Western carmakers are increasing their manufacturing capacity in Russia as forecasts for rising domestic sales, government incentives and continued woes in more mature markets sharpen their eastern focus.
Renault, General Motors and Ford are among global players in the early stages of expanding sites or moving into those owned by Russian partners, as forecasts indicate Russian sales could equal pre-crisis levels this year.
The growth plans are in sharp contrast to the same groups’ problems with overcapacity in Europe, where carmakers are struggling to gain permission from governments to close plants and lay off workers as markets stagnate.
France’s Renault, expected to increase its 25 percent share in state-owned Lada maker AvtoVAZ to a controlling stake within weeks, is finalising plans to increase capacity at its Moscow plant by 10 percent to 1.8 million vehicles a year.
AvtoVAZ, which operates out of a sprawling Soviet-era site in Togliatti, on the Volga river south-east of Moscow, will see its capacity increased to 1.2 million from 1.1 million.
“If the situation does not improve in Germany, Russia could be the third market for the company (including partner Nissan and AvtoVAZ) this year,” Renault’s Russia chief, Bruno Ancelin, told the annual Russian Automotive Forum.
General Motors, whose Chevrolet brand was the biggest foreign seller in Russia last year, will increase capacity at its St Petersburg plant to 230,000 vehicles a year from 100,000 by 2015, its Russia head Jim Bovenzi told Reuters.
The expansion will come on top of an increase to its own partnership with AvtoVAZ to 120,000 units, and the start of a collaboration with Russian group GAZ amounting to 30,000 vehicles a year.
“It is conceivable that Russia could move to number four in the GM family (from number six) in 2012,” Bovenzi said.
DECREE 166
The increase in Russian manufacturing capacity largely results from the government’s Decree 166, which offers foreign players an exemption on customs duty for parts if they agree to ramp up local production to 350,000 vehicles a year.
The government launched the incentives in late 2010, complicating talks on joining the World Trade Organisation that were finally wrapped up in December of last year.
Ford set up a joint venture with local player Sollers to achieve that end last year, and is now revamping two of its partners’ plants in Tatarstan to hit the target.
“Decree 166 is an obligation, but currency fluctuations, logistics, timeliness … all require a local supply base,” GM’s Bovenzi said.
The flight to Russia aims also to take advantage of an expected rise in sales as economic growth and a burgeoning middle class lead to an increasing number of cars per head, even if the market is slowing from its post-crisis hot streak.
Deputy Industry and Trade Minister Alexei Rakhmanov said Russian car sales are seen rising by 6 percent from last year to 2.8 million units in 2012, a sharp slowdown from a 23 percent rise in the January-February period.
“We believe in 2012, we’ll see 6 percent growth compared with 2011. You will call me a pessimist, but there is a saying … a pessimist is a well-informed optimist,” Rakhmanov said.
He added the end of a government-sponsored scrappage scheme would contribute to slower growth, as cheap local brands such as Lada cease to benefit from the deal.
The scheme, which offered drivers a 50,000-rouble ($1,700)cash incentive to trade in locally made vehicles aged 10 years or older, ended in 2011 after contributing 600,000 new sales to the overall market.
The Association of European Business (AEB), which compiles independent Russian car sales figures, has forecast new sales in the range of 2.6 million-3 million for 2012.
The top of that range would see sales surpass the pre-crisis year of 2008, when Russia was poised to overtake Germany as Europe’s biggest market.
Sales halved the following year as an economic slump destroyed consumer confidence and dried up credit. AvtoVAZ was bailed out by the state to avert its collapse.
Rakhmanov said he thought Russia could become the number one market in Europe, but not in 2012.
“Are we happy that Russia is still the number two market? Yes. Can we be number one? Probably not this year,” he said.
By John Bowker