wages are even less than those at auto plants in Eastern Europe, but the sour economy is resulting in an abundance of eager labor.
Amid Russia’s skyrocketing interest rates, plunging ruble, and rising unemployment, Kaluga is proving to be a rare bright spot.
A two-year old Volkswagen plant just outside Kaluga, which assembles Passat and Jetta sedans for Russia’s fledgling middle class, has slashed weekly shifts in half, though it has not yet laid-off any workers.
Foreign production up
Volkswagen claims that it has sold more cars in Russia this January than in the same month last year. A sprawling Volvo truck plant opened production near Kaluga in January. Peugeot Citroën and Mitsubishi will break ground later this month for a joint production facility that could be churning out 300,000 vehicles by 2012. Local officials say that the Canadian car-parts maker, Magna, will finalize a deal this week to build a factory near Kaluga’s burgeoning “auto industry cluster.”
They’re all attracted to Russia’s auto market, which, despite red-hot growth in recent years, still has just 250 cars per 1,000 people, compared with nearly 500 per 1,000 people in the US and Western Europe.
As Russia’s indigenous auto industry stumbles, amid plant shutdowns and sagging sales for its cheap but widely despised Soviet-era models, foreign automakers still smell opportunity. Recent Kremlin decisions to raise tariffs on imported cars and to support consumer lending for domestically produced brands have boosted incentives for them to locate in Russia.
“We’re in this for the long haul, because we believe the Russian market is strong despite the current downturn,” says Dietmar Korzekwa, VW’s general director for Russia. “We are hopeful that during this present crisis we can win greater market share.”
Russia was the world’s fastest-growing automobile market in 2008 with sales of over 3 million new cars, only half of which were domestically produced, according to a report by the consultancy
PricewaterhouseCoopers. Even though the market is expected to shrink by up to 50 percent this year, Russia-based carmakers could actually maintain or increase their sales thanks to the government’s protectionist measures and the falling ruble, it says.
The Kaluga VW plant currently assembles cars from modules imported from Germany, Mexico, and the Czech Republic, but a huge construction site next to its present plant testifies to its commitment to fully produce its automobiles in Russia by the end of 2011.
Mr. Korzekwa says VW chose to set up in Kaluga because the city of 350,000 people, some 125 miles south of the giant Moscow market, has good infrastructure, skilled labor, and a business-friendly local administration. Another factor, he suggests, was that the city has no past association with the former Soviet auto industry, with its legacy of poor design, awful work habits, and disastrous quality control.