Over 20 German exhibitors at Comtrans commercial vehicle show in Moscow
Dr. Kay Lindemann, Managing Director of the German Association of the Automotive Industry (VDA) delivered the following statement at the association’s press conference at the Comtrans commercial vehicle exhibition in Moscow:
"More than 20 German companies – including suppliers and manufacturers of commercial vehicles, trailers and bodies – are exhibiting at Comtrans in 2015. This year the companies are attending while difficult conditions prevail – both in foreign relations and in the economy. This is reflected among other things by the decline in the total number of exhibitors. Despite the current tense political situation and difficult economic conditions, the companies in the German commercial vehicle industry still fundamentally view Russia as remaining an important market for commercial vehicles. The manufacturers of commercial vehicles, trailers and bodies, and the suppliers, see the unchanged huge potential of the Russian market. They want to maintain the business links forged in the past. At the same time, they are hoping for a swift diplomatic solution to the political crisis.
Efficient drive trains, modern safety and telematics systems
In Moscow the German makers of commercial vehicles, trailers and bodies, and their suppliers, are presenting reliable products and technology "Made in Germany." It has earned them an excellent reputation with their customers in Russia and the neighboring states. Now we are approaching the next leap in innovations. Our manufacturers are displaying vehicles with modern, powerful drive trains that have low and consumption and pollution levels. In addition we have safety systems and driver assistance systems that help avoid accidents altogether or at least considerably reduce their effects. The companies also offer modern telematics systems for product tracking, temperature control for refrigerated transports, load securing, vehicle and fleet management, and a lot more besides. These systems, which can enhance the efficiency and value of logistical and transport services, are increasingly in demand especially in the European part of Russia.
Situation on the Russian commercial vehicle market
At this time, positive economic reports about Russia are unfortunately thin on the ground. The Russian commercial vehicle market is in crisis. The Russian market for heavy commercial vehicles over 6 tons grew rapidly in the years after the crisis of 2008 and 2009. In 2012 it came to a good 134,000 units – its highest volume ever. However, since then the market has contracted markedly. In 2013 new registrations fell by 22 percent to 105,000, and in 2014 sales lost another 23 percent, falling to 81,000. In the current year we expect to see demand down again by roughly one quarter to around 61,000 new vehicles. This means that within three years the market has lost more than half its volume. Unfortunately a turnaround in Russia is not yet on the horizon.
But now a brief look at Central and Eastern Europe: following losses in 2014, registrations of commercial vehicles over 6 tons in the Central and Eastern European states have taken a turn for the better during recent months. Total sales in the "new EU Member States" during the first half of 2015 increased by nearly one quarter. Registrations have shown double-digit growth on the important markets such as Poland, the Czech Republic, Romania, Hungary and the Baltic states.
Two-pillar strategy, large fall in local production
The German commercial vehicle industry has always pursued a two-pillar strategy, also in Russia, with local production in Russia supplementing exports from German facilities to the country. However local production, which expanded strongly in recent years, has collapsed since 2014. In some cases the plants of German commercial vehicle companies are producing at a low level.
Alongside the weak demand, the mutual sanctions that currently exist between the European Union and the Russian Federation are impacting on the German commercial vehicle industry. Both direct and indirect consequences of the economic sanctions, the weak ruble and the weak internal economic situation all make it ever more difficult for Russian consumers and firms to purchase imported goods. The effects of the political and economic crisis are tangible also for the makers of commercial vehicles, trailers and bodies, along with their suppliers. For example, the decline in demand for motor vehicles, foods from Europe and other investment or consumer goods leads to a reduction in the volume of freight in Russia. This then also depresses the demand for commercial vehicles and trailers that transport this freight.
Trailer and body manufacturers in Russia
In Russia the German manufacturers of trailers and bodies enjoy a good reputation and have established a solid market position. But of course they also suffer from the weak market demand. Western Europe’s good development can only partially compensate for these falling figures. This is true of the Central and Eastern European markets, most of all Poland, which are showing welcome positive development.
New record value of exports by German suppliers
The German suppliers are also active on the Russian market. In 2013 the value of exports of parts and accessories rose again slightly to a new record level of around 2.7 billion euros. And the increases in the three previous years were even larger. Since that time the value of exports has been shrinking and in 2014 it was only 2.0 billion euros. Since the beginning of this year (up to June 2015) the figures have shown another slump of 37 percent. The German suppliers serve both international and Russian producers of commercial vehicles and passenger cars.
Not a one-way street: Russian exports rising in recent years
Over recent years Russia has gained importance as an exporter – naturally starting from a lower level. For instance, the value of vehicles, parts and accessories that Russia produced and exported to Germany climbed to over 65 million euros in 2013. That was six times the figure from 2000. And in 2014 these exports continued to increase despite the difficult political and economic situation: Russia exported automotive goods with a value of 74 million euros to Germany, which was a rise of 13 percent. In the first half of 2015 we again saw growth, of 5 percent in fact. Yet however much the starting positions differ, the automotive trade between Germany and Russia has never been a one-way street. Both sides can benefit from accessible markets.
Investment climate remains tense
Our member companies in the commercial vehicle and passenger car sectors have invested heavily in Russia because the medium-term market projections were very positive. The current political reality, however, may well put market developments back several years. Russia should have an interest in restoring lost confidence and in foreign relations and the economic situation easing off, because this is a necessary requirement for urgently needed investments from Europe. The hope that higher import duties or even import bans would lead to investments by European companies in Russia may be in vain. The climate for investment is currently characterized by great uncertainty, which we very much regret.
Companies want to keep qualified staff
Yet the activities of over 20 German companies at Comtrans indicate that in the medium term they assume the Russian market has a huge potential and wish to retain their ties with the location. In the present critical economic situation they face the challenge of having to adjust their personnel as necessary. For technology-oriented firms it is essential to safeguard the know-how of their employees – also in times of crisis – and to keep them on in the company if at all possible. However, this can impact considerably on the firm’s profitability, and for this reason supporting regulations would be very welcome.
Russia in the WTO: push forward integration into the global economy
In 2012 Russia took an important step in its economic policy: the country became a full member of the World Trade Organization (WTO). This sent out a clear signal for Russia’s lasting integration into the global economy. The European automotive industry – as we stressed two years ago – still expects that Russia will take the rules of international trade on board to a greater degree, and align its industrial and trade policy with them. Stable general conditions and the equal treatment of domestic and foreign companies are indispensable for leveraging the potential of the Russian commercial vehicle market and production sites.
Provisions for customs clearance (TIR)
There are positive signals regarding customs clearance. Only recently, we were still concerned that in the future TIR transports would be allowed on Russian territory only with additional national collateral. That could have resulted in longer transit times, restrictions on the security of supply, delivery reliability and planning security, and not least higher costs. However, the Federal Customs Service (FCS) of the Russian Federation recently announced that the guarantee agreement with the Russian national guaranteeing association ASMAP from 2004 will be applied again until further notice. These are good signs for the companies with TIR transports, even if overall they are suffering due to the contracting volume of trade and transport with Russia.
The German Association of the Automotive Industry underscores its long-term interest in an economic partnership with Russia through the work of its Quality Management Center (VDA QMC) in Russia. The key aspects on the Russian automotive market include improving product and process quality. Six years ago already, the VDA opened an office in Moscow for its new Quality Management Center. It began its work at the beginning of 2009. In order to meet Russian requirements, the German manufacturers and suppliers are increasing the proportion of domestic suppliers they use. It is a major challenge for these suppliers to satisfy the high quality demands that German manufacturers and suppliers have worldwide. To enable the companies to do so, staff members are given training at the VDA QMC Moscow in the relevant proven quality standards and guidelines. Our slogan here is: "Premium quality not only in the premium segment." In 2015 the VDA QMC Russia will train about 800 participants at quality management seminars held in Russian. The training covers quality management systems and methods, and knowledge about practical quality assurance tools. The VDA QMC has more than 70 companies as its customers, including German firms and also many Russian suppliers and manufacturers.