Page 132 - RusRPTAug22

Reuters say that Kazakhstan’s Asia Auto could take over Volkswagen’s Kaluga plant, which employs around 4,200 workers.
Spoke and wheel The potential sale by Volkswagen is a symbolic moment for Russia’s car industry, but it comes as little surprise to industry experts. It is the consequence of a systemic vulnerability in the Russian model of car manufacturing, which makes the country largely dependent on Western technology to build its vehicles.
Following the collapse of the Soviet Union in 1991, Russia’s automobile industry accepted a high degree of dependence on Western technology and supply chains in order to provide a steady flow of modern vehicles to Russia’s domestic market. This made sense in the short term, addressing the immediate problems of outmoded car-manufacturing infrastructure left over from Soviet times and widespread corruption in procurement and manufacturing.
In the long term, however, the decision to integrate with Western manufacturers was not consistent with Putin’s aim to build what commentators called “fortress Russia” – an almost autonomous economy which could draw on vast reserves and domestic products to comfortably weather sanctions. The trade-off in car making was successful in the short term, keeping the nascent Russia well supplied with new vehicles, but left the auto industry uniquely exposed to sanctions risks from 2014 onwards.
In other industries, the latent pre-war imports still working their way through the system, or the availability of domestic alternatives has meant that the effect of sanctions has not yet become visible in output figures or prices.
Cars, on the other hand, tend to rely on a nimble supply chain, with high-technology components often imported from Europe or America and assembled quickly near to their end market. This “just-in-time” production strategy means that inventories tend to run on narrow margins, which explains why part shortages stopped car manufacturing so quickly after the imposition of sanctions.
The result has been a sudden and dramatic drop in both demand and production of cars. With specialist components like computers, semiconductors and catalysts harder to source, the price of cars has soared, and consumers have responded by buying less. New car sales in Russia were down by 82% in June 2022 compared to the same month last year, with Russia’s 25 largest car brands all posting a year-on-year drop in sales. (chart) “The dramatic demand collapse is driven by rising prices, low consumer confidence and uncertainty surrounding the future servicing of vehicles,” explained Sergey Suverov, a strategist at Russian investment fund Aricapital. “The current fleet of new Western cars and trucks will last about 3-4 years before real big problems start showing up, stopping deliveries and safe driving.” Russia’s most popular cars, however, are not foreign – they are Soviet classics which have been re-vamped for the
132 RUSSIA Country Report October 2020 www.intellinews.com