Moscow car manufacturer Moskvich (AZLK), which makes Svyatogor and Yury Dolgoruky hatchbacks and Knyaz Vladimir sedans, is among Russia’s most troubled automotive companies.
It is struggling with the Moscow division of UES, the nation’s power utility grid, which has several times threatened to cut electricity supplies unless it pays off its huge outstanding debts. The state has a 59 percent share in Moskvich and is considering transferring it to the Moscow government in a bid to improve the efficiency of the plant’s management. In the first eight months of 2000, the plant made 4,295 cars, compared with 21,048 during the same period of last year.
Ruben Asatrian, a graduate of the Moscow Automotive and Road Institute, worked at AZLK for 12 years before getting a position with the Soviet Union’s Ministry for the Automotive Industry. After the collapse of the Soviet Union, Asatrian worked for the Armenian Ministry of Industry. He rejoined AZLK in 1994 and was appointed director three years later. He spoke to The Russia Journal about the automaker’s place in the market today.
The Russia Journal: What is the current situation in the plant?
Ruben Asatrian: The plant is manufacturing cars that were developed after its relaunch [in 1997]. In 1995 and 1996, the plant stood idle and the so-called Temporary Extraordinary Commission [on budget discipline] initiated bankruptcy proceedings against the company. But the Moscow government interceded and the bankruptcy proceedings were suspended. The plant was relaunched.
RJ: What impact did the idle time have on the company?
RA: One and a half years of standstill seriously damaged us. New debts accumulated during this period added to the company’s existing ones. A plant that is standing idle is not exempt from taxes on property and real estate. You also have to heat and illuminate it, and the consumption of energy is about 50 percent of that when in operation. Although we’ve been able to pay off a substantial part of our outstanding debt, it is hurting us and we have to take resources from our working capital to pay it off. That makes us reduce output. Similarly, the current monetary policy makes taking loans to increase the working capital unreasonable because the interest rate is too high for the machinery industry. While this interest rate might be acceptable in trade, where turnover is fast, in the machinery industry turnover is slower and so companies take much longer to complete all their payments. Thus, interest accumulates and they often end up paying a sum that far exceeds the principle, a ridiculously high amount.
RJ: What was the plant’s strategy after its relaunch?
RA: At that time, it was clear that manufacture of the same car [the Moskvich 2141], which had been produced for 12 years, no longer made sense. Therefore, we had to begin developing a new product line, which is mass-produced today. Some say that difficult conditions make for unconventional decisions. We were able to find new technical, engineering and organizational approaches that helped us to launch a new product line. Previously, each model was normally mass-produced for 15 years [after which it was replaced with a new one]. Now, we’re making Svyatogor, Dolgoruky, Knyaz Vladimir, Kalita and pickups at the same time.
RJ: What are the most acute problems that Moskvich and the Russian automotive industry in general are facing?
RA: First of all, there has been no considered program of transition from one economic system to another over the past 10 years. A market economy is not characterized by stores flooded with foreign-made cigarettes. Fortunately, Russia had, still has and, I am sure, will have a machinery industry. But the transition of the industry to the market economy since 1991 has not been based on a national program. The government has not taken part in the process and the companies were left to themselves. We made all possible mistakes.
The most annoying thing is that we still don’t have a consistent state program [to restructure the machinery industry]. The program developed under the supervision of [Deputy Minister of Science, Industry and Technology Sergei] Mitin is totally unrealistic. It has already become a heap of paper gathering dust.
RJ: What should such a program be like? What are the main areas in which changes are needed?
RA: The existing legislation is more suitable for a socialist-type economy because a plant is stripped of almost all resources it could use to develop new vehicles. But during socialist times, resources were allocated from time to time to automotive plants to finance the development of new products. Now, similar decisions cannot be made.
Customs regulations constitute another problem. We have to pay tariffs on all parts we import. During Soviet times, when the [automotive] market was protected from foreign cars, consumers were happy to buy any car regardless of its drawbacks. In the last 10 years, a lot has changed in the mentality of car owners. Now, consumers want powerful engines because they are safer. Many, especially women, want to have a hydraulic booster. Many want to have an air conditioner. But none of those are made in Russia. It’s impossible to comprehend why you have to pay customs duties on these items when purchasing them from European firms. On the one hand, the state says it supports fair competition, but, on the other hand, domestic manufacturers of the final product (not only cars) are put in a disadvantaged position.
RJ: What is peculiar about Russia’s automotive industry?
RA: We can make [the advanced space system] Buran or sophisticated defense equipment. But we will never be able to produce a modern car without close cooperation with foreign suppliers of components. Nowadays, the car has become a very sophisticated product that incorporates the achievements of not only the metals, engineering and petrochemical industries, as it was before 1991, but also modern electronics and navigation equipment.
RJ: What else hampers development of the domestic automotive industry?
RA: Energy consumption is an acute issue. Huge production facilities in the automotive industry were built during Soviet times using calculations that virtually ignored energy costs because the figures were insignificant. As a result, energy-consumption at most manufacturing plants is not in line with modern energy-saving requirements.
Another problem is natural monopolies. Because of a lack of competition in their products and services, we have to put up with whatever prices they charge.
Imports of used cars should also be mentioned. This year’s figures are not yet in, but in previous years between 500,000 and 700,000 used cars were imported to Russia annually. Of course, those involved in the used-car import business are interested in having the import duty on used cars as low as possible. But is it in Russia’s best interest?
I know that it is very difficult to sell a foreign-made car in South Korea or in Japan – practically impossible, although in theory such a possibility exists. Or take Syria, for instance, where the import duty on cars is 300 percent of their cost.
RJ: Does the Russian automotive industry have any chance for survival at all?
RA: Russia is destined to have an automotive industry. First of all, the territory is enormous and the population is enormous. If we rely only on foreign vehicles to satisfy the needs of the population and the economy [and purchase them with money from oil and natural-gas sales], I am sure that our oil and gas reserves will be sufficient for two or three years at the very most.
Second, Russia has raw materials that the automotive industry consumes; unlike other nations, it doesn’t have to import them. So there should be an automotive industry in Russia and, I would say, Russia is exactly the right place for an automotive industry [given its closeness to consumers and suppliers]. If domestic automotive companies received necessary support [from the government], they would soon enter the world market and become suppliers [of vehicles] to the European market in cooperation with European suppliers of parts.