Be­larus-made Cars

New Be­larus-based car man­u­fac­tur­ers might come through bet­ter than their pre­de­ces­sors

Economy of Belarus - - FRONT PAGE -

Al­though Be­larus has made a name for it­self in pro­duc­ing trucks and heavy-duty ve­hi­cles, the coun­try has vir­tu­ally no car in­dus­try. Con­sid­er­ing Be­larus’ tech­ni­cal and hu­man re­sources, it seemed the coun­try should have no prob­lem set­ting up a big car com­pany, or even a few of them. Af­ter get­ting some bumps and bruises along the way, Be­larus de­cided to re­visit the mat­ter. Af­ter all, the coun­try’s ac­ces­sion to the Cus­toms Union and the Sin­gle Eco­nomic Space prom­ises hand­some ben­e­fits for do­mes­tic car pro­duc­ers.

An­other Try

Be­larus tried to es­tab­lish its own au­to­mo­bile in­dus­try many times, but all the projects were non-starters. The first at­tempt was made back in 1997 when an assem­bly fac­tory pro­duc­ing Ford Es­cort and Ford Tran­sit ve­hi­cles was set up in the Obchak vil­lage near Minsk. It looked like the joint ven­ture Lada OMC su­per­vised by the Ford Mo­tors cor­po­ra­tion had pretty good prospects. How­ever plans to as­sem­ble over 6,000 ve­hi­cles per year never came to fruition, be­cause the car sales were poor. In 1998 the com­pany turned out merely 1,800 cars, a year later the pro­duc­tion dropped to 440, af­ter that the pro­ject was ter­mi­nated.

The year 2004 saw an at­tempt to re­vive the Obchak pro­ject by launch­ing the pro­duc­tion of Lublin-3 light-duty trucks. The Unison com­pany that launched this pro­ject to­gether with the Pol­ish com­pany In­trall Pol­ska planned at least 10,000 ve­hi­cles per year. How­ever, the ve­hi­cles faced tough com­pe­ti­tion on the part of GAZelle and GAZ Sobol trucks made by Gorky Au­to­mo­bile Plant. Lublin-3 trucks failed to win hearts and minds of po­ten­tial cus­tomers and the as­sem- bly fac­tory was shut down sev­eral months af­ter the open­ing.

At the end of 2004 an­other assem­bly pro­ject was com­ing on: Unison ar­ranged assem­bly pro­duc­tion of Sa­mand cars from knock­down kits in the FEZ Minsk. The cor­re­spond­ing me­moran­dum was signed with the Ira­nian com­pany Iran Kho­dro and the fac­tory was com­mis­sioned in Au­gust 2006. Unison had plans to as­sem­ble 5,000 to 6,000 cars an­nu­ally in the short run and some 50,000 to 60,000 ve­hi­cles in the long run. The com­pany sought to in­crease lo­cal­iza­tion of pro­duc­tion and open up weld­ing and paint­ing shop floors. Th­ese plans were frus­trated by luke­warm de­mand. The com­pany sold merely sev­eral hun­dred cars per year, which fell short of its am­bi­tions. How­ever, the com­pany did not close, but got a new lease on life. Con­sid­er­ing an op­por­tu­nity to ex­tend its reach into new mar­kets, Unison ex­tended the con­tract with Iran Kho­dro and launched the pro­duc­tion of more ad­vanced mod­els – Sa­mand ТU5 and Sa­mand Soren.

Shortly af­ter that, the Chi­nese got in­ter­ested in Be­larus’ man­u­fac­tur­ing ca­pac­i­ties. In the spring of 2007 the com­pany Unison Mo­tors that had pre­vi­ously im­ported for-

eign-made cars, an­nounced a new pro­ject to as­sem­ble cars of the Harbin-based Hafei Mo­tor – Brio, Prin­cip and Simbo. How­ever, th­ese plans never ma­te­ri­al­ized. Sev­eral years later ne­go­ti­a­tions with the Chi­nese com­pa­nies re­sumed. In 2011 three Ch­ery Ri­ich X1 crossovers were as­sem­bled in Obchak. How­ever, the ex­per­i­men­tal spec­i­mens were sold two times cheaper than their mar­ket value and the ex­per­i­ment was ob­vi­ously a fail­ure. Unison has re­cently started pro­mot­ing an­other Chi­nese car – Zo­tye Z300. It is a copy of the Toy­ota Al­lion which is now a sales hit in Ja­pan and other Asian coun­tries. The Chi­nese man­u­fac­turer be­lieves that the car will per­form well on the mar­ket.

There are still some very am­bi­tious plans re­gard­ing car assem­bly in Be­larus. Unison has re­cently signed an agree­ment with Gen­eral Mo­tors to as­sem­ble its cars in Obchak. The first ve­hi­cles will be man­u­fac­tured in 2014 and will be meant for all the Cus­toms Union mem­ber states, in­clud­ing Rus­sia, Be­larus and Kaza­khstan. Opel Corsa will be the first car to roll off the pro­duc­tion line in Obchak. How­ever, this is not the only pro­ject un­der­way. In March the Bor- isov-based Be­larus-China joint ven­ture BelGee put on the mar­ket the first batch of Geely SC7 cars that sold out pretty fast. In July, af­ter the visit of the of­fi­cial Be­laru­sian del­e­ga­tion led by Be­laru­sian Pres­i­dent Alexan­der Lukashenko to Bei­jing, a de­ci­sion was made to con­sid­er­ably in­crease in­vest­ments into the pro­duc­tion. The time when Be­laru­sians will be able to drive Be­larus-made cars is not far off.

BelGee’s share­hold­ers in­clude OAO BelAZ (50%), the Chi­nese car man­u­fac­turer Geely (37.5%), and the joint ven­ture set up by the

Au­to­com­po­nents Hold­ing Com­pany and the Chi­nese com­pany Shan­tou. In March 2012 an in­vest­ment agree­ment es­ti­mated at $244.9 mil­lion was signed.

Ac­cord­ing to the In­dus­try Min­istry, the pro­ject to as­sem­ble Chi­nese cars in Be­larus will be im­ple­mented in three stages. At the first stage or the pre­lim­i­nary one the Borisov-based plant Av­t­o­gy­drousili­tel will set up fa­cil­i­ties to man­u­fac­ture 10,000 cars per year. At this stage, which will last un­til 2015, the out­put is ex­pected to to­tal 28,900 cars. At the sec­ond stage more ca­pac­i­ties will be cre­ated to make 60,000 cars. To this end, a new plant will be built in the free eco­nomic zone in the vil­lage of Pere­sady, Borisov Dis­trict. Its con­struc­tion is to be­gin in 2013. At the third stage with the in­vest­ment of $66 mil­lion the out­put ca­pac­ity of the plant will be ramped up to 120,000 cars per year.

Mis­takes – in the Past

The es­tab­lish­ment of au­to­mo­bile assem­bly plants in this or that coun­try can be seen as a clear in­di­ca­tor of whether a cer­tain mar­ket is strate­gi­cally im­por­tant for ma­jor au­tomak­ers. Af­ter all, if a com­pany de­cides to in­vest in the lo­cal man­u­fac­tur­ing, this greatly in­creases the com­pet­i­tive­ness of its ve­hi­cles on the lo­cal mar­ket. Do­mes­ti­cally pro­duced cars be­come more af­ford­able for lo­cal con­sumers. But this is not the only point. It also signals that a man­u­fac­turer seeks to ad­vance to the neigh­bor­ing mar­kets. In other words, a com­pany cre­ates a re­gional hub.

The in­ter­est of for­eign au­tomak­ers in the Cus­toms Union mem­ber states clearly varies. Two fa­cil­i­ties will soon come on stream in Be­larus. Three plants are op­er­a­tional in Kaza­khstan and about two dozens are in Rus­sia. Ac­cord­ing to an an­a­lyt­i­cal re­port of the Eurasian Eco­nomic Com­mis­sion (EEC), given the cur­rent state of the in­dus­try and the mar­ket ca­pac­ity, Rus­sia is well po­si­tioned to de­mand a high

level of lo­cal­iza­tion from au­tomak­ers. Given the size of the mar­ket in Be­larus and Kaza­khstan, th­ese coun­tries have fewer op­por­tu­ni­ties to find an in­vestor who would want to cre­ate a plant with the an­nual out­put ca­pac­ity of 300,000-350,000 cars and an en­gi­neer­ing and con­struc­tion unit.

It is clear that start­ing any car pro­duc­tion re­quires large in­vest­ments, but this is not the main point. It is very im­por­tant to or­ga­nize a sys­tem of sales, mar­ket­ing, dis­tri­bu­tion in the neigh­bor­ing coun­tries, to think over the strat­egy of mar­ket ad­vance­ment, said Di­rec­tor Gen­eral of the BAA Au­to­mo­bile As­so­ci­a­tion Lyud­mila Sha­banova.

The new pro­duc­ers in Be­larus have brighter prospects in this re­spect than their pre­de­ces­sors. They will get help from the Chi­nese part­ners who pur­sue an ag­gres­sive pol­icy in the EU mar­ket and are now very in­ter­ested in cre­at­ing an out­post tar­geted at the Cus­toms Union.

“Chi­nese au­tomak­ers pur­sue a smart mar­ket­ing pol­icy: first of all, they are in­ter­ested in the new tech­nol­ogy to build up their own pro­duc­tion ca­pac­i­ties. With their own huge do­mes­tic mar­ket and ac­tive ex­pan­sion in Europe, Chi­nese car man­u­fac­tur­ers have cloud­less prospects, and the Be­laru­sian-based plant, al­beit ori­ented on the coun­tries of the Cus­toms Union, has a good chance to ad­vance to Europe,” said Lyud­mila Sha­banova.

But one im­por­tant mo­ment should be kept in mind, namely qual­ity. And it is en­tirely in the hands of the Be­laru­sian au­to­mo­bile com­pa­nies.

It is very im­por­tant that right from the very start the qual­ity be im­mac­u­late. Oth­er­wise it will be very dif­fi­cult for Be­larus to prove its tech­ni­cal ca­pa­bil­i­ties to both for­eign and do­mes­tic buy­ers, said Lyud­mila Sha­banova.

It is clear that do­mes­tic man­u­fac­tur­ers will have to lit­er­ally fight cus­tomer prej­u­dice re­gard­ing the in­fa­mous “Chi­nese qual­ity». True, the qual­ity of the first Chi­nese cars was very bad, but the sit­u­a­tion has changed rad­i­cally. Know­ing their weak­nesses the Chi­nese be­gan to buy out li­censes for dis­con­tin­ued pop­u­lar mod­els of for­eign cars, and li­censes for in­di­vid­ual parts and the en­tire pro­duc­tion cy­cles. They bought them not only from Korean but also from Ja­panese and Ger­mans au­tomak­ers. There­fore, the qual­ity of Chi­nese cars has been con­tin­u­ously im­prov­ing. By the way, when China opened its first assem­bly plants in Rus­sia, they had this prob­lem of weak de­mand. But as they say, con­stant drop­ping wears away a stone. To­day, the po­si­tions of Chi­nese brands are very strong. The Rus­sians have started choos­ing Chi­nese brands over the lo­cal brands such as VAZ, GAZ, IzhAvto.

Ac­cord­ing to Di­rec­tor of the In­tel­lect Group Sergei Varivoda, the rea­sons be­hind all the pre­vi­ous fail­ures in the Be­laru­sian au­to­mo­tive in­dus­try are well-known and are un­likely to be re­peated.

“You can­not stay afloat if sales are small and ori­ented on the do­mes­tic mar­ket only. But why no one within the Sin­gle Eco­nomic Space

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