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Global crisis aside, foreign carmakers flock to Russia

No ‘Rust Belt’ in sight at Russia’s ‘Little Detroit.’

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“With our (mostly young) new workers, the approach is training, training, control, control,” he says. “It’s most important that we have nobody here who’s ever built cars in Russia before. It was one good reason for coming to Kaluga.”

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Lower-paid workers

Wages here are much lower than at comparable plants in Eastern Europe, or even Moscow, but assembly-line workers profess to be happy. “A lot of people would like to work here, but it isn’t easy to get in,” says Ilya Ivlev, who’s worked at VW for nine months now. “You hear a lot about the economic crisis, but this job seems to be good.”

Thanks largely to the influx of foreign automakers, the Kaluga region saw 35 percent industrial growth last year, far above the overall Russian rate of 3.5 percent. That isn’t likely to hold this year, as many of its Soviet-era industries – especially machine-building – are hurting badly amid the general crisis.

“A lot of factories around here have closed, slashed their workweek, cut salaries, or put workers on unpaid leaves,” says Yury Rastorguyev, editor of Kaluga’s main daily newspaper, Vest. “But we seem to be getting along better than some of our neighboring regions.”

Will Ladas survive?

Experts say the crisis may accelerate the end of Russia’s indigenous auto industry, which has largely failed to improve quality or introduce new models, despite years of state investment and joint ventures with foreign automakers. Lower prices – around $10,000 for a new Lada, compared with $30,000 for a VW Passat – may have slowed their decline, but few owners of traditional Russian brands such as Lada, Volga, or Niva express any satisfaction with their cars.

“Foreign cars, even those made in Russia nowadays, are far better and safer than our traditional Russian ones,” says Pavel Kurchavy, a professional driver. “I don’t know anyone who would prefer to buy a Russian car.”

New customs tariffs of up to 25 percent on imported vehicles should have boosted sales, and Russian-made cars should have benefited from the plunging ruble, which has lost about 40 percent of its value since last September. Nevertheless, Russia’s biggest automaker, AvtoVaz, last week announced an indefinite shutdown of its main assembly plant in Togliatti, on the Volga River, amid reports that it holds a huge backlog of unsold cars and has been unable to pay suppliers.

“The Russian car industry has been losing market share ever since foreign models began appearing here,” says Anatoly Leyrikh, a council member of Delovaya Rossiya, a private business association.” Five years ago, traditional Russian brands held 85 percent of the market; now they have barely a quarter of it.

Western carmakers will bury Russian ones unless they find the means to build a totally new product.”
All of Russia’s “Big Three” automakers are in trouble, says Sevastyan Kozitsyn, an expert with BrokerCreditService, a Moscow-based financial services firm.

Debt-laden carmakers

The giant Gaz factory complex in Nizhni Novgorod, which produces Volga sedans and Gazel vans, is saddled with debt and “about 80 percent of its shares have been pawned to a big Russian bank,” he says. AvtoVaz, which builds lighter cars, is facing massive debts and a 30 percent drop in demand for its cars. Only the truckmaker, Kamaz – though suffering – looks able to survive without major state support, he adds.

When the crisis finally abates, it’s possible the Russian auto industry will still be alive, but its geographical center will have shifted from the Volga to the new facilities springing up here in Kaluga. And those old Soviet brands may have given way to names familiar the world over, including VW, Volvo, and Citroen.

“We have a lot of optimism about our carmakers,” says Ruslan Zalivatsky, head of the Kaluga regional government’s investment department. “Even though no one knows where the bottom of this crisis will be, they are still coming and setting up shop here. We’re very hopeful.”