Automaking to change as local production clicks into gear

The privileged regime for foreign car makers is likely to come to an end next February, meaning they will have to produce cars and source parts locally instead of assembling just them.

This week Japanese company T.RAD opens a joint plant with GAZ Group subsidiary, “Russkie mashini” to produce heating elements and other car parts. Hiromi Kanoh, President of T.RAD, says the company is looking for new customers and to expand production.

“Currently our strategy is based around one consumer – GAZ. But we do plan to extend our business in Russia and work with both Japanese and other foreign car makers. Our goal is to find new consumers by 2012.”

Foreign spare parts makers are more than welcome. Jonson Controls, Magneti Marelli, and Delphi are among those working in Russia. But it’s easier for them enter the Russian market with a local giant’s support, according to Bo Andersson, CEO of GAZ Group.

“We have a very good supply base today but in some cases we need new technology, and then it makes sense to us and foreign partners to localize.”

This September the Ministry of Industry and Trade announced new rules for car makers. They should raise output to 300 000 cars a year from 25 000 and double, to 60%, the parts they source locally.

This would boost the local components industry – but Ivan Bonchev, CIS Automotive Leader at Ernst & Young, says it is too much, too soon.

“These requirements could be met by very few companies. For example these are mostly Russian OEMs who have the largest volumes, and potentially some of the foreign OEMs who are enjoying good market share, and already are selling above 100 000, close to 150 000. And the Ministry of Economic development is not favouring these very strict regulations, and they are proposing an alternative, which is much more flexible, however, not well defined either. So, I would imagine the ultimate decision will be some sort of compromise.”

Few cars nowadays have a national identity. They contain parts from around the globe. Ironically, international car makers, sourcing more of their parts in Russia, could turn out to be more Russian than the better-known domestic brands.