Sanctions, import substitution and localization of production: what awaits the Russian auto industry?

— Nikolai Andreevich, is it clear that the current situation in the automotive industry is entrenched and it is not just about sanctions?

– Of course, the reasons for this situation that the automotive industry is in today emerged long before the sanctions, not yesterday. It must be admitted that in the Soviet years we were not able to solve the main problem – we did not give a car to a person. Many remember when the car was not available to everyone, it was a luxury. As a minister, I understood this. But by the end of the 1980s, the economy was already in trouble without it, many attempts to change some sectoral problems were simply delayed. What did it eventually lead to?

If you don’t fix the problem yourself, sooner or later someone will fix it for you. And so it happened. First, a number of used foreign cars flowed into the country, and people began to buy them willingly, because there were a lot of them, they were cheap. Opponents of this process later said that old imports of garbage had turned the country into a graveyard of worn-out cars. But it was impossible to stop him anyway. Then the world’s auto companies set up their assembly plants here – in the Far East in St. They began to organize it in Kaluga, near St. Petersburg. The problem with the availability of the car was quickly resolved – it became too large, people stopped seeing it as a luxury. However, this “medal” had a downside: We got stuck with a foreign “pin” and started to lose our industry. The automotive supplier industry has virtually disappeared within a few years.

— Is it because they could not compete against the influx of foreign manufacturers who brought their suppliers here?

– Yes, in the Soviet era there was no competition like there is now. The suppliers knew that no matter what they did, everything would be taken away from them. The automaker had no choice – it had to work with what it had or stop production. Therefore, auto factories had quality problems: the bulk of the comments they received from consumers were related to components.

Now the situation is different – if you do not like the supplier, you can find another. The only thing is that we have to look for them abroad. And before the sanctions one could afford not to notice it, today this problem has brought the auto industry to the brink of survival. The dependency on Western countries and unfortunately critical components has now hit us hard.

What shall we do? The easiest thing now is to refocus on suppliers from friendly countries like China. But will this solve the problem? Of course not. We will simply move from the Western needle to the Asian needle, and no one can guarantee that the sanctions-ridden situation we are in now will not happen again. That’s why the only way to gain technological independence in the automotive industry is to recreate your own component industry. We need to do this both independently and in cooperation with manufacturers from friendly countries, but we need to localize production here in Russia and ensure that we have the intellectual property rights, and then we will have technological sovereignty even if we have any partners. Whatever the reason, they want to leave.

Yes, it will take a long time, yes, a lot of effort and money, but if we really want to change things, we have to go down this road ourselves. And there is no time to waste, you need to initiate industry support for localization projects. There is no more time to unwind.

If we do nothing, just change the Western supplier to the Eastern supplier, in 10-15 years we will face the same problem again: Europe will get richer and we will work for the Chinese or someone else.

Is it possible to gain technological independence without repeating past mistakes? Shall we not recreate what once destroyed itself?

“Now the situation has changed dramatically compared to previous years. The thinking has changed: automakers have a different attitude towards quality, they know they can have the best. Technologies have also changed: previously there was a lot of manual labor in production, now robots have replaced humans. This also affected the quality, because the robot either works stable and well or it doesn’t.

– The main argument of the opponents of import substitution is that we will not have enough market volume to fully install new production facilities, so it will either be unprofitable or more expensive than imported analogues of these products. Do you think so?

— This issue should be approached flexibly. Of course, we cannot switch to subsistence farming and produce everything. The main thing is which components we can and should make ourselves, which are more profitable to produce together with foreign partners, and which are more profitable to buy. But the key, most important components must be manufactured in-house.

I will give you an example. There are no light diesel engines in Russia. The engine is one of the critical components that is not always easy to replace. But a few years ago we started working on our own localization project for such an engine. The first step has already been taken: the new GAZ foundry has begun mass production of components for power units, including our small diesel engine. This engine is already in demand not only at the Gorky Automobile Plant, but also at other automobile plants in the country. But that’s not all. The products of our foundry can also be demanded in other industries: railway engineering, oil and gas industry and others.

This is a case. But there are also, for example, auto chemical products, microelectronics – these are completely different markets in which specialists in their industry should work. The automaker should not invent anything in this area, but only order what he needs.

— Who should initiate the import substitution process, the state or the enterprise?

– This is a large-scale task to be solved at the level of state strategy, in the implementation of which all interested parties must participate.

Automakers must decide on platforms in the near term and the components that need to be developed with those platforms in mind. The state should act as a coordinator in this process, combine different needs and gather them on a single base so that it becomes clear which productions will be organized where and how.

As I said, the centers for the creation of critical components should be the automakers themselves. And they can do so, especially if they see a common goal. Now the most prepared plant in this area is GAZ. First, we have been living under sanctions for over a year and have a unique experience of working successfully in these harshest conditions. Since 2018 we have been able to move from Western suppliers to manufacturers from friendly countries and localize a number of components. We have offered an alternative for most component groups, we have not stopped any operations over the years and we have kept the entire model range of our equipment for the buyer.

— The GAZ automobile plant is known for its endurance in the most turbulent times, and it is known that such a margin of safety was created by the industrialist Oleg Deripaska long before the sanctions were imposed. How does it help to keep improving today?

– I think the most important thing is the great attention shown to the staff and the attitude created in the team for development and results. Today, GAZ has a very strong team of engineers with ideas and competencies that can produce both cars and parts, and there are many developments that we are constantly implementing. I already mentioned the engine. Let me give one more example. Recently, GAZ Group President Vadim Sorokin showed me a sketch of a new light commercial vehicle designed entirely from Russian components – it was created by our experts.

What is he saying? In the field of import substitution, GAZ should be the first, already the first. But it cannot be alone. We need intra-industry cooperation, we need state support, including financial support. The 30 billion rubles allocated to the industry at the moment are not enough. According to our estimates, the industry program will require at least 300 billion rubles for 3-4 years.

Now is a moment when we all need to unite because only then can we make a difference. I really like this idea and am ready to give the rest of my life for it.

The policy of Western sanctions has exacerbated the problem of the Russian economy’s dependence on foreign technology and put it in a situation where technological security in some industries is threatened. There are two ways for the automotive industry in the future: to become dependent on new suppliers or to initiate a localization policy, as a result of which the supplier industry will be restructured and technological independence will be achieved. Former Minister of the USSR Automobile Industry, Chairman of PJSC GAZ Nikolai Pugin, in an interview with, spoke about the priorities in the development of the automotive industry in new realities. As a leader who has led the industry and a leading Russian automobile plant at various times, he knows both sides of the coin very well: the features of the “subsistence economy”, where all components are produced locally, and the period when GAZ was founded. reorganized on a market basis and successfully cooperated with global partners.

Source: Gazeta


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