“Any industrial business is not the most profitable”

The Avtodom dealer holding was the first in the auto retail industry to become interested in the production of cars and received one of the newest factories in the Russian Federation – the former Mercedes site. The general director of Avtodom spoke about his view on this business Andrey Olkhovsky.

— You have been in the process of restarting the plant purchased from Mercedes for about a year now. What are the difficulties? Is it a matter of choosing the right partner, your own competencies?

– Not certainly in that way. We closed the deal in May 2023. And from that moment on, they had the rights to begin the restart. There are no difficulties, there are two concepts that can be implemented in such a business: doing contract assembly for some Chinese brand or releasing your own brand and selling it yourself. Work is progressing in both directions, we will tell you everything soon.

— Have you encountered competition for potential partners?

– Of course, we encountered – there are not many manufacturers in China who have sales volumes in the Russian Federation and do not have assembly production. If a company has big plans for sales in the Russian Federation, it needs to move towards local production or at least assembly (although this does not provide obvious advantages).

There are two such companies on the market today; they are discussing plans with all manufacturers who have potential assembly capacity. We hope that the regulator, represented by the Ministry of Industry and Trade, will fairly balance this issue.

— How expensive is it to maintain an idle site?

“This is a forced situation, and it’s not cheap. We retain the team, pay full payroll, which, of course, is an investment in personnel. Chinese partners view this completely differently and do not appreciate it. Apparently, in China the situation with the search for competent workers is different – the population is about 1.5 billion people. And we have to fight for every employee.

— How profitable is car production in Russia in general now compared to pre-crisis?

— Any industrial business is not the most profitable. But we have a unique case where, on the one hand, there is a production site and one of the best distribution teams in the premium segment, a bank, leasing and factoring companies that provide sales support. Everything just begs for the development of your own brand.

But, on the other hand, not everything is so simple – the key factor here is money, or rather, its cost. In the current situation, you need to have very long-term money with a low cost, or you need to produce more than 100 thousand cars per year in order to spread the costs of this volume.

Therefore, your own brand can be part of the overall approach in a car assembly project at our plant. I know that other companies are also considering launching their own brand. But all this is taken together to fill up their factories with contract assembly.

— Is there really a problem that Chinese automakers are not inclined to integrate Russian factories into their supply chains?

— If we look at this issue in a simplified way, vehicle kits and components will be supplied by the same partners as in China. There will be no differences. What will be available locally in the Russian Federation and will be comparable in cost will, of course, be purchased locally.

— Is it realistic to resume production at the majority of factories that were operating until February 2022?

— Theoretically, it is possible, but assistance is required to subsidize the Bank of Russia rate to restart capacities. But in the next five to seven years we will definitely not be able to reach 100% capacity utilization of the Russian automobile industry.

Interview conducted by Olga Nikitina