AMUR and Renault Trucks Agitated Competition

29.03.2010 — Analysis

Renault Trucks announced their plans to make trucks in Russia as long ago as 2006. Looking for a site took some time since the company was looking for a partner capable of investing in production. The Urals plant has been selected because it is ready to start assembling the trucks literally tomorrow: according to Pavel Chernavin, the AMUR President, investment in the preparation of the production facility will be minimal. Prior to the crisis the plant had been making Indian trucks TATA, Chinese dumper trucks FAW and Foton, Geely cars, and machines on the basis of ZIL-130 truck chassis. The crisis introduced some changes; today the plant is only alive because it has state contracts to make ZIL trucks. The enterprise has accumulated a serious debt to its staff and initiated bankruptcy proceedings.

AMUR's problems have not deterred Renault Trucks. According to Yaroslav Popovidchenko, the Leading Consultant at the Department of Transport and Infrastructure of Business Systems Development JSC, the decisive argument for the French is the fact that the plant has already got the network of dealerships and service stations, as well as the availability of logistics potential of the Sverdlovsk Oblast and the support afforded to the project by regional authorities.

At the first stage the joint venture will be assembling up to 10 thousand trucks of the Midlum class. It cannot be ruled out that in the future the Urals plant will be producing some components and parts. AMUR's managers would also like to involve French designers for the development of new models of trucks.

Experts reckon that it will be extremely difficult to realise these ideas. Rustam Yunisov, the Manager of Avtoconsult Ltd, says that it does not pay to make foreign trucks in Russia today. Firstly, there is no demand due to the rapid decline in the construction market. The situation, according to the expert, looks much worse than what we see in the official statistics reports - the machinery sales volumes reported by dealers are much overstated. Secondly, huge quantities of imported trucks have already accumulated at dealerships sites. These are the trucks to be sold first when the construction market shows signs of life again, for instance following the start of the project to build toll roads in Russia. The costs of transportation and customs duties will be more than compensated by the quality of genuine trucks. This is why Mr Yunisov fails to understand why the foreign manufacturer wants to spend money on the upkeep of the site and the training of Russian staff for the sake of making, say, 50 trucks a year.

The situation in the global automotive industry at the moment is so bad that it only keeps going thanks to injections of cash afforded by governments. The French Government, for instance, allocated 8 billion Euro to the sector - Renault and Peugeot received three billion each, Renault Trucks got half a billion. Subsidised loans are issued in exchange for the promise that the automotive giants will not make any redundancies or close down plants in France, transferring production to countries with cheaper labour. Also the authorities stimulated the growth of sales of vehicles made in France having given serious amounts of money to credit institutions. Nicolas Sarkozy's efforts bore some fruit: French vehicle sales have grown which made the situation at the automobile market, which was already far from simple, even more complicated.

The production at Russian auto plants in 2009 fell by 75-80% and in the nearest two years, according to Vladimir Rudenko, the Manager of the Strategic Marketing Office of a division of the GAZ Group, the situation will not change. The crisis has suspended the road truck production project at the Ural plant for which OJSC Avtodiesel has especially organised the production of YaMZ-650 engine licensed by Renault Trucks. It turned out that the engine complying with Euro 3 emission standards was not wanted by the Minsk plant either, as they shipped 80% of their products to Russia which is in the state of protracted stagnation now. The machines are getting old and out of commission, but there is no demand in the country for either new automobiles or spares.

In this situation manufacturing of new products is tied to large risks which the events at Avtodiesel have demonstrated. The Yaroslavl Motor Plant which is completing the construction of new production facilities for Euro 4 engines has encountered a very tough opposition from the KAMAZ proprietors. KAMAZ, having traditionally purchased the engines from Yaroslavl, decided to make a cutting edge engine using a US technology internally. This bore a consequence; Rostechnologii Corporation that owns 37.8% of KAMAZ shares attempted to block loans being issued to Avtodiesel. The project has been saved by high unemployment in Yaroslavl, the number of employees at the engine plant has dropped from 15 to seven thousand by 2010 and the plant only works 3 days a week now.

After signing the agreement with Renault Trucks AMUR has also encountered some problems. In the middle of March 2010 the Arbitration Court of the Sverdlovsk Oblast has unexpectedly suspended the bankruptcy proceedings which have been enabling the plant to defer the repayments of its debts. Pavel Chernavin reckons that this decision is backed by interests of many people - some wanting to get their piece at the auction of assets, some wanting to mess up the deal with Renault Trucks. AMUR has a lot of ill-wishers and they have very powerful administrative resource at their disposal. The plant proprietor had felt it first some years ago when the plant had started assembling 2 thousand Chinese autos a month and planned to make 30 thousand. Competitors then had managed to lobby the prohibitive duties on Chinese products in the Federal Government. All this administrative leverage is also at play now. According to AMUR's President the breakdown of the deal with the French would be beneficial to Sollers, KAMAZ, and GAZ. It is this tough opposition of the competition that made Renault Trucks not to publicise the details of the deal so far.

In the meantime experts assume that the French are counting on rapid recovery and further development of the automotive cargo transportation market. According to Yaroslav Popovidchenko the growth of sales of medium weight trucks of the Midlum class is directly connected to the recovery of the transport and logistics services sector. It will not be possible to warm up the haulage market without the resumption of offering commercial loans and leasing programmes for vehicle purchases. The increase of vehicle sales in Russia, the expert reckons, depends on whether the authorities will manage to attract medium size and small companies into this market.

Vladimir Terletski