Production at Gaz
The Wolfsburg VW Group would like to expand its cooperation with the Russian truck partner Gaz.
(Photo: Bloomberg / Getty Images)
MoscowVW gets impatient: The car company is waiting for the end of negotiations between the US government and Representatives of the Russian oligarch Oleg Deripaska on the lifting of sanctions against its car holding Russian Machines and its main asset, the Gaz Group. The US Treasury had included the billionaire in the sanction catalog in April 2018because it accuses him of meddling in the US presidential election.
Not only the Kremlin-close oligarch himself, but also his entire company empire ended up on the blacklist. After tough negotiations, Washington has since removed the globally active aluminum company Rusal from the list, Deripaska, however, had to give up control of Rusal,
Something similar will happen sooner or later to Gaz – and if it does VW goes, sooner rather than later. Because the Russian automaker; formerly known for the Volga soviet sedan, now particularly successful in the production of vans, is a close partner of Wolfsburg in their Russia business: more than a quarter of the Russia manufactured VW and SkodaModels running off the line at Gaz in Nizhny Novgorod. In 2018, that was 56,500 vehicles; an increase of 15.3 percent.
In addition, both companies have agreed in 2017 to expand the cooperation – with the acquisition of Gaz shares by VW and the supply of VW diesel engines from Salzgitter for the Russian vans Gazelle. “The engines have now been tested, but we are forced by the sanctions on standby,” said Gaz CEO Siegfried Wolf, former CEO of the Austrokanadischen supplier Magna, the Handelsblatt.
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VW is very interested in the further development of relations. In addition to the participation in Gaz, the Special Investment Contract (Russian abbreviation SPIK) of the Russians is particularly interesting for the German automotive group. The SPIK is valid for ten years and provides tax breaks and subsidies for investors. In fact, it is an instrument of the Russian government to persuade foreign companies to localize production in Russia.
By summer, VW must sign such a contract, so as not to lose state aid. The Group has already submitted an application. However, the specifications are tough, so is the long-standing demand of the Ministry of Industry to produce the manual transmission in Russia, economically not useful for VW.
VW would therefore prefer to join as a partner in the SPIK, the Gaz has already signed. Gaz and VW would invest close to 200 million euros in the joint project, in addition to the almost 300 million euros already guaranteed by Gaz. The funds will go towards the further development of medium-duty “Gaz” trucks and “Ural” heavy trucks.
In addition, there is also the construction of the assembly production of the vans VW Crafter and the truck brand MAN being considered. By 2024, the production volume is expected to rise to 10,000 or 14,000 units. This is too much for the Russian market alone, but VW has already had good experiences exporting part of Russian production to other countries.
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Among other things, the company has shipped Russian Polo models to Mexico. Cooperation in the growing commercial vehicle market (plus 2.7 percent) makes sense. Both would complement each other well with know-how and services in the Russian market.
At the time of signing the investment contract with the government, Gaz did not mention VW by name, but according to manager Wolf, the project was made specifically with a view to partnering with the Germans. But when it starts, is unclear. For the starting shot must first fall the sanctions.
The US Treasury Department recently extended the deadline for ending all contacts with Gaz until 7 March. “We hope for a solution in the next two weeks,” said Wolf. In addition to a renewed extension of the deadline but also a final solution must be found, he demands.
Otherwise, either the nationalization or almost 80,000 employees threaten the Aus and international partners harsh losses. “Deripaska is ready to meet Washington’s demands,” assures Wolf. Say: to renounce his shares.
Since for VW without the cooperation, the survival in the Russian market is difficult, the search for a compromise feverishly. VW itself does not want to get in fear for its US business, as long as the sanctions are not lifted.
Theoretically, this would be possible through a deal similar to the Rusal business. There, the state bank VTB entered as a new partner. However, this applies only as a mediator and should resell the shares later. This model would offer itself to Gaz for VW.
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The Russian car market in itself remains important for the Wolfsburg. In 2018, the passenger car market grew by a total of 12.8 percent to a total of 1.8 million new vehicles. The VW Group benefited disproportionately from this and increased its sales by 20.4 percent. Also for 2019 he was “muted optimistic,” said the head of the Automotive Committee at the Association of European Business (AEB) Jörg Schreiber.
Although the AEB is not expecting double-digit growth rates this year due to the increase in value added tax, it is still forecasting growth of 3.6 percent. Also with VW one sees potential. “In sales, we are close to the ground,” said Lars Himmer, Managing Director of VW Handelsblatt. Much lower than 1.5 million vehicles, the sale can not fall, while it is still far from the peak – three million new cars sold. That should give the market stability, he is convinced. To get started, VW needs security from the USA as soon as possible.
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