Disintegration into spare parts – Newspaper Kommersant No. 209 (7410) dated 11/11/2022

The Russian automotive market, which was formed during the consumer boom of the early 2000s, has lost most of its players in 2022. This creates not only the problem of a lack of choice for car buyers, but also deprives the industry of a source of self-sufficiency – a scrap collection from foreign automakers, the funds of which were redistributed for years through state support instruments in favor of domestic manufacturers. The industry and regulators are faced with the problem of how to simultaneously ensure localization in the face of a shortage of state subsidies and attract foreign investors to a shrinking market.

In 2022, the Russian car market will decline by about 60%, showing the deepest drop in its history. Thus, during the crisis of 2015, caused by the devaluation of the ruble, sales of passenger cars and light commercial vehicles fell by 36%, and during the crisis of 2009 – by 50%. If you look at volume indicators, the situation is even worse: average monthly sales now differ from those years by about three times (see infographic).

This is the first crisis when automotive production was massively suspended in Russia. Popular European and Japanese mass-market brands—Volkswagen, Skoda, Toyota, Nissan, and Mitsubishi—have run out of stock and have been selling, on average, less than a thousand cars a month each since May. Korean Hyundai and Kia were going to the Russian Federation a little longer thanks to the stocks at the Kaliningrad Avtotor, but last year they also had a drop of up to eight times. As a result, the offer turned out to be skewed: only Chinese crossovers remained on sale, prices for which start from 1.9 million rubles, and the budget Lada Granta with a recommended retail price of 678 thousand rubles.

Sergey Udalov from Avtostat notes that the currently unfilled segment between SUV and budget Lada is in high demand from corporate clients, but consumer demand will continue to be washed out here. It is not very profitable to import such cars due to high overhead costs, and it will not be possible to assemble them cheaply in Russia either due to restrictions on the supply of components.

Automotive expert Vladimir Bespalov believes the market will remain “tight” until new projects like the Evolute or Moskvich become mainstream. He agrees that the screwdriver assembly, with which all new manufacturers in the Russian Federation will have to start, is unlikely to be cheap in the current conditions.

Let’s live until Monday

EU sanctions prohibit the supply of cars worth more than €50,000 and spare parts worth more than €300 to Russia. In addition, as Kommersant’s sources explain, the ban on the supply of cars from the United States in practice also applies to car kits for their assembly, and restrictions on electronics against the backdrop of the ongoing crisis with chips further narrow the possibilities. In the spring, Kommersant’s sources said that one of the European companies was looking for the possibility of supplying components for production in the Russian Federation from Turkey. But in the end, this did not happen, because, according to the interlocutor of Kommersant, this method can be interpreted as circumventing EU sanctions and “it is impossible to protect it in front of the headquarters.”

Nevertheless, most foreign concerns did not indicate sanctions as the reason for stopping production, but problems with logistics. They are mainly due to the high load on the remaining key routes from the East, Kommersant’s sources and Sergey Udalov say. Uncertainty with the development of the market also creates difficulties: because of it, it is difficult to plan quotas for the supply of components. Haval noted that ordering components for local production requires longer planning than importing finished machines.

In domestic concerns, the situation is no better. According to Kommersant’s sources, they are looking for new suppliers of components every day, since previous orders are regularly disrupted, and already paid batches do not always reach the Russian Federation.

Gosavtoprom

So far, none of the idle auto plants in the Russian Federation has been acquired by a foreign company, that is, a direct exit of “alternative” investors – for example, Chinese ones – has not taken place. Sergey Udalov notes that companies are looking at the situation, including with sanctions: “For large Chinese players, more stable and capacious US and EU markets are important.” Vladimir Bespalov says that “waves” of purchases cannot take place in conditions when brands have not yet built a distribution and service network: “Still, for localization, even on an existing site, you need to understand the long-term perspective, including from the point of view of competition, as well as industry regulation.”

As a result, the state buys the factories: for example, the Ministry of Industry and Trade, through the Federal State Unitary Enterprise NAMI, has already accumulated two assets – AvtoVAZ after the departure of Renault and Nissan. The scheme was also offered to other foreign concerns. In the Ministry of Industry and Trade, Kommersant was told that NAMI “is connected in the framework of projects where its experience and competencies are needed to maintain the production potential of the relevant sites, as well as to establish processes for organizing the further production of cars.” Prior to this, only Aurus was engaged in NAMI, within which less than 150 cars were produced.

In practice, the purchased sites are focused on the assembly of Chinese cars. Vedomosti wrote that Chinese FAWs could be localized at the Nissan plant with the involvement of KamAZ as a technology partner. KamAZ declined to comment on this. KamAZ performs a similar role for Moskvich, the former Renault plant in Moscow, which was sold for 1 ruble. city ​​authorities. At the same time, KamAZ, in which Rostec owns a stake, was included in the SDN list of the US Treasury, and Kommersant’s interlocutors suggest that the concern cannot directly participate in projects. Sollers, which lost Ford and Mazda as JV partners, also decided to concentrate on the production of cars on the Chinese platform.

The Ministry of Industry and Trade says that it is necessary to find a balance between “the necessary level of concentration of production assets to ensure economies of scale, as well as economically viable localization, and the presence of a sufficient number of players on the market, including foreign ones, to create the proper level of competition.”

Utilsbor has reached a dead end

The main challenge in the field of regulation is the need to revise the concept of collecting and distributing scrap, which was the main tool of the state to influence the investment plans of automakers.

The salvage tax was originally intended to compensate Russian players for the reduction in import duties on cars after Russia’s entry into the WTO. At first, only importers paid the fee, and Russian factories gave guarantees of disposal. But due to pressure from other countries (initiated proceedings in the WTO court), since 2014, the fee has been extended to everyone. At the same time, the state began to pay industrial subsidies to automobile plants in the Russian Federation, de facto compensating for the waste collection.

Since 2019, compensations have been tied to the level of localization of cars, so now only AvtoVAZ, KamAZ, GAZ, UAZ and Ural receive them in full (100% of the paid salvage fee). The plan of the Ministry of Industry and Trade was that foreign concerns should either be completely localized or pay a salvage fee, and the money raised would go to support the industry. But now, due to the cessation of the production of foreign auto concerns in the Russian Federation, revenues from scrap collections have fallen sharply – in fact, they are provided only by the Haval plant in Tula, which has not yet scored enough points in localization. As a result, as early as 2023, state support for the automotive industry had to be reduced: they plan to spend 5.1 billion rubles on preferential car loans. against 13.3 billion rubles. in 2022, for leasing – 2.5 billion rubles. against 5.1 billion rubles.

On the other hand, the emergence of new projects based on Chinese platforms has generated a discussion about the need to relax localization requirements in order to gain access to salvage compensation (see Kommersant of September 29). Kommersant’s sources said that without this there would be no investment in localization.

Another interlocutor of Kommersant objects that preferences for projects that “essentially replace direct imports of cars with imports of foreign components will create a huge gap from the tasks facing the industry and lead the auto industry to a dead end.” In his opinion, the scale of differentiated compensation for salvage fees leaves enough room for low-localized automakers and is not prohibitive.

Obviously, for the development of the industry in the country, competencies must be created, says Vladimir Bespalov, so localization requirements must exist. But, in his opinion, easing for some period of conditions for the entire market looks logical.

The Ministry of Industry and Trade did not comment on the easing of requirements or the prospect of waiving the collection of salvage fees from production facilities in the Russian Federation against the backdrop of the departure of foreign players. They only said that “due to constantly changing economic conditions” they are considering “various opportunities for setting up existing state support mechanisms with the industry community.”

A separate issue is where to direct the funds from the scrap collection, which used to be traditionally used to subsidize car sales. According to Vladimir Bespalov, in conditions of limited supply, state support is justified only for the light commercial and cargo segments. The expert believes that it would be more logical to allocate state funds for R&D, and component manufacturers should receive understandable guarantees of demand. Until now, despite repeated attempts since 2015, the Ministry of Industry and Trade has not been able to provide direct support to component manufacturers, preferring to help auto concerns.

Utilsbora as a source of funding is absolutely not enough for the tasks facing the industry, according to a Kommersant source in one of the concerns. “In the near future, technological sovereignty in the automotive industry will require more than 300 billion rubles. loans on favorable terms. We need a real source,” he says, believing that these could be, for example, preferential loans from the NWF.

Olga Nikitina