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