Russia urged to invest $21 billion in the ailing car industry

04.03.2010 (17:10) | Moscow News

The development of Russian car manufacturing requires the investment of 627.3 billion roubles ($21 billion) in the next 10 years. Development of transport systems of the future is among key R&D priorities.

The strategy for the development of the Russian auto sector says that 627.3 billion roubles ($21 billion) should be invested in the industry by 2020. The amount was estimated using own investment plans by domestic auto producers and the world car market experience. Most of the money - 237 billion roubles ($7.9 billion) - will go to passenger car manufacturing. About a third of the investment is planned for 2011-2012 as the companies plan to install all the necessary equipment as soon as possible. The strategy will be presented to the government tomorrow by the Ministry of Industry and Trade.

AvtoVAZ, Russia's biggest car manufacturer, plans to create a new generation of cars on the base of Kalina model. It also intends to modernize its 1.6 and 1.8 liter engines and to start making a new engine together with its partner Renault-Nissan. Even though AvtoVAZ spent last year on the verge of bankruptcy it plans to manufacture almost 1 million cars a year by 2020.
GAZ group aims to develop a full cycle of manufacturing of 150,000 cars a year. It bought the necessary line from Chrysler in 2006, but has barely used it.

Sollers aims to start manufacturing 500,000 cars a year as well as engines and gear boxes as part of their deal with Fiat.

The ten-year investment programmes for the four leading manufacturers turned out practically equal AvtoVAZ aims to raise 111,265 billion, GAZ - 111,511 billion, Kamaz - 101,440 billion and Sollers - 112,496 billion roubles (3.3 - 3.7 billion dollars).

The companies' representatives do not explain where they plan to get the money. Vedomosti business newspaper quotes Alpha Bank director for large business development who says that GAZ, for example, will find it hard to find 111 billion, because just this week it restructured its debts for almost 40 billion roubles ($1.3 million).

Alexey Pavlov, an analyst from Arbat Capital thinks that the only way of attracting this kind of money is taking it from the government. Vedomosti says that in that case the production itself will serve as collateral for the credits. The state owned Vneshekonombank plans to offer Sollers and Fiat 2.1 billion euro for 15 years.

There is a more exotic chapter about research and development projects inserted by the ministry towards the end of the report. The government plans to invest in these projects itself. The strategy stresses that the lack of new technologies and development is one of the major problems of Russian car manufacturers. Among the long-term priority tasks in the programme, apart from developing autopilot systems and using renewable energy, the strategy lists creating and developing transport systems that can be used for the Moon's surface and the Arctic Ocean shelf exploration and the development of the "flying car" by 2030. A representative of BCG that took part in the development of the strategy told Slon.ru website that this chapter was written by the Ministry of Industry and Trade employees and the consulting agency had nothing to do with it. Deputy Minister Dementyev explained to the website that it was copied from world tendencies and that all self-respecting countries should aim to be "one step ahead."

All this investment should lead to an increase of the share of Russian cars on the internal market: passenger cars - up to 80%, commercial cars - up to 61%, lorries - up to 97% and busses - 99%. The export of Russian cars should also increase as 23 and 50 percent of busses and lorries respectively should be exported.

Evgeniya Chaykovskaya

www.mn.ru