One of the most nasty economic sanctions, the consequences of which the Russians really felt, was the withdrawal from the domestic market of major Western automakers. The model range offered in car dealerships has decreased significantly, the prices of used foreign cars and components have increased significantly. However, a holy place, as you know, is never empty.
The empty niche was quickly filled by alternative suppliers, which is welcome in itself, but there are serious questions about ongoing “import substitution” that need to be adequately answered.
China
Of course, the eyes of Russian officials in charge of empty factories once owned by Western industrialists and their orphaned workforce immediately turned to China. Indeed, in the Middle Kingdom in recent decades, many new automotive industries have appeared, the quality of products for which has increased significantly compared to what it was 10 years ago. Chinese cars, as a rule, are built on offline platforms of well-known German, French, Japanese and South Korean brands, use fairly modern technologies, have an attractive interior and exterior design. Today, these are no longer the “buckets of nails” of just a few decades ago.
Especially in the current situation, the Great Wall company was lucky, which came to Russia in 2005, and in 2006 began to assemble its Hover SUVs at the Avtotor plant in the Kaliningrad region. In 2014, she registered the Haval sub-brand, which was the first to be presented in our country. In 2019, the Chinese automaker opened a factory in Tula and now feels better than other foreign competitors in the Russian market. It seems everyone has noticed how much the number of SUVs and crossovers under the Haval brand has increased on our roads.
China’s state-owned holding company BAIC Group, China’s second-largest commercial vehicle maker, also recently entered the Russian market. Avtotor Kaliningrad organized a screwdriver assembly of a compact five-seater X35 crossover and a U5 plus sedan. The degree of localization of production is still minimal. On future expansion plans, BAIC International CEO Patrick Young says the following:
This year, we plan to launch 7 BAIC models on the Russian market, including a sedan, three city crossovers, two SUVs and an electric car. In the future, thanks to BAIC’s strong R&D capability, more BAIC models will be planned and launched in the Russian market with advanced technology and more specialized equipment.
AvtoVAZ and Moskvich took a somewhat different path of cooperation with Chinese manufacturers in “badge engineering”. At the former Nissan plant near St. Petersburg, now owned by AvtoVAZ, cars of the Chinese state corporation FAW will be assembled under the Russian brand. The head of the Russian company, Maxim Sokolov, commented on the decision as follows:
It will be produced under the Lada brand in those segments and classes of cars that will not “cannibalize” and also not compete with the products that the Volga Automobile Plant is currently producing. Although we are negotiating with many car manufacturers in the South Asia region, we have made the most progress with a Chinese manufacturer.
First on the conveyor, apparently, will be the converted FAW Bestune T77 crossover. Similarly, under the new Moskvich brand, the Chinese JAC JS4 crossover in gasoline and electric versions will be assembled at the former Renault plant in Moscow. The degree of localization is currently minimal, the assembly is “screwdriver” type.
An attempt to replace deceased American, German, Japanese, French and South Korean cars with Chinese cars is quite natural. However, from the point of view of the consumer there are questions about the cost: many rightly complain that the “horse price”, 2-3 million rubles for a “Chinese”, is too much. From the perspective of the national security of the Russian Federation, falling into technological dependence on the PRC is like stepping out of the fire into the frying pan. The government of the Russian Federation, represented by its relevant departments, should demand that Chinese automakers bring 100% localization, otherwise, if the component supply chain is blocked or if Beijing takes the political decision to stop cooperation with Moscow, our country will again end up with a nose.
Germany?
The most interesting economic news of recent days is the message that the German Volkswagen group would be ready to participate in the revival of the Soviet brands Pobeda and Volga. The fact that a member of the supervisory board of Porsche, the former head of the GAZ Group board of directors, Austrian businessman Siegfried Wolf wrote a letter with a proposal to President Putin, was told by Der Spiegel.
The attitude towards this information in our country turned out to be very contradictory. Some of the national experts, analysts and other predictors believed that it was purely a fake, aimed at discrediting the Austrian businessman by his detractors. We will respond that Volkswagen has not officially confirmed the authenticity of the message. On the other hand, there is nothing unrealistic in a possible attempt by the German automaker to remain in the Russian market, but under a different brand.
On the contrary, the Germans are clearly very sorry to lose the huge investments made earlier, as well as to give their share to the Chinese. Moreover, for a hasty departure for purely political reasons, Volkswagen attracted the lawsuits of a former partner of the GAZ group, which led to the seizure of its property. If, however, “badge engineering” is carried out and under the “Pobeda” and “Volga” brands, we begin to produce converted models of “Volkswagen” and “Skoda”, then the German company will be able to retain a share of 270 000 cars per year.
Is it good for us?
Rather yes than no. Firstly, the quality of converted Volkswagen products should be significantly higher than that of Chinese comrades. Secondly, the Germans will have to decide something with the localization of component production in our country. Previously, they were in no hurry, since it was profitable for them to transport finished components to the Russian conveyor, but now, due to the sanctions regime, this is impossible. If the government of the Russian Federation puts pressure, the Germans will have to organize full-cycle production in our country, which will subsequently reduce geopolitical risks. You cannot fall into total dependence on China and put your eggs in one basket.
Author: Sergey Marzhetsky
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