Chairman of the Board of Directors of the group Bipek Avto - Asia Avto Anatoly BALUSHKIN:
CURRENTLY WE ARE THE LARGEST PARTNER OF AVTOVAZ IN THE RUSSIAN MARKET AND BEYOND IT
Following the July results the group Bipek Avto - Asia Avto became the largest trading partner of AvtoVAZ in the Russian market. Anatoly BALUSHKIN, chairman of the Board of Directors of the group Bipek Avto - Asia Avto, told Interfax-Kazakhstan about breakthroughs in the Russian and Chinese directions, as well as the role of the Eurasian integration in the automotive industry.
- The Eurasian Economic Union [EAEU] has been functioning for almost three years. How do you assess the results of the second stage of the Union’s integration for Kazakhstan’s automotive industry?
- The idea of the President of Kazakhstan to create single economic space has opened new prospects for our company. At the stage of the common customs area we started the construction of joint Kazakh-Russian production. With the establishment of the EAEU we proceeded with the work in the Russian market.
Time told that only the strongest are able to implement the arising opportunities. We heard a lot of announcements of the expansion of the domestic companies into the markets of the Union’s states. Most of them are not implemented.
Bipek Avto - Asia Avto was the first company in the automotive industry to start implementing the ideas of the head of state. In Ust-Kamenogorsk the construction of the end-to-end new facilities is under way. And this is the largest industrial project jointly implemented by Kazakhstan and Russia.
- How are the works on the new site?
- In the summer season the construction of the foundation of the assembly, welding shops and central warehouse was completed. The installation of engineering communications is being carried out within the framework of the Business Road Map 2020 Program, and a significant part of the facilities will be commissioned this autumn: electricity, water and heat supply networks. In September contractors will begin the construction of the railroad.
We have already invested more than $ 62 million of our own funds in the creation of the new production line. The first phase will secure the output of 60,000 cars a year. The commissioning of the second phase will double these volumes. Half of the products are export-oriented. This is the stipulation of our agreements with the technology partner AvtoVAZ - and its shareholder Renault-Nissan alliance.
The agreements regarding the sales markets were achieved long before laying the first stone. The launch of production is only half the battle. The ambitions and assembly conveyor themselves do not guarantee a success. And unsuccessful examples of this kind are known to us all.
It is of fundamental importance to have platforms and models that will be of interest to the consumer. The second stipulation is access to the overseas markets.
Thanks to our partner we have both of them.
Renault-Nissan-AvtoVAZ is no. 1 player in terms of sales in Kazakhstan, Russia and in the world. In the global market in the half-year it overtook both Volkswagen and Toyota. In the first six months, Renault-Nissan sold 5.3 million cars. Due to the takeover of Mitsubishi Motors the alliance took the first place in the world rating of automakers. The production line of our partner is the bestsellers massively demanded on the market.
- What will the cooperation with Renault-Nissan bring about in Kazakhstan's industry?
- The answer to this question was given by the Institute of Economic Research at the Ministry of National Economy, which carried out an expert assessment of our project. According to their estimates the facilities under construction in Ust-Kamenogorsk will secure car exports worth 170 billion tenge (334.29 tenge/$1) - our production will take the leading position in the non-resource exports segment of the upstream operations.
- What geography of sales is like?
- Export market no.1 for the future enterprise will be the Russian market. Even at the end of the three-year recession now it exceeds 39 times the size of Kazakhstan’s market. Therefore we proceed with the work in the Russian Federation very seriously.
The Kazakh-Russian forum held in September 2014 in Atyrau gave the green light to the creation of the auto centers chain in the neighboring market. In the presence of the presidents of the two countries an agreement was signed between AvtoVAZ and our group. This document allowed us to start working in the Russian market.
- In which regions is now Bipek Avto - Asia Avto active?
- The first cities on the map of the Russian chain were Barnaul, Omsk, Novosibirsk and Novokuznetsk. Later the auto centers were purchased in Chelyabinsk and Shadrinsk. Then Tyumen, Tobolsk, Ishim and Kemerovo were added to this list. For two years we have developed our own chain, which already has 15 auto centers in 11 cities.
- What are the first results of the activity in the Russian market?
- On average currently we own 32% of the Lada market in the regions where we operate. In a number of cities in Siberia this figure is twice as high. For example, our auto centers account for more than 70% of the brand's sales in Novosibirsk and Omsk, 58% in the Tyumen region and Barnaul.
The latest deal was concluded in July this year. It is about acquiring P-Motors Lada, the most successful dealer of AvtoVAZ in St. Petersburg, which owns three auto centers. With the acquisition of this asset, our cumulative share in the Lada federal sales grew to 4%, which ensured the top position among AvtoVAZ’s dealers in Russia. Of the more than three hundred Russian Lada dealers only Bipek Avto - Asia Avto has reached this high level. Currently we are the largest partner of the Russian autogiant not only abroad, but also in the domestic market.
- How much is the investment volume in the Russian chain?
- Currently $ 81 million was invested in the creation of infrastructure in the Russian market. Despite more than two years of decline in the Kazakh market and other consequences of the [currency] devaluation, Bipek Avto - Asia Avto managed to maintain financial efficiency. Current incomes allow us to allocate funds to build exports infrastructure.
- What are the future plans for expanding the chain?
- The market just pushed itself off from the bottom. This is an attractive period for the acquisition of assets. Therefore we take an interest in examinning incoming proposals. Currently we can speak about the two pre-arranged deals - the acquisition of an auto center in the city of Kurgan and a fourth asset in St. Petersburg.
No less actively we are working to improve the affiliates chain in Kazakhstan’s market. Now it covers19 cities in the republic. In the short term, the new auto centers will open in two locations, the first of which will be Astana. We expect that the capital city showroom will welcome first buyers right this autumn.
- In 2017 you were the first of the Kazakh car plants to enter the Chinese market. Is it planned to expand business in the Chinese market?
- Pilot shipments started in January. The first two car transporter truck-loaded consignments were sent. Then we switched to railroad deliveries. Bipek Avto - Asia Avto’ fleet possesses 320 company’s railway wagons and 87 car transporter trucks. The existing fleet, on the one hand, provides an opportunity for an operational logistics maneuver. On the other hand, it is a tool to reduce costs, which is important given the customs tariffs for imports that are applicable in China. As for compact SUVs, which we are exporting now the duty is 66% of the cost. But even with such an increment in the price Lada 4x4 Urban [Niva] assembled by us is in high demand by the Chinese consumers. Niva’s endurance has been remembered there since the Soviet times.
We have already received an advance payment for 1,500 cars. Most of them crossed the Kazakh-Chinese border and cars were handed over to buyers.
But the market potential is, of course, calculated with other figures. Despite the protection barriers China annually imports more than a million cars. Last year 607,000 of them were off-road vehicles alone. However, increasing supplies will require overcoming the long list of administrative barriers. That’s why at the end of July, under the auspices of Kazakh Invest and the Kazakh embassy to China, the Asia Avto delegation held a number of meetings in Beijing, including with representatives of certification bodies and Export-Import Bank of China. We expect that these talks will bring about their results.
- Thank you for the interview!
September, 2017
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