27 March 2017
Siegfried Wolf: GAZ has been better than market every year
Oleg Deripaska’s partner and former co-CEO of Magna speaks about why it is necessary to invest in Russia, how GAZ Group feels, why the UK voted for Brexit and Donald Trump became the new president of the US.
GAZ Group, the main revenue generator of Russian Machines, which is Basic Element’s mechanical engineering arm, performs better than the market. Last year the sales of GAZ light commercial vehicles in Russia added 8.8% while the entire LCV market grew by 0.1%, Autostat agency reports based on the new vehicle registration data. The strategy which saw the company focus extensively on upgrading its product portfolio and modernizing operations has born its fruit, says Siegfried Wolf, chairman of the Russian Machines Board of Director. “We have a company which constantly generates profit and makes products that are competitive on the international scale,” he said. Mr Wolf left the position of co-CEO in Magna, a well-known car part manufacturer, for the sake of projects in Russia. In 2010 he joined Oleg Deripaska’s team by buying a stake in Russian Machines (he and his colleague Peter Koob, also from Magna, have a 12.5% stake between them) and became chairman of the Board of Directors. In his interview with Vedomosti Siegfried Wolf speaks about his relations with Deripaska, his vision of the future of GAZ Group and other Russian Machines’ businesses and explains where he does not feel enough support from the government.
- Why did you decide to swap the position of co-CEO of such a giant company as Magna for work in Russia, becoming a junior partner of Deripaska?
- I like challenges (smiles). But seriously speaking, the markets of Russia and CIS at that time were demonstrating very promising growth that had all the reasons to continue for the next ten years. Russia has a low level of motorization, while being rich in resources, first of all natural. It means it possesses purchasing power. And judging by all macroeconomic factors it was absolutely clear that the country was in good economic condition, accordingly, it was worth investing in. This is what determined my decision. At the same time I had full understanding that machine-building, the automotive sector require massive efforts, that it will be serious, hard work. But, as I said before, I like challenges, tough tasks. In 2006-2009 we reached peak market capacity of almost 3 million automobiles [sold in Russia]. Now we are at the very bottom. This cycle in 10-year perspective always looks the same. Soon a stable growth trend will begin to show, but it will take 8-10 years for the volumes to recover.
Despite the market slump we are continuing to apply maximum efforts, utilize the potential of our employees in order to ensure the required result. When I came the company had a limited product portfolio and small production volumes. In spite of all the difficulties we were successful in fully renewing and expanding the product range in each of the segments: trucks, buses, LCV, power trains. One of the novelties – GAZelle NEXT – was recognized as automobile of the year [in Russia|. It is competitive versus western peers. The same goes for medium-duty trucks. According to surveys of our dealers and customers we are the best manufacturer of such vehicles in Russia. And already three times out dealer network was also rated the best [in Russia].
We invested major own funds in developing the business – approximately RUB 65 billion starting from 2010. Substantial increase was achieved in monthly revenue per worker: from RUB 140 000 in 2010 to RUB 303 000 at the end of 2016. In 2010 we had around 5 000 modern work places with very skilled personnel (the level of their training can be judged by the fact that our competitors desperately tried to hire them away from us), subsequently we created approximately 15 000 such work places. Naturally, employees needed to be motivated – by remuneration, rather than promises and praise. To prevent a situation, where time comes to pay out annual bonuses, and we say we don't want to hear anything about it (smiles). Since 2010 we achieved a growth in average wages of 66% and received in return doubled of productivity. That shows that we invested in the right company, right products, right people.
- That is to say that on the whole you have no regrets that you entered this business?
- I not just have no regrets that I joined this business – I am even happy about it. Even though it wasn't always an easy task. If to sum up, on one hand, our efforts and work, and to compare it with the result – it was worth it every day. This is what I communicate to our employees, and this is what I call motivation. It works best when you can share success with the employees. If we look at the way we have covered, you should agree: we have achieved great success. On the streets of Moscow you can now see buses, produced by our company. There are a lot GAZelles on the road and other modern products that we make. I think that when our people see our vehicles on the street it makes them happy and creates additional motivation. They can point out those vehicles to their friends, relatives and say: "Look here, I took part in their production". Currently we hold 50% of the Russian market in LCV segment, including due to the new GAZelle NEXT minibus. We put it into production quite recently, last November, but by the end of 2016 it had already seized 30% share of the market. We give our customers a warranty for 150 000 kilometers. You understand that taking into consideration Russian roads and other operating conditions this is very considerable.
How Wolf met with Deripaska
- Russian Machines comprise 27 enterprises. Have you visited all of them?
- And more than once. If you are engaged in implementing a particular program you must keep it under personal control. Our main plant, GAZ, is one of the largest in the world, but I won't get lost there. And I know how production processes are organized, as well as logistical and others. It is extremely important – not just talking, but being directly involved in the process. This is how it was, for example, when I got Steyr-Daimler-Puch to control – that was back in the times of my work for Magna. That company is famous for producing Меrcedes-Benz G-Klasse. Magna's inherent philosophy was always based on contract manufacturing: what we did was offering the automotive industry the optimal methods of organizing production.
In 2005 while working for Magna I came to Nizhny Novgorod. Together with my team I went through the entire plant, and during the tour I noticed a guy, around 35 years old, short haircut, no beard, wearing work clothes. He was pulling out pallets with components. I said: "Excellent organization of the process! Who did the implementation?" He answered that it was all according to Toyota production system. I introduced myself, he told me his name – Oleg… That's actually how I met Oleg Deripaska. Later I learnt that as the main shareholder of GAZ Oleg started implementing Toyota Production System, a unique lean production system, there. At the plant he arranged training sessions for the top management of all the businesses in his group and attended them personally. I have never since then regretted that I work with Oleg Deripaska, because he always knows exactly what he is doing and what he wants.
- How often do you now meet with Oleg Deripaska? Do you have arguments?
- Between ourselves we sometimes have arguments, discussing individual issues. I see him practically once every two weeks. When we talk on the phone we ask each other to think over various things. We have a good working relationship. When all employees have the understanding that there is no interlayer between me and Deripaska, that there is direct contact between shareholders, this helps to get rid of unnecessary speculation. Our cooperation is based on facts, the real situation. So it's not just a back-slapping relation. There is no place for friendship in business. I have a favorite saying: "Don’t tell me you are my friend – prove it". By proving I mean delivering the result we agreed on. As I mentioned earlier, the automotive industry assumes long-term planning, and this process includes such an important thing as confidence. I'll explain. If I say that I will do something in 9-10 months, someone may say that I won't make it on time. But if there is confidence in me, I have clear understanding that I have these 9-10 months, it will be a hell of a hard time for me, but eventually I will be able to deliver what I promised. Any process follows a sinus curve, but only a proper process reduces the amplitude as details get refined, otherwise there is no way of reaching the desired result. Summing it up I'll say: we didn't only have arguments and discussions [with Oleg Deripaska], but we also ensured the result.
- In 2007 Deripaska acquired 18% of Magna for $1.54 billion, but during the crisis had to part with the asset. Don’t Basic Element, Russian Machines today have plans to take a share in the capital of Magna?
- No, we will not go back to that. Conditions were different from the outset. Between 2004 and 2006 I visited Russia frequently, because Magna was the largest investor in Russia in production of auto components. I built three plants in St. Petersburg for supply of part to Toyota, Hyundai and General Motors, two in Kaluga – for Volkswagen, and two in Nizhny Novgorod for GAZ. A that time, after the first acquaintance, I once again had a talk with Deripaska and asked him if he was ready to become Magna's partner in Russia. He thought it over and said that he was not ready to be a partner in Russia only, but rather in Magna's global business with a view to creating a supply industry here, in Russia. He had a clear understanding at the time that it was impossible to produce a competitive product without access to highly competitive components from global suppliers. Now, what with the organized supplies, own and joint production of auto components, there is no longer any sense in doing it.
What kind of state support is needed
- With what financial result did Russian Machines end 2016?
- Turnover is increasing, company's profit is also growing. We will be able to present the numbers in April. The greatest handicap is the "debt burden" weighing down on us, currently for GAZ it is about RUB 60 billion. Actually, it is the debt that was there at the very start, when I came to the company. I don't want to blame anybody, because company's performance is improving. Major investments were made in 2005-2006, then there was the market slump and the level of debt burden that appeared then is remaining.
I remember my first meetings at GAZ in Nizhny Novgorod when Vladimir Putin visited it (he was Prime-minister at the time). He reviewed the situation and said that he had faith in the company, had confidence in us. On that occasion I was able to demonstrate to him what we were able to achieve with the support of the Russian Federation. We invested in the products that you can see now. We invested in creating a modern engine, meeting the requirements of Euro-6 environmental standard and capable of using compressed natural gas (CNG). On Putin's instruction we developed a full cycle of CNG application as an alternative fuel: besides the engine it includes fueling stations, storage vessels. We are producing all this on our own under the motto "Made in Russia for Russia". But now we need even more support from the Russian Federation. In order to support the technology based on the use of CNG, to reduce environmental pollution. Emissions of CNG engines are 80% lower compared to gasoline and diesel engines. They also benefit customers, because fuel costs are 50% less.
- And what additional support is required?
- Help in creation of the infrastructure – specialized fueling stations for buses and trucks. Also, at the very beginning of the cycle the cost of CNG vehicles is higher, therefore, the buyer at the stage of purchasing might require subsidizing.
If one looked at the situation with Moscow traffic, then introduction of CNG vehicles at least in the commercial transport segment would become a major contribution to solving the environmental problem.
Besides natural gas vehicles we can also produce electric automobiles, which we have already demonstrated in LCVs and buses, but today such vehicles are 30% more expensive, 30% heavier because of the weight of batteries, and 30% less efficient. Plus to all that there are substantial, so far unresolved limitations relating to the electric battery as such. Today, the mankind has no technologies for making electric vehicles which would be economically more efficient than the traditional ones. However, this will change because technological development never stops. But we do realize that electric transport has good prospects anyway, especially in big cities where ecological issue is quite sensitive.
- Purchase of natural gas vehicles is now already subsidized by the state. Is this not enough?
- This support is not sufficiently focused yet. I have the parameters: time, delivery and costs. It is strictness of controlling these parameters that is lacking. And more promptness in provision of state support is desirable, because at present there is a time gap between due dates and the final result. I don't need anything above what we asked for. Neither I nor Deripaska asked for additional subsidies – there is no need for them. What we talk about is that the already allocated subsidies, including under the state program of utilization (fleet renovation – Vedomosti), should be distributed fairly and the mechanism of distribution should be transparent. Moreover, this will give an impetus to development of the economy. I'll explain why. Firstly, it is the cycles I mentioned earlier. Secondly, the need for modernization of the transport fleet. Why use 20-year-old trucks that are unsafe and belch smoke like steamers? This also applies to rail cars. Russia has the most far-reaching railroad system in the world and the question arises: why use rail wagons that are 30 years old? That have load capacity of only 20 tons per axle (where 25 t could be used) and extremely low speed – around 25 kmph.
- But speed primarily depends on Russian Railways, doesn't it?
- It depends on modernization of infrastructure. Whether you like it or not, but what is [President of the United States Donald] Trump saying at present? Modernization of the existing infrastructure is the key, decisive factor in creation of new jobs and improvement of economic well-being of the American nation as a whole. It is necessary to build automobile roads, railways, develop public transportation system, because transportation system is intrinsically the lifeblood of the country.
- By the way, what was your attitude to Trump's coming to power?
- I'll say the following: I am not a politician. But what has happened? What happened was rejection of the existing establishment, of which people got simply sick and tired. We see that over the past 30 years the country was run by two dynasties – the Clintons and the Bushes. It's worse than a monarchy – two clans running a country for 30 years. A divide appeared between them and the public, people did not understand what their government were doing. Power was concentrating in Washington and it was forgetting that it is a large country, that people have needs. A situation emerged where politicians did not listen to demands of the citizens. In the European Union the situation is the same. Brexit has evolved, and I believe that it is an alarm bell for all in the EU. People in the EU are fed up with the level of bureaucratization and that nothing is happening. This is the reason for the situation where right-wing parties are beginning to win. All were sitting tight, holding to their chairs and not reacting to the real needs of the public. Coming back to the situation in America: I think that on the whole it was good for all, including for Russia in the terms of sanctions. By the way, 75% of the EU population believe that there is no need for sanctions against Russia. Contrary to that, a group of politicians consolidated to keep those sanctions in place. Thus acting against people's will.
Business and sanctions
- When you came to Russian Machines, you helped Oleg Deripaska find partners among international companies. You are also on the boards of directors of foreign companies. Now that Russia is under sanctions, has it become more difficult for you to deal with top managers of international concerns, to negotiate new projects? How do they treat you?
- It is most difficulties with people who are not involved in business – due to the influence of local mass media. In Europe journalists do not rely on facts, western journalism can be characterized as tabloid. They like creating bright stories, mistaking dreams for reality. But I maintain that media must be fact-based, giving fair portrayal of the situation and communicating, so to say, a true point of view. Relations with representatives of business are stronger and are characterized by greater mutual understanding, than with politicians.
I view Russia as a prospect market. It is a very rich country. And Russia is very strong in technologies. Did you know, for example, that 84 million people in Russia use the Internet? This is a higher proportion than, say, in Germany. Russia is ahead of European users in the level of browsers use. The main obstacle in Russia is the deficit of skilled specialists. It is for that reason that we took up creation of modern work places. But Europe makes better use of the available telecommunications capabilities. Why not combine the huge resources of the Russian market with modern technologies of machine building that exist, for instance, in Germany? This will be a link that nobody will be able to sever. I heard pronouncements by President Putin, who would like to see Russia as part of a single market from Lisbon to Vladivostok. I view this as a push towards working with Europe together. Europe has already missed numerous opportunities in the agricultural sector – Russia now has no need for anybody here. Do you know that deliveries of fish from Norway have stopped, it now comes from the East? Neither does Russia need supplies of meat from Europe any longer – cows in Krasnodar produce milk no worse than European – it's only a matter of marketing and sales.
- Has it become more difficult for you to negotiate with partners, or has everything remained the way it was before?
- It's become more difficult. But with the emergence of such people as Austria's young Foreign Minister [Sebastian Kurz], who stands for lifting sanctions against Russia, Europe will understand that it is making a big mistake. Total volume of trade between Russia and Europe prior to sanctions was more than EUR 400 bn, after that – dropped to EUR 200 bn. Numbers speak for themselves.
Two weeks ago representatives of Volkswagen came to Russia. They already have projects in Russia and they are ready to continue investing. Russia, on its part, treats such companies positively. This is a good sign. But we also should start thinking about what else should be done to improve relations. For example, Volkswagen have to import components to Russia and pay duties. The company makes 10 million cars globally, this means that they need approximately 40 million alloy wheels. I don't want to reduce it all to the story of Rusal (smiles), but Russia exports aluminum in greater volumes. Essentially it is energy that is exported. Why wouldn't the Russian Government create incentives for companies producing alloy wheels to locate their production facilities next to smelters? This way we create jobs and products in Russia. Another idea could be considered: bring down to zero import duties on imported parts and components, provided that the same Volkswagen uses Russian-made components for its plants in other countries. This means creation of new jobs and growing investments. This is exactly what I explained to your President and he liked the idea very much.
Next issue – jobs creation. We at GAZ have people who are engaged in production of Volkswagen and Mercedes-Benz automobiles. Training people is costly for every company. Question: why don't I get subsidies for the programs of training my personnel in Russia? Let's say I create a work place where some high-tech product will be produced. Why can't I count on subsidies applying to R&D? If you are developing technology you invest a lot of funds, and if that product is subsequently exported, then we should give it a thought: what kind of support could be provided.
- Did you propose this to the government?
- We discussed it, but the process is advancing very slowly. Another important factor. Besides Russian Machines and GAZ I am on the boards of directors of various banks. Interest rate on loans in Russia is five times higher than in Europe. What is this for? To support the banks? Here, same as in the situation with Brexit, we should start thinking why is it happening? Why do I have to raise loans at 12-13% in Russia in order to invest the same funds in Russia? Why not devise some transparent formula, according to which a person, taking a loan from a bank and investing in Russia could receive support in the form of subsidies depending on the jobs created. At present Russia is absolutely uncompetitive because of high loan interest rates. In 2016 GDP growth was negative (minus 1.2%), this year it is to start growing. Inflation was 6-7%, in 2017 according to [Chairperson of the Central Bank of Russia Elvira] Nabiullina's forecast it will be 4%. Based on these trends interest rates should also be going down to a competitive level. Because money is fuel for investments.
- How was Russian Machines' long-term strategy affected by the economic recession and the sanctions against our country?
- I work with the main shareholder who is a strong visionary. He is my partner. As a rule, he thinks far into the future. This is exactly the kind of shareholder the automotive industry needs for continued growth. Any forward-looking strategy must take business cycles into account, with all their ups and downs, so that investments in the development of new products are made 2-3 year before the start of production. When we were investing in the development of new products in 2010 everybody was asking why we put money in the declining market. But then every year we were better than the market. For instance, if the market dropped by 20% our sales lost only 15%. Look at our revenue and you’ll see that it demonstrated stability even in recent years, today it is about 150 bn rub.
- Are you talking about the annual revenue of GAZ Group or Russian Machines?
- It’s about GAZ Group. If you add Russian Machines it’ll be over 170 bn rub. And I’d like to point out once again that the investments allowed us to upgrade and expand the model range and to increase the level of localization. Now we have our own engines, transmissions and suspension systems. Besides, we are using local metal. For us it was a key element. Now we are building a supply chain. We are working together with all the major component manufacturers we have invited to Russia. We have established 13 JVs with those companies and thus were able to achieve a higher localization level and survive in the challenging economic environment.
- Do you mean to say that you did not change the strategy you had before the crisis hit?
- That’s the strategy we started with. You know, in Russia people quite often do not think in long term. I am convinced that it is necessary to think about the future. This is our main asset we use in our strategy for GAZ and Russian Machines. I see myself as a coach in the Russian team I am working with. In general terms, business is like a football match. The best coaches do not play on the field but put the right players in the right places based on their capabilities and strengths. And this team must work as a single unit. This kind of work requires a lot of self-discipline, so that the management is not done remotely from, let’s say, a helicopter, or basing on papers and documents alone. You must be right at the production site. You must go through everything yourself, check and look.
Did not buy Opel
- PSA Group is going to buy Opel from General Motors. The deal is expected to be closed by the end of 2017. It must look familiar to you as in 2009 Magna and Sberbank, with the help of GAZ Group, set up a consortium to buy a 55% stake in Opel. But in the last moment General Motors backed out and the deal fell through. What was your reaction? What were the first words you said?
- I’m afraid those words can’t appear in print (smiles). We had a deal, it was agreed and signed off. But then [Barak] Obama came to power and arranged additional financing for the automotive industry. So General Motors looked at that and decided that it made no sense to sell the asset. You have to make concessions in business and think about what the future can bring. Entrepreneurs who always think and talk about the past as a rule get bankrupt and go out of business. The shift in the General Motors’ position was a bitter piece of news especially since the preparation had taken a whole year and we had to travel extensively throughout the world. But the decision was made. If General Motors now decides to sell the company [Opel] they will have to come to terms with the consequences. I mean the employees. It is quite difficult to transact deals when you have a huge mass of people who can’t influence the process. We, managers, can relocate, we can find new places, but people who work on the shop floor have no chance.
- Which of the two companies, in your opinion, will lose or win as a result of this deal?
- I think PSA Group has decided to expand its model range. The level and the quality of production in Germany are still among the highest globally. In my opinion, this deal will be good for both companies. But it will be much worse if they hit a stalemate.
- Did General Motors pay a compensation for the failed deal with you?
- I can’t disclose this information. That was a business decision. Certain costs were incurred and it was only fair that General Motors covered some of the costs relating to the deal.
Volga for technicians
- In 2006 GAZ Group bought a fully integrated car production line from Chrysler together with the right to produce a GAZ derivative based on the American model. The production of Volga Siber (a Russian incarnation of Chrysler Sebring) started in 2008 and was discontinued in 2010 due to low demand. What went wrong with that project?
- It was good to introduce new technologies and implement that project after the old Volga was phased out. But it so happened that at that time the new product was not what the market needed. The car was too big and fuel-hungry while the trend was quite the opposite. Nevertheless, that project laid the foundation of our future success in contract manufacturing. There are good and bad days in the life of every manager. For me the worst days are those when I have to lay off staff.
It is also bad when you have to discontinue a brand which has a positive image. The time when I stopped the production of Volga cars was very difficult for a lot of plant employees as Volga was seen as an inseparable element of the GAZ range. However, the contract manufacturing projects helped us to bring in necessary technologies. Now our people are making Skoda and Volkswagen cars (earlier, we were also making cars for General Motors) as well as Mercedes-Benz Sprinter Classic light commercial vehicle. These projects essentially became a sort of on-the-job training for us. There was time when we were making the Sprinter next to GAZ’s existing assembly line. That was extremely useful in terms of logistics and general understanding of how the process should work. For the automotive industry quality is key, it is not up for discussion.
- Whose idea was it to launch contract manufacturing of foreign cars?
- Before contract manufacturing there was a Siber project, and it was Deripaska’s idea. For my part, I made sure that Magna operating principles were implemented and also brought my team to the plant. It was a great challenge. And it was Siber that later became the basis for the creation of contract manufacturing at GAZ. We took on a lot of commitments and the whole project would not fly without the main shareholder.
- Does GAZ still own the Volga brand? Do you by any means plan use this brand again?
- Yes. And I think we’ll come back to that.
- In people’s mind Volga is associated with serious and reliable production. Volga means participation in the transportation of passengers and gods. You know that it was prestigious among middle-level managers to have a Volga.
What we miss in the passenger transportation segment is a medium-size car, I call it “transporter”, which would be smaller than GAZelle. Something like Volkswagen Caddy, for instance. That’s the kind of car Russia does not have now. I think that the Volga brand would be a perfect fit for a car for carpenters, technicians and others. I would not lose positions in this segment. If we make such a car it will have all the characteristics our products are appreciated for- competitive price, high quality and reliability.
- Will you use your own platform or somebody else’s?
- That’s what we are working on now
- When will you have this car? Will it be in three to five years or maybe already this year?
- Not this year. Let’s say - in the mid-term.
- Are you going to resume the production of passenger cars?
- No. Competition in that segment is extremely high. It is much better to focus on delivering customized solutions intended for specific customers. Take our GAZelle, for instance. Passenger cars tend to be associated increasingly more closely with brands. The car itself is still seen as an indication of the owner’s status. For example, in Germany if you buy a Mercedes-Benz by doing so you distinguish yourself from those who buy a Toyota. People who buy LCVs are different. What they are looking for is performance, carrying capacity, fuel efficiency, cost of ownership, availability of satellite-based fleet management solutions and systems which tell you how much fuel the vehicle needs to do the job.
- In 2015 GM pulled out of Russia. The contract manufacturing project with GAZ was also stopped. Did you find a replacement for GM?
- I can’t use the same assembly line to make first a Hyundai, for example, and then a General Motors. This means that the investments are closely linked to a specific product. If you want to have a good contract you must make sure that you don’t lose on these investments. Volume is a single most important measure of how efficient the investments are. Missing the volume target means that you’ll have to compensate the difference. In that case you’ll lose profit you could have earned. We did not lose a single kopek on those investments. All of them were efficient. As for the production capacities which freed up after General Motors left, back then we had a critical situation. Sanctions were imposed, nobody knew what decisions will be made and nobody had the courage to say “We are ready to come to Nizhny and use these capacities”. It has turned into a sort of barrier which is still there. But I’m sure that sooner or later we will have another, alternative customer.
- Did they pay a compensation? If yes, then how much?
- I can’t disclose the amount but we neither gained nor lost.
- You’ve said it is not easy to find new partners willing to use the capacities which have been vacant since General Motors left. Maybe the remaining partners want to have new models produced?
- As a rule, one project is about the production of two car models. So it will be logical to talk about bringing in a new generation. If the customer is happy and you deliver on time then a project of this kind is easy to carry out. But the worst mistake a contract manufacturing company can make is to voice its plans regarding the production of new models. I think in April, when we report our results, I will ask our potential partners whether we can disclose this information. At this point in time I’m not ready [to do so].
- Can you tell me who these potential partners are?
- No (laughs).
- We need news.
- The best news is that GAZ is a company which is accepted throughout the world. It is widely known and its products are in demand. When I came to Russia the question was not “Will GAZ die?” but rather “When will GAZ die?” Now we have a company which actively provides employment to people and young specialists in particular. It’s a company which earns profit, produces products appreciated by customers, grows and strengthens its position in the market. Some owners sell their companies, some cut output, some take on more debt while some work and deliver. This is a very good story.
Focus on export
- How are you going to raise export sales?
- If you are a market leader with a market share of more than 70% then you have a situation when any further growth is possible through export only. We have a product which was accepted by foreign markets and we are ready to actively promote export. That’s what we are already doing not only in the automotive segment but also in our railway business. We sell our railcars to Iran and Cuba. Export sales will be a top priority for our team, market experts and other specialists.
- Was an active export push an integral part of Russian Machines or GAZ Group strategy from the very beginning?
- No, first I thought that we would concentrate on the domestic market. Now this goal has been achieved and we are the best in our class. Five or seven years ago you could often see a broken GAZelle at the side of a road with the driver trying to fix it. Now, as I’ve said, we provide a 150,000km warranty. We delivered on our promises. We have developed CNG solutions so that our vehicles represent an attractive alternative in terms of fuel efficiency. Now export is high on our agenda. We had an attractive stand at the commercial vehicle show in Hannover two months ago. The reaction was good. Even your president saw headlines in western media which said “Russians are coming”.
- How much do you want different Russian Machines businesses to export?
- Each business has its own target. Today export accounts for 16% of GAZ Group’s sales and we want to increase this number till 50% over the next 5 years. The plan for RM-Terex is to export 17% of the construction machines it produces by 2020. RM Rail, our railway business, also sets itself an ambitious goal to raise export to 25% of its total sales over the next few years. However, export is an expensive thing. That is why we use a combined approach.
- In order to promote export the government provides partial reimbursement of the logistics and certification costs as well as the costs of adapting vehicles and components to foreign markets. Is it possible to do without this sort of support?
- This support is especially necessary in the very beginning, 2-3 years before you actually start exporting your products. The whole process starts with R&D as there are many factors which must be taken into account with regard to safety and operating requirements in foreign countries. Transportation costs and availability of a service network are also important.
- Russian Machines has an aviation plant in Samara. What is Aviacor going to do during the coming years?
- I do not take part in managing businesses which are in any way connected with the production of military equipment. But I can tell you this: the production system we have established there [in Aviacor] is second to none. The employees understand all the processes and quality standards.
- Besides, RM has a railcar making business. Are you going to add capacities there?
- We have enough capacities to produce up to 10 thousand or more railcars a year. However, looking 3 or 4 year ahead it is not inconceivable that the market may return to surplus which may lead to a new crisis and a dramatic decline in capacity utilization. That is why, I believe, it makes sense to speak about balancing the market, focusing on innovative technologies, boosting export sales and looking for new diversification opportunities.
RM Rail started developing a range of specialty railcars intended for petrochemical products. We did not have to invest a lot in our standard products.
The majority of the railcars RM Rail makes are one-of-a-kind in Russia. Some of them, like the tank car for coal tar asphalt, are truly unique while others feature ingenious design solutions resulting in advanced performance characteristics like the capability to carry more weight and a broader variety of different goods. Customers find it interesting to invest in this type of rolling stock.
We specialize in our segment and that is how we secured a market share. We have started exporting these products. We managed survived. I hope our customers will be renovating their aging fleets and stop using 20-25-year old railcars. That is why I think we have opportunities in [this] market.
200 days in Russia
- You are a board member of a number of foreign companies. In which country do you spend most of your time?
- In Russia.
- Do you have a home and the family here?
- No. Here I work and spend at least 200 days a year. My family lives in Austria.
- How long are you going to remain an RM shareholder and participate in the management of the company?
- The worst thing is when you announce how long you are going to stay and then everybody starts counting down the time before your departure. I feel comfortable now. I think that the seeds we have sawn now bear fruit. I was in GAZ yesterday. People there have a lot of ideas how to modernize the business.
Vedomosti, 27 March 2017