[Aika Car Aika Perspective Original]
In the article "Why the Russian Auto Industry Is Now Rotten as a National Football", we review the history of the Russian auto industry in a flashy way and briefly analyze the reasons for its decline. So, what is the existence of today's auto market, a superpower that spans the Eurasian continent and ranks first in the world? For Chinese car companies such as Great Wall and Geely entering the Russian market, where are the future opportunities? Perhaps the most apt quote from Joerg Schreiber, Chairman of the Council of Automobile Manufacturers of the European Enterprise Association (AEB), is this: "The Russian automotive market is small and has very limited potential. ”
From the data point of view, Russia's new car sales in recent years have hovered between 1.6 million and 1.8 million, and the total amount is in the forefront of European countries and the top 10 in the world. But if you consider the country's 144 million people, its per capita car ownership is probably only about 60 in the world. On the other hand, as an energy country whose annual oil, gas and other fossil fuel export revenues account for more than 40% of the country's fiscal revenue, as early as before the Russian-Ukrainian conflict, affected by the low global fossil fuel prices and the slowdown in the growth of the domestic economy, Russia's new car market began to decline after reaching a peak of 1.8 million units in 2018, and as of last year, it had fallen to less than 1.6 million units.
There is an interesting phenomenon in Russia's current automobile industry: although the local automobile industry has almost disappeared, it is a large automobile production country without compromise, and if the production capacity of the Russian factory is fully open, its production capacity is about 3.01 million units
However, Russia's current automobile industry has an interesting phenomenon: although the local automobile industry is almost disappearing, but it is a big car production country, the current investment in Russia to build a factory of car companies include Volkswagen Group, BMW Group, Mercedes-Benz Group, Renault Group, Hyundai Group, Great Wall Motors, etc., according to relevant information, if the production capacity of the Russian factory is fully open, its production capacity is about 3.01 million. So, why don't many giants choose to export new cars directly to Russia?
Why many car companies choose to build factories in Russia
To know the answer to this question, I am afraid it will go back to the year 2000 when "Putin the Great" was appointed to take over as President of Russia. At that time, the Russian economy, which had undergone nearly a decade of "shock therapy", was full of holes, and the lifeblood of the country, such as communications and energy, was in the hands of several oligarchs of rich and enemy countries, and the low price of crude oil brought about by the Asian financial crisis in 1998 became the last straw that crushed the Russian economy.
The Lada 2107, the top-of-the-line model that clearly identifies "deluxe" (bottom) in the product catalog, differs from the 2105 (normal version) (top) and 2104 (travel version) (picture 1) in a chrome grille
Against this backdrop, Russia's already fragile automotive industry can be imagined. AvtoVAZ, the country's largest car company, the Tolyatti factory, even produces the Lada 2107, which has a history of more than 30 years, which is clearly marked as "deluxe" in the product catalog, and the only difference from the 2105 (ordinary version) and 2104 (touring sedan) is the chrome grille... Not only that, the legendary off-road vehicle NIVA has also been replaced with the help of the "American friend" General Motors Group, becoming an off-road vehicle with strange body proportions, an outdated 1.7L engine, and an ambition to become an "urban SUV".
The legendary off-road vehicle NIVA has also been replaced with the help of the "American Friend" General Motors Group, becoming an off-road vehicle with strange body proportions, an outdated 1.7L engine, and an "urban SUV"
The Volga sedan, a symbol of personal success during the former Soviet union, has undergone several "magic changes" to become the "stitching monster" with the 1990s style front and 1970s body, the GAZ-3110.
The situation of another car company, GAZ, is also not optimistic. The Volga sedan, which was a symbol of personal success during the former Soviet Union, has undergone several "magic changes" to become the "stitching monster" with the 1990s style front and 1970s body, the GAZ-3110. It is said that when the car was just equipped with an EFI engine, the first cars had a serious knock due to the poor equipment process of the engine and the immature electronic control system. The manufacturer's recall plan is also very simple and rude, directly by modifying the ECU settings to reduce the engine compression ratio, and directly tell the owner to add lower grade gasoline, although the problem has been solved, but the power of these new cars' 2.3L inline four-cylinder engine has dropped from the previous 110Kw (150 horsepower) to 96KW (131 horsepower), and the power parameters are not even as good as the carburetor models that have been discontinued. The antiquated technology and shoddy quality have eroded the best impression of the Volga in the hearts of Russians, and then become a stopgap choice for taxi drivers in cities such as Moscow and St. Petersburg.
The Russian presidential car was also replaced from the majestic ZIL-41047TB (top) to the "big road cargo" - Mercedes-Benz S-Class Pullman (bottom)
Indisputable local cars have made more and more Russians turn to imported brands, and even the Russian presidential car has been replaced by the majestic ZIL-41047TB to the "road cargo" - Mercedes-Benz S-Class Pullman. Not only that, but even those low-income groups living in the less developed Far East prefer to import used cars from Japan and Western Europe. Since the early 1990s, more than 100,000 used cars from Japan have entered Russia every year from the port of Vladivostok (Vladivostok) and distributed throughout the country, which is still just a registered legal import vehicle. There are countless accidents and thefts from Japan and Europe. In the Russian Far Eastern cities at that time, trucks and buses bearing the trademarks of various Japanese companies were in sharp contrast with the French buildings in the urban area, and since most of these cars were right-hand drives, contrary to the traffic rules of Russia's civil law system, there were countless traffic accidents caused by them...
Since the early 1990s, more than 100,000 used cars from Japan have entered Russia and distributed throughout the country from the port of Vladivostok (Vladivostok) every year, and even police cars in the Far East have purchased the crown of the eighth generation of the right-hand drive (MS130).
It is precisely under the chaos that Putin, who won the election with the rhetoric of "give me 20 years, pay you back a strong Russia", promulgated a series of measures to boost the local automobile industry, including issuing low-interest loans to consumers of Russian car brands, forcing government official cars to choose local brands, encouraging overseas automakers to build factories in Russia, and joint ventures with local brands.
The kalina, a small car, began development in the early 1990s and, when it was officially put into production in 2005, was two generations behind competitors in overall design and technology.
A few years have passed, and Russia's economy is booming, but the automotive industry is deteriorating. AvtoVAZ was squeezed by foreign brands and joint ventures in Russia, and its market share fell again and again, from 56% in the new century to 49%. Not only that, the brand's entire process from research and development to factory production is outrageously inefficient, such as the small car Kalina, which began to be developed in the early 1990s and was officially put into production in 2005, and the overall design and technology lagged behind competitors by two generations. According to data provided by GM, a joint venture at the time, workers at the company's Tolyatti plant could only build an average of eight cars a year, compared with 36 at GM's plant in Kentucky.
The Volga Siber is essentially a "rebranded" second-generation Chrysler Sebring, and the poor stability makes the car's performance in the North American market not very successful, and it is reasonable that the Russian market "exerted residual heat" after the suspension of production
The situation of GAZ, the parent company of volga cars, is even more "bleak", since it was maliciously acquired by Siberian Aluminum, the old car company has completely abandoned the passenger car market and stopped the research and development of Volga replacement models. Later, it suffered a series of bad things such as the failure of the acquisition of the British LDV (the predecessor of SAIC Maxus MAXUS) and the slow sale of the Volga Siber model cooperated with the Group, and finally after the 2008 financial crisis, it was completely reduced to volkswagen and GM's foundry in Russia.
As for the previous plan to stimulate foreign investment, not only has more and more European and American car companies eaten sweet in the Russian market, but also the newly emerging Chinese brands have begun to emerge in this emerging market, in 2007, Chery sold 37,000 cars in Russia, which even exceeded the Volkswagen Group and PSA Group in the same period. In terms of imported used cars, although the tariff is as high as 25%, Russia's imports of Japanese used cars still peaked in 2007 – the annual import volume exceeded 400,000 units.
In 2007, Chery sold 37,000 units in Russia, a figure that even surpassed Volkswagen and PSA Group, but then had to withdraw from the Russian market due to protective tariffs.
As a result, the Russian government, which hates iron and steel, has once again made a big stroke and formulated a more stringent tax system, since 2009, it has gradually increased the import tax rate of new cars from 25% to 30%, and the import tax rate of used cars is as high as 35%, in order to further suppress overseas enterprises dominated by SKD and CKD, the Russian government has also increased the tax rate on imported parts to 35%. A series of naked trade protections have forced the fledgling Chinese car companies to withdraw, and overseas brands must establish local factories if they want to survive in Russia. Even so, the indisputable local car companies have inevitably declined after enjoying a short policy dividend.
When Putin inspected and visited the Tolyatti factory in 2011, he originally wanted to experience a new Lada car Granta, who knew that under the gaze of a group of international media and senior Russian government officials, the vehicle was ignited four times in a row before it started normally, and the scene was once embarrassing.
This is reminiscent of the "famous scene" when Putin inspected the Rada factory in 2011, when the event arrangement was to let the leader who owned several Radas personally drive a new car off the production line, the Granta, and as a result, under the gaze of the international media and senior Officials of the Russian government, the former KGB agent with superb driving skills ignited four times in a row before reluctantly driving the new car out of the factory... The scene was awkward for a while.
With the collective rise of Chinese auto companies and the extension of the "Belt and Road" strategy, more and more Chinese auto companies are now re-targeting the Russian market, and the vanguard of which is the Great Wall. In 2019, the brand established the first overseas full-process body factory of a Chinese car company in Tula, Russia, in addition to stamping, welding, painting, and assembly workshops, this factory also has localized research and development capabilities, of which the localization manufacturing rate of parts is as high as 65%. This not only circumvents high import taxes, but also solves the employment problem of 3,000 local people.
Since the market size is limited, many Chinese car companies are still targeting the Russian market
From the sales data point of view, although the growth rate of Chinese car companies in Russia is amazing, but the total amount is not eye-catching, taking the data of 2021 as an example, Geely sold a total of 22479 vehicles in the first 11 months, and the Great Wall that established the factory only sold 39,000 cars in the same year. With the continued instability of the ruble exchange rate and the continuation of the War between Russia and Ukraine, the future increase of the Russian auto market is also uncertain. So does it make sense to seize the Russian market?
Geely ATLAS (Boyue) was officially launched on the Russian market in 2018
For China's auto industry, which wants to jump from a manufacturing power to a manufacturing power, the Russian market is the only way to "internationalization", and the strategic significance is far greater than the market sales. An important feature of the Russian automotive market itself is the apparent trend towards polarization. On the one hand, developed regions such as Moscow, St. Petersburg, and Kaliningrad in the European part are close to the Western European market in terms of consumption capacity, infrastructure construction, and aftermarket maintenance, and even before the outbreak of the new crown epidemic, the Russian luxury car market has increased significantly. Taking 2019 as an example, in the case of a 2% year-on-year decline in overall sales of new cars, the annual growth rates of BMW and Mercedes-Benz are still as high as 17% and 11%. It is a rare test field for Chinese car companies whose ultimate goal is to target developed markets such as Europe and the United States.
Street scenes in the Russian Far East, used Japanese cars are still the mainstream
In the vast underdeveloped areas of the Far East, when the import of used cars is gradually stopped in the future, and the resumption of factories such as Lada and Hyundai is far away, there is bound to be a considerable market gap. For Chinese car companies, the last thing to worry about is strict cost control and the ability to quickly occupy the market, because such a scene is almost a copy of the Chinese market 20 years ago, but the Chinese car companies at this time have long been different from the "defeat of Maicheng" in 2010.
Why many Chinese car companies are still targeting the Russian market