PWC Auto Components

Russian Automotive Component Market
Why and where to invest
Stanley Root
Partner
Stuttgart
20 February 2008   
Contents
1. Automotive market overview
2. Component market overview
3. Site selection factors

Automotive market overview
Major and developing automotive clusters in Russia
auto-components producers
Kaliningrad. Autotor: 40087 Yaroslavl cluster.
St. Petersburg. Ford: 72,000
Suzuki 30,000
Moscow cluster. Chevrolet: 25,000
Autoframos: 72,762
Toyota: 20,000
ZIL, trucks: 6,366
Nissan: 50,000
Hyundai: 100,000 N.Novgorod cluster.
Kaluga cluster. St.Petersburg GAZ, cars: 51,000
Volkswagen:115,000 GAZ, lorries: 161,000
PSA 150,000 Bogdan-ZAZ: 160,000
Mitsubishi 50,000
Volvo Moscow
15,000
Trucks
Rostov. Udmurt cluster. Izhevsk

Tagaz: 79620
SOK Group: 78,024
Tata 60,000 Tatarstan-Ulyanovsk cluster.
Samara cluster. Yelabuga
Togliatti
Severstal Auto: 85,000
Autovaz- 941,380
Renault: Great Wall 50,000
GM-Autovaz:
55052 Naberezhnye Chelny Sverdlovsk cluster.
KAMAZ, trucks: 52,836 AMUR 4000
Group:
----- existing clusters, ----- developing clusters 20 February 2008

PricewaterhouseCoopers Russian automotive/component markets Slide 4
2007 car sales in Russia
Thousand units US dollars, billions

Car category 2007 2006 Variation 2007 2006 Variation
(%) (%)
Russian brands 765 800 -5% $6.5 $5.8 12%
Russian-made foreign brands 440 280 57% $6.7 $4.4 52%
New car imports 1205* 720 67% $34.1 $18.2 87%
Used car imports 380 260 46% $6.1 $3.6 69%
Total 2790 2060 35% 53.4 32.0 67%
Sources: Goskomstat, GTK, ASM Holding, АЕВ, PwC estimates

*GTK mentions much larger figures for import of new cars – up to 1.4 mln.; we are trying to understand the reason
behind the difference 20 February 2008
There is no consensus on how the Russian market will develop over the
medium term. However, according to one optimistic scenario of the
development of the Russian economy, sales volumes could reach to as much
as 6 million units per annum*
Sales volume, thousands of units

Forecast
7000
6000
5000
4000
3000
2000
1000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: PwC estimates
* For further discussion of possible scenarios for the development of the market see “Some thoughts on the future
of the Russian car market”, Stanley Root, February 2008 20 February 2008
What would such sales growth mean for domestic car production?
Assuming no major unexpected political or economic developments within the next 5

years domestic production of light vehicles could double
Production of light vehicles in Russia

(Thousand units)
3000
2557
2408
2500 2258
2019
2000 1732
1500
1500 1210
1000
500
0
2006 2007 2008 2009 2010 2011 2012
Sources: AUTOFACTS
20 February 2008
What would such sale growth mean for car parc development?
Just as foreign brands have captured the market for the new car sales, so in time foreign
brands will capture the entire car parc
Car parc of light vehicles in Russia

(million units)
60
50
40
30
20
10
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Russian brands Foreign brands

Sources: PwC estimates 20 February 2008
Component market overview
Russian car component market in 2007
The current breakdown in USD between primary and secondary auto component market
in Russia is estimated to be 24% and 76% respectively*
Volume of car component market

(billion USD)
30
25
20 10.5 Foreign brands
15
Russian brands
10
14.5
3.6
5
4.3
0
Primary market Secondary market
*Sources: AutoStat
20 February 2008
Primary market: potential of auto component production for
Russian-made foreign brands
• 440 000 Russian-made foreign brands were produced in Russia in 2007
• The value of auto components produced within Russia for the assembly of Russian-made foreign brands in
2007 was a mere 360 mln. USD, because the majority of components are imported
• Many foreign OEMs signed an investment agreement with the Economics Ministry and agreed to reduce the
monetary value of their imported components by a third within seven years
Assuming that:
• The volume of production of Russian-made foreign brands exceeds 2 mln. by 2012
• Average price of a car will be approximately 25 000 USD, 60% of the cost is auto components and at least
30% of components are produced locally
• Then the primary market demand for foreign quality auto components could reach or exceed 10 bln. USD.
over the period
Primary market: production of auto component for Russian-made foreign brands
(billion USD)
10
0
Sources: PwC estimates
2007 2008 2009 2010 2011 2012 20 February 2008
Dynamics of the secondary market for car components
Because of the dramatic increase of foreign brands in car parc we expect to see a related
strong growth in the secondary market for foreign brand components
Volume of secondary car component market

(billion USD)
60
50
40 Foreign cars
30
Russian cars
20
10
0
2007 2008 2009 2010 2011 2012
Sources: AutoStat, PwC estimates
20 February 2008
Perspectives for the Russian automotive component market
• Because of strong growth of Russian car market and car parc as a

whole and because in particular of the tremendous success of foreign
brands
• We expect significant increase in demand for foreign brand auto

components in Russian both in primary and secondary market.
• Consequently there could be significant opportunities for investment in

the Russian automotive sector.
• The question is “Where?”.
20 February 2008
Site selection factors
Some factors to be considered when choosing a location in
Russia*
• Availability of qualified work force and wage rates

• Legal issues – managing your risks
• Infrastructure (telecommunication, utilities, etc.)
• Federal and regional tax regime
• Custom duties
• Corruption and fraud risk
• Ease of dealing with local bureaucracy (probably the single
most important factor)
*For a broader discussion of the issues of investment in the CEE region see series of PwC publications “Eastern Influx”
http://www.pwc.com/extweb/pwcpublications.nsf/docid/5272B7569A7EAE4F85257279006605B3
20 February 2008
Availability of qualified workforce. Regional unemployment rates
• A key consideration for any investment is availability of local qualified workforce. We are
witnessing a rise in competition for labour in certain clusters as foreign investments increase.
Indeed we have recently seen the first ever industrial action in the automotive industry – a good
indicator of relative shortage of labour supply.
• One guide as to the level of competition for labour in the region is the local unemployment rate*.
Regional unemployment rates in 2006
Moscow 1,6%
Moscow region 3%
St-Petersburg 2,4%
Leningrad region 5,9%
Kaliningrad region 4,5%
Novgorod region 5,3%
Rostov region 8%
Samara region 4,3%
Sverdlovsk region 7%
The Republic of Tatarstan 5.6%
Udmurt Republic 8,4%
Ulyanovsk region 6,9%
Yaroslavl region 3%
Source: Russian Service of Labour and Employment

*Unemployment rates have been constantly declining in recent years. 20 February 2008
Wage rates
• According to the Russian statistical state bureau the average monthly wage for 2007
was 13500 RUR (530 USD) . However there is significant inflation pressure and wages
have increased by 27% by comparison with 2006.
• According to UN forecast Russia is expected to experience a significant decline (15%) in
its working age population between 2005 and 2050, which could further add long-term
inflation pressure to wage rates.
• Nevertheless Russia appears to offer a competitive advantage in wage rates compared
to its neighbours over the medium term.
18
Labor costs per hour (US$)
16 15.6
14.8
14 13.6 14
13.5
12.7
12 12
11.6 11.6 11.3 11.5 Russia
10 9.7
9.6 Romania
8.6 7.94 8.51
8 7.42 Poland
7.6 7.9 6.97
7.2 6.48 6.91
6.5 5.63 Czechia
6 6.1 5.96
5.1 5.5
3.23 3.98 5.12
4 4.42
1.98 2.46 3.8
1.58 2.95
2 2.19
1.68
0.78 1 1.3
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Economist Intelligence Unit 20 February 2008

Regional wage rates variations
Assuming Moscow salaries are taken as 100%, regional coefficients for average
employee wages vary as follows:
North-West Region 65%

Central Russia 69%
South region 40%
Volga region 45%
the Urals 74%
Siberia 53%
Far East 73%
Source: Russian statistical state bureau
20 February 2008
Measuring the risk of initial investment
There are many options for establishing an investment in the Russian automotive
industry, each with its own level of risk:
L • Supplying sub-assemblies for final assembly by a Russian
E
manufacturer in Russia
V
• Entering into a Royalty agreement involving the provision of know-
E
L how to a Russian manufacturer which would in turn manufacture
the particular products

O
• Setting up a small assembly operation in an industrial park
F
• Setting up a joint venture with a Russian partner
R • Setting up a greenfield factory in a Special Economic Zone

I
• Buying a Russian company
S
• Setting up a greenfield plant somewhere else
K
20 February 2008
Russian Infrastructure
• Russian infrastructure is in urgent need of modernization.
• Russia’s road capacity is less than one-seventh of that of Canada.
• Roads account for only 9% of country’s land freight transportation, compared with
36% in US and 68% in Germany.
• The Russian rail network is the 2nd -largest in the world, with 85,500 km of track,
but much of the rail stock is old and in need to replacement, e.g. depreciation level
of freight cars is 86%, electric locomotives – 73%, railway infrastructure – 52%.
• Russia has 351 airports. 24 airports, identified by the Ministry of Transport as
priority investment projects. But still most connections go through Moscow.
• Russia has among the highest levels of port cargo turnover of any country (300-
500mnt/year turnover) similar to Italy and the Netherlands. The logistical chain is
already stretched and there is an urgent need to invest in logistic centers.
• On the positive side, Russia has high telephone penetration with 31 fixed-line
phones per 100 citizens and more than 100% mobile density. Russia has more
than 31 millions personal computers and about 35 millions internet users.
• The Russian government has plans to invest significant amounts in the
development of the infrastructure over the medium term.
Source: Renaissance Capital 20 February 2008

Taxes – some key issues for potential investors
• Tax planning for capital investment

• Compliance with VAT regulations and in
particular proper documentation
• Transfer pricing/customs valuation
• Treatment of discounts/bonuses
• Profit repatriation
• Tax implications for financing the investment
• Tax on warranty services, return of goods
• Tax treatment of over/under shipment of goods
• Tax accounting policy
• NB There are some regional tax concessions
which are good to have – but it is wise not to let
the profitability of the investment rely on these
For more details please see PwC publication“The Doing Business in the Russian Federation Guide”,
http://www.pwc.com/extweb/pwcpublications.nsf/docid/E70BAEC31B0C17D8802571FC005699D4
20 February 2008
Corruption and fraud risk (1)
Along with tremendous growth opportunities that Russia presents there are also high
levels of risk. Russia ranked poorly in recent PwC Global Economic Crime Survey.
Actual incidence of fraud

59 %
At least one type of economic crime 50 %
43 %
43 %
Asset Misappropriation 33 %
30 %
34 %
Corruption & Bribery 18 %
13 %
28 %
IP Infringement 20 %
15 %
18 %
Accounting Fraud 13 %
12 %
16 %
Other crimes 10 %
7%
5%
Money Laundering 5%
4%
Russia 0% 10% 20% 30% 40% 50% 60% 70%
CEE
Global
Source: PwC 4th biennial Global Economic Crime Survey
20 February 2008
Corruption and fraud risk (2)
Bribery is still more widespread in Russia, compared with the other regions.
Global 18%
Asked to pay bribe

Central & Eastern Europe 30%
Russia 48%
0% 10 20 30 40 50 60
% % % % % %
% incidents
Source: PwC 4th biennial Global Economic Crime Survey

20 February 2008
Conclusions
1. Russian automotive component market offers significant

opportunities, but competition for those opportunities is increasing.
2. Russia is a high reward but a high risk investment – investors should

take great care with their due diligence and negotiations.
3. There are many factors to be considered, but, for larger investments,

establishing good relationships with local bureaucracy is probably
the single most important factor.
4. Different regions offer different opportunities*. To strengthen their

position in negotiations investors should have alternatives available.
PwC is in process of producing Investment guides to automotive industry in these regions. The first has already
been produced for Tatarstan.
20 February 2008
Example of the Russian automotive cluster: Leningrad region
Background Main industries

• Population 1,637,000 • Heavy machinery and mechanical
• Labor force 934,105 engineering, automotive, metals,
• No. of Universities chemicals, forestry, food
(St.Petersburg) >100
• No. of technical/ Major foreign investors:
business schools 160 •Ford
• No. of Students 80,000 •Caterpillar
• Intl Airport Yes •Toyota
• Unemployment rate 6.1% •Nissan
• Investment Rating 3B1 by rating agency •GM
“Expert” •Suzuki
Authority co-
Labor Logistics Utility Technoparks
operation
• About 25,000 engineers • Proximity to Electricity
• Treaty graduated in 2006 Europe $0,7 per kwh of • Sosnovy Bor
relations with • 30,000 RUB per month – Blue • Seaport electricity • Kolpino(logistic)
Federal collar • High quality of Water • Sponda
Government • 85,000 RUB per month – White roads and $0,5 per m3 of (industrial,
• Very formal collar railroads water logistic)
SUMMARY
Being very strong on most of criteria, St.Petersburg has recently seen many Multinationals (incl. many automotive) come to the
region, which obliges new investors to compete for labor, government support and favorable plots
16 20 February 2008
Example of the Russian automotive cluster: Kaluga region
Background: City characteristics:

• Population 1,000,000 • Main Industry – heavy machinery and
• Labor force 545,005 mechanical engineering, automotive, food,
• No. of Universities 16 services, pulp & paper
• No. of technical/
business schools 31 Major foreign companies:
• No. of Students 42,444 •Volkswagen
• Intl Airport No •Volvo Trucks
• Unemployment rate 5.7% •Mitsubishi / Citroen
• Investment Rating 3B1 (By Rating •Siemens
Agency “Expert”) •Samsung
Authority co- Labor Logistics Utility Technoparks

operation
• Good level of • One technical university Connection to electricity • Vorsino (70 km to
loyalty • about 300 engineers graduated in 2006 • Situated on federal network – 15,900 RUB per Moscow,
• Personal • 25,000-30,000 RUB – Blue collar highway Moscow-Kiev kWt/H automotive)
relationships • 90,000-100,000 RUB – White collar • Moscow region logistic $0,7 per kwh of electricity • Obninsk (Pharma)
• Very busy • White collars from Moscow available facilities available $0,5 per m3 of water • Lemkon (Finnish)
SUMMARY
Kaluga being located close to Moscow, having good and cheap labor resources and infrastructure provides good investment
opportunities, though the authorities are proactive in cooperation mainly on large projects
17 20 February 2008
PricewaterhouseCoopers Automotive Contacts
Stanley Root - Audit Partner Natalia Vozianova - Tax Director
Office: + 7 495 232 5618 Office: + 7 495 967 6237
Stanley.Root@ru.pwc.com Natalia.Vozianova@ru.pwc.com
Christian Ziegler -Tax Partner Natalia Sherbakova - Tax Director in

Office: + 7 495 232 5461 St. Petersburg
Christian.Ziegler@ru.pwc.com Office: + 7 812 326 66 87
Natalia.Scherbakova@ru.pwc.com
Paul Tobin – VAT Partner
Office: + 7 495 967 6228 Daniel Kast - Partner, Germany
Paul.Tobin@ru.pwc.com Office: +49 (0) 30 / 2636-5252
Daniel.Kast@de.pwc.com
Paul Stewart – Tax Partner in St. Petersburg
Office: + 7 812 326 66 95
Alexander Müller - EMEA Automotive
Paul.Stewart@ru.pwc.com Marketing Manager, Germany
Office: +49 (0) 511 / 5357-5854
Enrika Schevchenko -Tax Director
Alexander.Mueller@de.pwc.com
Office: + 7 495 967 6225
Enrika.Schevchenko@ru.pwc.com
20 February 2008

PWC Auto Components

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

PWC Auto Components

Hochgeladen von

Copyright:

Verfügbare Formate

Russian Automotive Component Market

Why and where to invest

2. Component market overview

3. Site selection factors

Rostov. Udmurt cluster. Izhevsk

----- existing clusters, ----- developing clusters 20 February 2008

Thousand units US dollars, billions

Russian brands 765 800 -5% $6.5 $5.8 12%

Russian-made foreign brands 440 280 57% $6.7 $4.4 52%

New car imports 1205* 720 67% $34.1 $18.2 87%

Used car imports 380 260 46% $6.1 $3.6 69%

Total 2790 2060 35% 53.4 32.0 67%

Sources: Goskomstat, GTK, ASM Holding, АЕВ, PwC estimates

Sales volume, thousands of units

Source: PwC estimates

Assuming no major unexpected political or economic developments within the next 5

Production of light vehicles in Russia

Car parc of light vehicles in Russia

Russian brands Foreign brands

Volume of car component market

20 10.5 Foreign brands

Volume of secondary car component market

• Because of strong growth of Russian car market and car parc as a

• We expect significant increase in demand for foreign brand auto

• Consequently there could be significant opportunities for investment in

• The question is “Where?”.

• Availability of qualified work force and wage rates

Source: Russian Service of Labour and Employment

Source: Economist Intelligence Unit 20 February 2008

North-West Region 65%

Source: Russian statistical state bureau

the particular products

R • Setting up a greenfield factory in a Special Economic Zone

Source: Renaissance Capital 20 February 2008

• Tax planning for capital investment

Actual incidence of fraud

Asked to pay bribe

Source: PwC 4th biennial Global Economic Crime Survey

1. Russian automotive component market offers significant

2. Russia is a high reward but a high risk investment – investors should

3. There are many factors to be considered, but, for larger investments,

4. Different regions offer different opportunities*. To strengthen their

Background Main industries

Background: City characteristics:

Authority co- Labor Logistics Utility Technoparks

Christian Ziegler -Tax Partner Natalia Sherbakova - Tax Director in

Das könnte Ihnen auch gefallen