Automotive industry

In a Steep Dive

In 2014, the infant automotive industry of Kazakhstan faced bitter realities of a crisis for the first time. The slump in demand for domestically assembled cars urged the company to reduce production volumes and revise its plans. The products of Russian automotive industry that have significantly fallen in price due to exchange rate differences continue putting pressure on our market. The situation is further aggravated by budget cuts due to falling world oil prices and decline in budgetary expenditures.

In the Recession Phase

Note that a year ago, Kazakhstan's car manufacturers made quite optimistic forecasts as for the growth of their performance indicators. Based on the record-setting results of 2013, when 37 471 passenger cars were manufactured in the country, the enterprise set the production bar at a level of 53–55 thousand cars. However, the reality was much more prosaic – only 37 157 cars were released from the conveyors of our factories.

Domestic car dealers are doing no better. The rate of the market decline is clearly described by the comparison of sales statistics for the past two years. It is known that in 2013, the sales increased by 70% and reached 165 710 cars, and in 2014 they fell to 163.6 thousand cars. Even though the dealers had planned to sell up to 220 thousand units last year.

Our car market got such a powerful strike from the nearest northern neighbour and the partner in the CU and EEU, when the prices in Russia became much more attractive than in Kazakhstan due to the fall of the rouble. In order to avoid overstocking of warehouses, and to stimulate demand, most car manufacturers decided not to increase the prices for Russian car market.

As President of Astana Motors Nurlan Smagulov explained, our manufacturers started to experience problems since last autumn, when there was a significant drop in oil prices and intensification of western sanctions against Russia. “The first warning signal for the car market was the slowdown in the economy and devaluation expectations of the population. The second point is that the banks reduced car loan programmes. Due to this fact, the proportion of credit sales plummeted and a new car  became inaccessible for many buyers who counted on loans. But the most significant factor affecting the market was the depreciation of the Russian rouble.”

As a result only in November–December 2014, over 22 thousand cars were delivered from Russia to Kazakhstan. The major imported brands were Lada, Toyota, Hyundai, KIA, Renault and Chevrolet. Thereat, half of the cars sold were produced in 2014, 30% in 2011–2013, and the rest in 2008–2010.

Chair of the Board of Directors of BIPEK AUTO – ASIA AUTO Anatoly Balushkin expects that already this year the difference in cost between cars from Russia and domestic cars will be neutralized. “Russian dealers are successively raising prices. I think all imbalances between the Russian and Kazakh markets will be adjusted by the end of the year. This is a counter movement. As the rouble devalued, prices in KZT for Lada in Kazakh autocenters have already dropped by hundreds of thousands KZT. Therefore, we will soon be referring to the outflow of customers to the Russian market exclusively in the past tense.”

Automotive Industry Requests – Cabinet Supports

The fact that since new year the import of cars from Russia became even more attractive does not give much ground for optimism as well. It is known that the VAT on imported goods for personal use was abolished under the EEU that came into effect on January 1 this year. The list includes cars as well, although with reservations that transport should meet the Euro-4 emission standard and have the steering wheel on the left side.

Auto-dealers see the introduction of uniform prices for vehicles under the EEU as a way out of the situation. As Nurlan Smagulov noted at the end of January, a number of steps had already been taken. “I won’t play cunning when I say that producers in each country have their own price position. That is, in the Russian Federation there are one price and one currency; while in Kazakhstan there are a different price and a different currency. It's not normal. We are now negotiating with all the manufacturers to bring everything in line.”

Thereat, the President of Astana Motors emphasized that in Kazakhstan the price policy in auto market does not depend on dealers. “We want to get our prices down, and this depends first of all on car manufacturers who ought to change their attitude to Kazakhstan, and just realize that Russia, Belarus and Kazakhstan are a unified economic union, a unified economic zone. Selling at different prices in these countries is impossible.”

He also stated that domestic car manufacturers are unable to compete with the automotive industry of Russia and Belarus, as only in Russia, for example, there are about 15 government support measures for domestic enterprises. In this regard, the Kazakhstan Auto Business Association (KABA) requested the government to implement four support measures.

First, manufacturers asked to implement subsidized leasing for business entities that purchase cars manufactured in Kazakhstan.

Second, they suggested subsidization of interest rates on loans for individuals.  Third, representatives of automotive enterprises urge to adopt a programme for the disposal of vehicles and, fourth, the programme for public procurement of commercial vehicles.

According to Mr. Smagulov, if at least the aforesaid measures are taken, our cars will be no less attractive in terms of prices and conditions than Russian ones. “In this scenario, the domestic auto producers will be successful and will be able to build up their production.”

The President of Astana Motors did not deny that the support to the automotive industry has been already provided, but only indirectly so far. “Certainly, the government supports us through some programmes to which we have access. These include the DAMU fund, the programmes on innovations and workplaces. KAZNEX INVEST also performs certain work. But there have been no such special programmes for automotive industry as in the Russian Federation. If they appear, we will succeed.”

It seems that the requests of car manufacturers have been heard. Already in February this year, Kazakhstan government announced the launch of a targeted programme for government funding of loans for buyers of the cars produced in Kazakhstan. The document is supposed to ensure the issuance of car loans at an effective rate of 7.5% per annum. In addition, similar instruments of financial leasing for corporate customers are planned to be implemented. It is planned that the service rate will be 4%.

According to General Director of ASIA AUTO Kazakhstan JSC Yerzhan Mandiyev, it is planned to allocate about 15 billion KZT to finance concessional loans through the STB. Additional 5 billion KZT will be allocated to leasing companies working with corporate buyers of commercial vehicles. The funds will be provided by the Development Bank of Kazakhstan on a returnable basis.

“The goal of the program is to ensure the availability of domestic cars. On average, 6 out of 10 purchases, if we speak about ASIA AUTO, are credit purchases. Through government support, Kazakhstan will be able to use bank loans at a nominal interest rate of 4%. The effective rate will not exceed 7.5%, and will include all insurance payments. Nominal rate of preferential leasing services will amount to 6%. Choosing a home-produced car, the consumer will pay the bank 3–5 times less than the borrower purchasing the products of foreign automotive industry.”

From Asia Auto to AgromashHolding

Despite the negative trend, the KABA remains optimistic. According to the Association’s information, investment in Kazakhstan’s automotive industry in 2014 exceeded 30 billion KZT, out of which 14.4 billion KZT were invested in the automotive industry and more than 15.5 billion KZT were invested into the development of dealer networks.

“In connection with the introduction of new capacities at Kazakhstan’s production sites it is planned to increase production of domestic cars. There is great potential of increase of the gross value added in automotive industry due to the deep localization of production through setting up the production of auto parts.”

However, contrary to the Association analysts’ estimates, the situation in the automotive industry cannot be considered encouraging, as auto enterprises aren’t changing their production plans for the better.

The largest ASIA AUTO plant produced 28 803 cars in 2014, reducing production in comparison to last year's by 7.1%. However, in terms of value the volumes grew by 12% to 113.5 billion KZT ($615 million). In total, the factory provided for some 77.5% of the output of passenger cars and more than 13% of the aggregate output of Kazakh machine building.

At the same time, the sales of ASIA AUTO JSC products only modestly lost to the last year indicator: domestic consumers were shipped 26 248 cars of Ust-Kamenogorsk assembly (-1%) to the amount of 100.3 billion KZT ($544 million). It is noteworthy that 41% of the output of ASIA AUTO JSC in 2014 were KIA cars (11 832 units).

Against this background, in January, the plant made a change of KIA Sorento generations, in the short term it will set up the assembly line of KIA Carnival minivan that has not been previously presented in CIS market.

As for the rest of ASIA AUTO JSC production line, 22.2% of all products, released in the last year were Skoda cars (6 404 units). The surge of interest to this brand was caused by the launch of the Rapid Spaceback production and production of a series of new modifications of Octavia liftback and van.

Based on the results of 2014, the production line of Chevrolet brand (6 402 units) accounted for a similar proportion of the production portfolio of the plant, and 14.5% more were provided by the classical non-road vehicle of Lada 4x4 (4 165 units).

Speaking about the plans of BIPEK AUTO – ASIA AUTO Group, Mr. Balushkin notes that the holding will be oriented to the Russian market this year. Note that AutoVAZ OJSC and BIPEK AUTO – ASIA AUTO have already signed an agreement on joint activities in the markets of Siberian and Urals federal districts of the Russian Federation. To implement these plans a joint venture was established, in which 75% of the capital is owned by the Kazakh group, and the remaining 25% by the Russian automotive giant.

To date, BIPEK AUTO – ASIA AUTO dealerships has been opened in Novokuznetsk, Barnaul, Novosibirsk, Omsk, Shadrinsk and Chelyabinsk. According to Mr. Baluskin, the sales in these cities, to which 5 thousand vehicles had been already delivered, were launched in February. “In parallel, the working group visits Kurgan, Tyumen, Magnitogorsk, Kemerovo, Tomsk. We are ready to come into these markets soon. Meanwhile, it is a case of marketing and servicing of AvtoVAZ products. Although, an important step is scheduled for summer 2015: first cars of Ust-Kamenogorsk’s assembly, Lada 4x4 Urban, will come in the market of Siberia and Ural.

The group management expects that subsequently the Asian part of Russia will become the key sales territories for integrated works, which the company is building today in Ust-Kamenogorsk. “The new generation models of Renault-Nissan-AutoVAZ alliance will be manufactured on the largest republican capacities. Their amount will be up 120 thousand cars per year.”

By the way, as of March 2015, $44 million have already been invested by the holding company in the establishment of a new complex of welding, painting and assembly facilities, as well as the auto parts manufacture. The total project cost is estimated at $1.1 billion.

Note that ASIA AUTO plant was founded in 2002. The partners of the plant include such well-known companies as Volkswagen Group, General Motors, Renault-Nissan, AvtoVAZ and KIA Motors.

The second largest plant of passenger car production in Kazakhstan AgromashHolding (part of AllurGroup) have shown growth.  Last year, the company produced 8 354 cars, which is 29% more than in 2013. Thus, the drop in passenger car production in Ust-Kamenogorsk was compensated by a substantial increase at Kostanay capacities.

According to KABA data, in 2014, AgromashHolding manufactured 750 Toyota Furtuner SUVs, 3 424 Geely cars and 733 Hyundai passenger car models.

And yet, the manufacturer has substantially revised its plans for the current year. Based on the above results, the holding company intends to release only 8.5 thousand cars, which is 2.4 times less than the previously planned amount of 20 thousand cars.

Note that AgromashHolding was founded in 2003 for the purpose of production of agricultural machinery (combine harvesters, seeders, etc.). At the same time, currently the company produces the vehicles of SsangYong (Kyron, Rexton, Actyon, New Chairman, ActyonSports), IVECO PowerDaily (chassis, panel van, mini bus), Peugeot (301, 308, 508, 3008, Partner), Toyota, Geely and Hyundai passenger cars.

As for the other trends in the activities of major auto dealers and domestic manufacturers, that last year was marked not only by setting up the production of new models and brands, but also by abandonment of some brands. Thus, AllurGroup discontinued the release of Chance, the Ukrainian ZAZ cars, due to the introduction of the new technical regulations on January 1, 2015, as well as to unstable situation on the territory of Ukraine. The last vehicle set has been assembled at the end of the third quarter of 2014.

In turn, ASIA AUTO plant ceased production of Lada 4x4. The company justified this measure not only by the introduction of new technical regulations, but also by the increased production of cars of other brands that require additional capacity. In the future, the company intends to launch production of next-gen Lada 4x4 already at the new fully integrated plant of ASIA AUTO Kazakhstan.

Production of Commercial Vehicles is Going up the Hill

Speaking about the commercial segment, it showed a rise of 12% based on the results of 2014. During this time, 2 567 units of trucks and special machinery were assembled in Kazakhstan. According to KABA, the capacities SemAZ LLP made a major contribution to the increase in performance indicators.

Being established in 2006 based on the former steel plant, last year the enterprise produced 738 cargo vehicles it also started manufacturing specialized vehicles based on Gazelle car. It is assumed that on receipt of the orders, the enterprise can assemble up to 300 of such vehicles. In addition, Daewoo Bus Kazakhstan Company has established the assembly of special models of DAEWOO buses powered by natural gas on the basis of SemAZ. The total production capacity of the plant allows for annual production of 1 500 MTZ tractors, 500 Ural cars and 1 500 Shacman cars, as well as 200 DAEWOO buses.

AgromashHolding and SaryArkaAvtoprom have contributed to the development of this segment of automotive industry, having assembled in Kostanay 87 units of cargo vehicles and special machinery.

As for the Kazakh-Russian joint venture KAMAZ-Engineering, located in the city of Kokshetau, last year it produced 1 121 trucks.

The Almaty plant of Hyundai Auto Trans (part of Astana Motors KMC) made a mark in 2014, having produced 618 units of commercial vehicles. In July, this company signed an agreement on the industrial assembly of Hyundai trucks and buses, and started welding and painting Hyundai County bus bodies. As Nurlan Smagulov notes, it is planned to extend in 2015 the model range of Hyundai commercial vehicles of Kazakhstan assembly. “We are eyeing up at Chinese manufacturers of automotive vehicles, so that in difficult economic conditions our consumers could choose the price/quality ratio, and carry out their business plans.”

In conclusion, we will present the estimates of KABA regarding the development prospects of the automotive industry as a whole. According to the forecasts of the Association’s analysts, the most attractive of its segments will be the manufacture of sedans and trucks, which is accounted for by high usage of the existing fleet, growth potential of the economy and the launch of new capacities.

Svetlana Arbuzova

Car manufacture in 2014 (KABA)