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The Ministry of industry and trade announced the localization level of foreign cars in Russia

The Ministry of industry and trade announced the localization level of the most popular foreign and domestic cars. The most profitable AVTOVAZ model — Lada Vesta, that has an average score, but even its level is 2.5 times lower than the maximum possible. The situation is even worse for foreign cars produced in Russia. They are equipped with Russian components twice as bad as the AVTOVAZ bestseller. Whether it's good or bad, "Gazeta.Ru" tried to found out.


Since last year, Russia has finally refused from the industrial assembly, under which there were built foreign automobile plants in the country. The new mode of car production in Russia — special investment contract (SPIC) — involves a point system for evaluating the technological operations level at factories and equipping cars with Russian components, that is called localization in the automotive industry.


Localization level indicators of a particular model in Russia are almost always a problematic issue for car companies. In an interview with Vedomosti, the Deputy Minister of industry and trade Alexander Morozov raised this topic.


The official gave the example of AVTOVAZ. Localization of Lada Vesta reached 3300 points.


AVTOVAZ has something to strive for. According to the Government Decree № 719 "On confirming the production of industrial products on the territory of the Russian Federation", the highest level of the localization scale is 8800 points, that is 2.7 times higher. Alexander Morozov noted that in order to achieve this goal, the automaker must have all Russian components and raw materials and the company would send at least 5% of its revenue to Research and Development (R&D).


Now the Ministry of industry and trade does not have a goal to reach the upper limit of production cycles at factories. Morozov said that by 2027 the car manufacturer in Russia would be localized by 5470 points, so that a certain part of components or technologies remains the subject of integration within international supply chains. That is enough.


The situation with localization is much worse for foreign manufacturers of budget sedans.


According to the Deputy Minister, the localization of the once most popular foreign car in Russia — the Hyundai Solaris sedan-so far corresponds to 1400-1500 points. This result is more than twice lower than that of Vesta (AVTOVAZ). It should be noted, that Solaris is technically identical to another Korean bestseller Kia Rio sedan. However, both Korean cars are mass produced (152 000 sold units in 2019).


Alexander Morozov told that the German and French achievements are slightly better: Volkswagen Polo and almost all Renault models (Logan, Sandero, Duster, etc.) scored more than 1500 points.


Too much or too little


The Government Decree № 719 regulates the localization assessment of a particular model. Most of the points are given by welding and body painting - 900 points. Stamping of one-third of body parts will add 100 points, and a half -200 points. The same amount of points will bring the production of at least 70% of the body weight from Russian metal. Simple assembly of the engine in Russia will add 95 points. The processing of cylinder heads and camshafts of Russian production - 190 points. Assembling and control testing of the assembled car - 100 points.


Thus, it is relatively easy for companies to gain 1 400 points that give an access for their products to public procurement and sales promotion programs.


For example, in 2020, there were allocated 45 billion rubles to support the demand for cars priced up to 1.5 million rubles. In addition, car companies receive compensation for paying the recycling fee at customs, whereas the parts and components are imported at reduced duties. During downtime, car plants get partial compensation for staff costs. Sometimes, the status of Russian production helps to avoid property tax payment, as it was with the Ford concern that closed factories in Russia. 


Hyundai, Volkswagen and Renault representatives could not immediately comment "Gazeta.Ru" questions relative to the localization level of their models. AVTOVAZ also did not comment this topic emphasizing that they occupy a leading position in this issue.


"We can confirm that we have the highest localization in the industry, but we will not mention points for models and on average for the model range. Surely, we are interested in further localization improvement and we are making an effort to do this, provided that the required high level of component quality is maintained," said the PR-Director of AVTOVAZ Sergey Ilinsky.


Illusory auto industry


The director of the analytical agency ASM-Holding Alexander Kovrigin believes that Lada Vesta can be considered as a domestic car. He says, the problem is that car companies offer to call the Russian operation that in fact, it is not.


"It is incorrect to count localization using points. Automotive components manufacturers that came to us with foreign factories, just make an assembly. They do not use our metal, rubber or plastic. Almost all components of the 2nd and 3rd level for the end part are received from abroad and they make the assembly. Is it a Russian part? And if they leave, like GM and Ford, then all this localization and all these points will go with them", said Alexander Kovrigin


Kovrigin convinced that the government should make a commitment to create an automotive component industry in the country. Nothing can be changed in the passenger vehicle segment, but Russia can still maintain its competence in the production of at least trucks and buses. 


Sergey Burgazliev, an independent automotive consultant, agrees with the Head of ASM-Holding. In his opinion, the Ministry of industry and trade could undertake obligations to create factories for the complex components production (engines, gearboxes, chassis, etc.). At such plants, it was possible to produce according to licenses and drawings of large automakers for their own cars, but in exchange for obligations to purchase these components for installation on their products. 


Burgazliev believes that foreign investors will not create a car industry with deep localization in Russia (the exception is strategically oriented Chinese), because it defies common sense.


The expert concluded that foreigners do not want to localize complex components in Russia, because there is no profit. To payback the production, they need volumes, but our market cannot provide it — so it turns out to be a vicious circle.


The original article is on the website.

18 november 2020