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. Last Updated: 07/27/2016

Carmakers Face Battle To Survive

With bankruptcy hanging over two of its biggest plants, Russia's huge auto industry, wary of reform and frightened of competition, must fight for survival as Western manufacturers seek to enter the domestic market, analysts said this week.


Analysts attending an industry conference said Russia's car and truck makers still gave priority to quantity over quality in Soviet-style five-year plans.


Russian firms, which gained a reputation for shoddy models in Soviet days, still make up the largest auto industry in formerly communist Central and Eastern Europe, employing over half a million people. But Russia is the only automaking country in the region where no foreign carmakers own shares in domestic manufacturers.


"Russian managers can still be arrogant, and many are wary of Western automakers and banks," said Richard Hanna, of Price Waterhouse in Moscow.


"They tend to look at the future with rose-tinted glasses because the severity of their crises still haven't hit them. They haven't had a reality check."


Analysts said Russian auto firms, exposed to competition in their home market, faced certain demise without outside capital, expertise and technology. Production has fallen 24 percent for cars and 77 percent for trucks since 1990.


"Such a drop in production is lethal," said Dagmar Bottenbruch, research director for MC Securities Ltd. in London.


"The worst companies will probably continue to exist for some time for political reasons ... but we don't believe Western automakers should invest large sums of money in this risky environment. Only a fully restructured company would be interesting, and none exist in the Russian auto industry."


Industry sources said Russian automakers were averse to Western investor requirements, such as cutting capacity and employment.


But the day of reckoning is nearing. Several automakers have suspended output in recent years due to problems with equipment, suppliers or workers. AvtoVAZ, maker of the Lada, and Moscow's AZLK, maker of the Moskvich, face bankruptcy due to tax debts.


"It will be really difficult for Russian automakers to become competitive until they have some financial liquidity," Bottenbruch said.


Old habits die hard, however. GAZ, Russia's second-largest automaker, outlined plans at the conference for a collection of new cars and trucks without discussing their financial feasibility.


"Automakers across the world are cutting costs by cutting down the number of models and parts they use," Hanna said. "But Russian automakers are heading in the opposite direction."