21 september 2010

Prime Minister Vladimir Putin chairs a meeting in St Petersburg on localising the production of cars and car parts in Russia

Vladimir Putin

At a meeting on localising the production of cars and car parts in Russia

“The Russian car market is potentially the largest in Europe. In addition, it has good prospects for exporting products to neighbouring countries. This is why we need large production facilities, not just mid-sized. This is what we need to create an efficient network of supplier plants and to pursue our own engineering solutions.”

Prime Minister Vladimir Putin's introductory remarks:

Good afternoon, colleagues, ladies and gentlemen.

We have just visited two enterprises that have opened in St Petersburg. Until just recently St Petersburg and the Leningrad Region could not be called centres of the Russian auto industry. Now the situation is changing radically. Ford was the first to come here, followed by other manufacturers. And now we are seeing a new car plant being built practically every year: it was Toyota in 2007, General Motors in 2008, Nissan in 2009. And so in 2010, today we attended the opening of Hyundai and Magna plants.

Renault, Volkswagen and BMW, almost all the global brands, operate in Russia.

A modern auto-manufacturing cluster, like the one here in St Petersburg, was built in Kaluga, literally from the bottom up. New car plants have also appeared in Moscow, Tatarstan, Yelabuga and other Russian cities.

All of them are built by well-known global auto companies that have chosen Russia as the location to implement their development programmes. Today we invited here all our partners, and I want to greet them all, both Russian and foreign producers. I would like to emphasize that the new manufacturers have not only invested about four billion dollars in our country, but are also bringing new methods, a high level of technological production, a high level of technological culture and have created high-paying jobs, which is important to us as a matter of principle. And the main thing - even now they are turning out about 400,000 quality cars a year, and there is high demand for them. The figure 400,000 means every third passenger car assembled in our country.

I will repeat again: we do not distinguish between new manufacturers and traditional Russian cars makes. They are all domestic producers to us. For instance, anti-crisis efforts were distributed equally throughout the Russian auto industry.

Global auto companies are using the so-called industrial assembly process in Russia. To remind you, this involves certain benefits on imported car parts, provided there is a complete production facility in Russia and localisation is gradually increasing. It means that as the investment project grows, more and more car parts must be manufactured in Russia.

To clarify, industrial assembly applies to the enterprises that produce no less than 25,000 cars a year with engines up to 2.5-litres, or no less than 15,000 cars a year with over 2.5-liter engines.

Industrial assembly was adopted in Russia five years ago. I think that the initial objectives have been achieved.

Colleagues, on this point I would like to note that all the understandings reached and all the agreements signed with our partners (agreements signed between the investors and the government of the Russian Federation) are being strictly observed by us and will not be revised. I hope that our partners will perform their obligations as they have performed them so far, both in terms of plant capacity and localisation.

Naturally, we will work together to find ways to strengthen domestic facilities of the Russian auto industry, Russian car manufacturing.

I would like to draw attention to a few issues. First, the Russian car market is potentially the largest in Europe. In addition, it has good prospects for exporting products to neighbouring countries. This is why we need large production facilities, not just mid-sized. This is what we need to create an efficient network of supplier plants and to pursue our own engineering solutions.

Obviously, one of these manufacturers is our traditional manufacturer, AvtoVAZ, which is capable of producing up to 700,000 cars a year and is planning to form an alliance with the Renault-Nissan corporation, which is already a shareholder in AvtoVAZ.

The Russian company Sollers also has plans to begin large-scale production, with output potentially reaching up to 500,000 cars a year. And the advantages that come with industrial assembly can be used to carry out this project.

I invite all manufacturers to think in specific terms about the prospects for increasing capacity and car output.

And second, I believe that industrial assembly could have been applied more actively to set up so-called second-level production: engines, gear boxes and other car units. We have some experience here and it needs to be expanded.

In conclusion, I would like to emphasize that all future decisions regarding industrial assembly will be balanced, will take due account of both the interests of the state and those of prospective investors, and will be based on realistic business plans.

We will conduct an open discussion together with you - it will be open to any constructive ideas and projects. This is why we have invited all our partners to today's meeting.

Today I would like to hear your opinions on what was done recently and listen to your reports about the problems you are facing. My colleagues from the government and myself are at your service. We will be glad to answer your questions. Together we will think of ways to develop the auto industry in Russia, and we'll talk about what else can be done to remove remaining obstacles to our joint work and how to create the best conditions for growth and development.

Let's hear from our colleagues from the regions of the Russian Federation, who are video conferencing with us.

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Concluding remarks by Vladimir Putin:

Now I would like to thank you all for today's work and conclude with the following. You have heard the figures on the market's recovery. In 2008, Russia assembled 435,000 cars. In 2009, during the crisis, production dropped to 190,000 units. Now, in the first seven months of the year, we turned out as many as 208,000, and even more this autumn. We can already report pre-crisis production levels. The automotive industry, which suffered the most in the crisis throughout the world, is springing back rapidly in Russia.

The first thing I would like to say is that industrial assembly methods are working in Russia, and working well. This is an obvious fact and the representative gathering here is evidence of that.

The auto industry is a complex sector, involving hi-technology, high costs, large capital and a long manufacturing cycle. But it holds great attraction, too, because it is highly sophisticated and gives rise to a multitude of new techniques and new jobs. In addition, it also provides a much required and publicly sought-after product.

The fact that we have gathered in such numbers here today will, I think, persuade you that Russia intends to carry on its search for the most appealing ways to develop the automotive sector.

I am pleased to say that our meeting today is not a disparate mix of foreign manufacturers, company representatives, or government heads, but is a team. You may have noticed that government organisations also show nuanced approaches to future development. We still strive to sign and implement agreements not as protocols of intent, but as bilateral obligations - both on behalf of the government and of our partners.

We have yet to draw up these obligations, but we will do it on our own and based on the results of today's meeting and taking into account your remarks and suggestions.

Of course, Russia should and will create highly attractive conditions for investment so that your companies can profit and produce enough cars of high quality to meet the requirements of the Russian market and for export.

Opportunities to improve a manufacturer's economic efficiency are there. My colleagues have mentioned them.

While Russia is one of the biggest steel producers and exporters, 90% or more of the steel required in the auto industry is imported. This shows that there is a lot to do in the near future, and that alone would improve production economics in Russia itself.

The same applies to many other components: plastics, special rubbers and so on. Russia is a major oil and gas producer. It has many prospects for petrochemicals, new operations and many other products.

We will discuss it all in the most open and straightforward manner. You will take part in the discussions as well, but the final decisions will be ours. I hope you understand us. We will take into account your interests and at the same time the interests of setting up highly advanced industries, such as the auto industry, on Russian territory.

I wish to thank you for today's efforts and express the hope that we will cooperate in the future as successfully as we have up until now.

Thank you very much for your cooperation.

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Now concerning WTO accession and the need to coordinate all of our new terms and conditions as soon as possible before the year is out, before January 1. We want to join the World Trade Organisation, are seeking its membership and will continue our efforts. So it is better for us not to drag things on with new localisation conditions, and for you not to delay the signing of the necessary agreements.

But, to be honest, I do not think we will be ready by January 1 of next year. It does not look like it, though we will strive to keep this deadline.