Source Pravda.Ru

Will Russia’s Car Industry Survive?

Will Russia get the people’s car, the Volkswagen Golf?

The Russian automobile lobby and its patrons in the government seem to have calmed down after the failure of the car production policy. Indeed, not only the government introduced protective tariffs on old foreign cars, but even the domestic car industry is planning to reduce and stop production. The largest car producers have even suspended production. They say that car production is unprofitable for them. However, time passes, and everything is forgotten. Government officials once again proudly declare that a concept of domestic car industry is returning and foreign car producers are once again eager to assemble cars in Russia.

Russian Deputy Minister for Industrial Science Sergey Mitin said at a press-conference in Moscow that by the end of December, the Ministry would submit for consideration a plan for the development of the car industry until 2010. He added that the document was amended in accordance with the results of the car industry’s work in January – September of 2002. It sounds rather strange, as it was exactly after September that the government understood that the forecasted demand for Russian cars was wrong, that protective tariffs proved ineffective, and the car producers would inevitably stop production. But the government evidently has a logic of its own, or they know something that nobody else knows.

Indeed, the terms that governmental officials use in the description of the program designed for the car industry are plain. First, it’s necessary to attract investments in the Russian car industry; foreign investments are more desirable in this case. It is very likely the subject is actively being negotiated by top-managers of Russian aluminum oligarch Oleg Deripaska from the Russian holding Ruspromavto in Italy. It is not ruled out that Deripaska wants to set up a joint enterprise with the Italians not for the sake of the Russian car industry, but for bringing quick assets of his Basic Element into this joint-stock company.

Second, specialists from the Russian Ministry for Industrial Science suppose that it’s necessary to protect the domestic market properly. In fact, the market is already protected, that’s the limit. Some of the car industry lobbyists in the government believe that in order to increase the demand for domestically produced cars, the government should ban the use of not only right-wheel cars, but old foreign cars and even old Soviet cars. According to the RF Statistics Committee, these cars currently make up about 80% of all cars in Russia. So, it means that when Russians have no cars at all and the tariffs are introduced against foreign cars still remain in force, the people will have to buy the domestically produced VAZs, GAZs, etc. and the domestic car producers will be quite satisfied with the demand and the profits.

Third, Russia can’t do without increasing the competitive strength of the Russian car producers. As is known, this demands investments of several billions, which can hardly be found in the country now. It means that a designer paid two thousand rubles per month will never be able to invent a good car. All of his thoughts hinge upon the problem of how to survive on such low wages. The same situation is with workers who are paid 1.5 thousand rubles. They will never produce a competitive car. But who will? Martians?

Meanwhile, Sergey Mitin told journalists that even this year car production in Russia will make up 1 million 300 thousand cars instead of the planned amount of 1 million 22 thousand. Why and for what purpose? What kind of forecasts were made to set this amount? There are too many questions. Sergey Mitin says that the forecast is based upon the results of the domestic car industry work during January – September 2002. As was already mentioned, the government considered the Russian car industry’s work in September; there were only some illusions left. Evidently, there are already none.

It is highly likely that a competitive Russian car will be produced at the enterprises of Ford or Volkswagen, who decided to develop their businesses in the former Soviet republic of Ukraine. Moreover, they have recommenced negotiations with the Moscow regional government on the construction of an assembly plant in the town of Stupino in the Moscow region. It is obvious that this car won’t have a Russian name. Deputy Minister for Industrial Science Sergey Mitin seems to be very proud that Volkswagen is back in Russia. However, Volkswagen is apparently returning to Russia in order not to miss our on the Russian market, which may not be so promising now, but is likely to be very prospective in the nearest future. If Volkswagen doesn’t enter the domestic market, but Ford, BMW and Chevrolet still remain here, in twenty years, Russians will drive Americans cars assembled in Russia and not German cars, which will mean a strategic defeat of the German car industry on a world-wide range. And someone from German top officials will be completely responsible for the mistake.

Foreign car producers are backed with longstanding international cooperation and billions of dollars in the international banks, the banks which are so anxious about commodity and financial expansion on a world-wide scale. With their joint efforts and with considerable investment, they will be a success with adjusting their foreign cars to the conditions of insolvent Russia where the roads are in poor conditions. And they are highly likely to be ahead of Russia, while it is still working on the creation of a domestic car of a world-class level and with a price on the world level as well: 20,000 dollars. However, it’s not ruled out that this car will by that time be in no demand not only in Russia but also in the West.

However, strategists from the Russian Ministry for Industrial Science are rather optimistic. Let’s wait and see what kind of concept they are going to offer this time.

Dmitry Slobodanuk PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://economics.pravda.ru/economics/2002/7/23/67/2931_autoprom.html

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