Russian heavy truck makers increase market share to 70% due to weaker ruble

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September 9, 2015

Truck manufacturing is a relatively small segment within the automotive industry as a whole but it is one that acts as something of a bell-wether for the world’s economies. – Just-auto.com

Politrussia

Ivan Proshkin

Translated by Kristina Rus

It’s no secret that the automotive market in Russia is going through a crisis. However, against an overall difficult situation in the Russian automotive industry, the term “import substitution” is most applicable here, at least at the truck market of domestic GAZes and Ural’s steadily replacing their foreign counterparts.

Since the beginning of the year the Russian truck market, which is traditionally vulnerable to the crisis fell by 60% [compared to a 36% drop in sales of personal vehicles – tr.] in the first half of this year. The foreign brands suffered most, some of which were forced to suspend the assembly of their trucks at Russian factories. 

Our brothers Belarusians are going through tough times – the demand for Belarusian MAZ is also far from its peak. Due to a decrease of the share of foreign manufacturers of the Russian truck market, the share of domestic manufacturers sharply increased. KAMAZ and “Ural” together took about 70 percent of the market. 

The sharp devaluation of the ruble in late 2014, and the continued devaluation of the Russian currency in the recent months of this year were one of the main factors of the withdrawal from the market of foreign manufacturers and their replacement with Russian vehicles. We should not forget that in the relation of price/quality our trucks were always competitive with their foreign counterparts. Our vehicles are able to work longer, more effectively, are easier to use and repair. 

In addition, KAMAZ representatives named state support a positive factor in the reconquest of the majority of the market share. Back in late March, Prime Minister Medvedev at the government meeting noted not the most favorable situation in the Russian automotive industry, stressing that the state will allocate funds to support it [20 billion so far – tr], including in Tatarstan, Samara region (AVTOVAZ) and in other regions. “It is clear that additional support will go to the most important enterprises in those regions that have been hit by the economic situation. There, in fact, the situation is really close to a crisis. I am talking about automotive industry… that’s why these regions are selected, and also the relevant companies. They are KAMAZ, AVTOVAZ, Altaivagon, Tver carriage works”, – said Dmitry Medvedev.

Let’s now turn to the numbers. KAMAZ and “Ural”, in fact, occupied a bigger market share due to lower fall in sales volumes in comparison with Western brands. KAMAZ reduced sales by 50% to 7.7 thousand vehicles. With regard to net profit, for the first half of the year KAMAZ received more than 30 billion rubles of revenue which is one and a half times less than in the same period last year. 

The sales of “Ural” trucks decreased by less than 8 percent, to 2.4 thousand vehicles. But the sales volume of Western brands of the automotive industry plunged by 76 percent. Such auto giants as Volvo, Scania, MAN, Mercedes-Benz and others are on the verge of leaving the Russian market. Analysts generally predict if not their final exit in the next 5 years from the Russian market, then in the best case – a 20, or maximum 25 percent niche. According to experts, Western brands cannot rise above it. 

However, the bottom has been reached not by the Western brands, but by the Belarusian MAZ, falling down by as much as 84 percent. Sales of trucks of Minsk automobile plant in the first half of 2015 in Russia was only 600 cars, or just over 4 percent of the market. Domestic production, as mentioned above, managed to pull 70 percent of the Russian market – KAMAZ increased its share by 10 percent to 54.3 percent of the market, and “Ural” trucks of GAZ group increased their presence by 9.7 percentage points, thus having obtained nearly 17 percent of the market. 

The GAZ group explains the increase of its market share by the fact that sales of “Ural” fell significantly less than the market itself, moreover, GAS launched in November of last year a new upgraded model – “Ural-M”, most sales of which already occurred in the first half of 2015.

As for Western manufacturers, their market share dropped to 24 percent and is likely to decrease further due to the devaluation of the ruble and overall economic instability in the Russian Federation, when domestic consumers prefer to buy domestic brands. In addition, a number of foreign enterprises have suspended their work in Russia. Volvo plant in Kaluga with a production capacity of 15 thousand vehicles  has suspended production in February 2015 until the end of this year. It is possible that the plant will reopen at all. Production of Mitsubishi in Naberezhnye Chelny was also stopped, but a little later, in April. While the company’s representatives claim that the assembly line will again be launched in September. The plants of Scania and MAN in St. Petersburg, as well as Daimler in Naberezhnye Chelny are working at full capacity.

Photo: Upgraded bonnet Ural-M

It should be noted that KAMAZ, it seems, is not going to sit idly through a difficult time and wait for the sea weather – the plant is actively growing and is not going to slow down production capacity. Fortunately, the demand for the products of the Kama plant is not small. And not only among businesses, but also from the state [Voentorg? – tr.]. For example, just the other day right from the banks of the beautiful river Kama went 46 brand new KAMAZ trucks went to serve the Emergencies Ministry, made specifically for the needs of rescuers. The plant not only honored the deadline of deliveries, but exceeded it – the deadline was in September, but the brand new vehicles, ready to faithfully help our rescuers, went to their location already in August. As they say, a small gesture, but nice. Also, the company raised the minimum wage in July by 2.5 percent to 6,120 rubles [about $90 – how can you compete with that? – tr.]. Yes, the amount is quite small, but it is increasing.

Also in late July KAMAZ announced that in August the company will increase the work week. The increase in the workdays the representatives explained by the increased number of orders. “The first week, from 3rd to 7th of August, will be a five-day workweek. Then most of KAMAZ for two weeks will go on annual corporate paid leave, as planned at the end of last year. The holidays, from 10th to 23rd of August, traditionally will be used for repair and modernization of equipment, operating around the clock. The last week of August will be a four-day work week, from 24th to 27th”.

Overall, experts say, the devaluation of the rouble and lower costs make consumers switch to cheaper equipment. In addition, in favor of domestic trucks is the state program of vehicle recycling, which gives a significant advantage in price (about 10 percent of the cost of the vehicle), as well as the program of concessional leases. We should not forget about the state purchases that bring traditionally large volume of sales. I should mention here that the state subsidizes the purchase of NGV vehicles. 

Thus, experts are inclined to believe that in the second half of the year we will see the leveling of the fall of the truck market due to the powerful state support.

Moreover, it is worth to mention the work on the latest unmanned control systems that are being implemented now in the research and production offices of our automakers. The leader here is KAMAZ, which is working on similar systems together with “VIST Group”. Already in May the first prototype of the model was assembled on the basis of KAMAZ 5350, and tests of new equipment were conducted at the site in Naberezhnye Chelny, as well as a closed polygon of the Ministry of Emergency Situations in Moscow. It was originally planned to start production of this model in 2025, but now the time table has shrunk significantly. Now the year of the beginning of serial production is 2020. Investments into the project are estimated at 17-18 billion rubles. Besides KAMAZ,  AVTOVAZ and GAZ began the development of experimental models of unmanned control systems. The future will show how successful their achievements will be.

Photo: the First unmanned control model car in Russia is created on the basis of KAMAZ 5350

Overall, despite the recession and the corresponding decline in sales volumes, revenue and other unpleasant things, domestic heavy truck industry is not going to give up. On the contrary, without dramas and tragedies, stoically going through hard times, looking forward towards the future. Much of the credit here belongs to the state, which allocates substantial amounts to support large enterprises. A significant factor is the growth of the share of domestic companies on the Russian automotive market. Yes, the increase was mostly due to falling sales of foreign cars due to the devaluation of the ruble, but the situation on the market allows KAMAZ and GAZ to achieve in the next few years the highest in the post-Soviet period indicators of production volumes and sales. In conclusion, the domestic heavy truck industry will survive!

***

KR: The biggest item on the agenda of foreign car makers in Russia is “localization” or “import substitution” which will allow them to take advantage of the weaker ruble and switch to local materials and suppliers, which will further stimulate the Russian economy. 


The changes in the Russian heavy truck industry are indicative of the fundamental shifts happening across the other sectors of the Russian economy, which is shifting gears towards the increase in local manufacturing, which amounted to 60% until recently.


Essentially the weaker ruble hit the foreign competition the hardest making it much more difficult to compete with domestic manufacturers for the Russian market.

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