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. Last Updated: 07/27/2016

Scania to Start Local Bus Production

Swedish bus manufacturer Scania will begin assembly of city buses in St. Petersburg by the end of the year, company officials announced at a Tuesday press conference.

Initial production at the planned $6.5 million facility will be 100 buses per year, but can be jacked up to 260 buses if needed. The plant will employ 90 people during the initial production phase, company officials said.

Industry analysts said that such low production figures qualified the facility, which is still under construction, as little more than a pilot project.

However, if all the buses assembled at the plant were to be sold within the country, it would nearly double Scania's bus sales for all of Eastern Europe in 1998, the last year for which figures are available. In 1998, the company sold 4,000 buses worldwide.

For most of the past decade, foreign bus manufacturers have been trying to get a piece of the local bus market, which is saddled with thousands of Soviet-era buses in desperate need of replacement.

Estimates of the annual demand for new buses hover around 10,000.

However, few foreign manufacturers have had any success with production ventures here.

A joint venture Scania formed with two Moscow-region companies in 1995 never got off the ground and was eventually abandoned. EvoBus Rusland, a Moscow-based joint venture between a German bus manufacturer and the Turkish subsidiary of Daimler-Chrysler, only sold 50 buses in Russia last year, and is now bankrupt.

One factor in the lackluster sales, according to analysts, is the price of the buses, which retail for well above $100,000 - about the same as their foreign-made versions. And such price tags, analysts say, puts them well out of reach for all but the largest municipal budgets.

Pierre Gustav Nielsen, head of Scania's Russian subsidiary, said the new venture already had at least two municipal customers waiting to buy the new buses.

"We intend to sell the first buses on the domestic market," he said, claiming that they were a good buy even for cash-poor cities because of their lower maintenance and operating costs.

"Several thousand buses are sold here every year," he added. "There is no question that Russian buses are cheaper to buy, but they are more expensive to operate."

Nielsen said Scania had devised several financing schemes to make it possible for regional cities to acquire the buses, though he declined to provide details on how the schemes would work.

The new venture, which is wholly owned and financed by Scania, will assemble buses from components imported from Sweden and Switzerland in its initial phases, but will gradually move to locally produced parts over time, Nielsen said.

In an unusual move, Scania did not seek or accept any special tax breaks or customs privileges on the import of components.

"If you accept such customs breaks or tax subsidies, you have to pay them off in some way," he said. "It limits your flexibility and freedom."

To date, almost all local assembly projects initiated by foreign automotive manufacturers have involved such incentives, usually given in exchange for commitments to use a set proportion of locally made parts and meet certain production goals.

Industry observers have said this is essential to make the products affordable for local buyers.

Nielsen, however, disputed this view.

"Our ambition is to learn how to make this venture profitable while playing by Russian rules, without exceptions," he said.