Mission Statement
U.S. Automotive Parts and Components
Business Development Mission to Russia
April 6-12, 2003

I. Description of the Mission

The U.S. Department of Commerce is organizing an Automotive Parts and Components Business Development Mission to Russia on April 6 - 12, 2003. This mission is designed to provide U.S. original equipment parts manufacturers an excellent opportunity to personally explore and assess trade and investment opportunities in Russia's rapidly expanding auto assembly market.

Mission participants will benefit from expert briefings on what it takes to succeed in the Russian market as well as from discussions on current developments in Russia's emerging auto sector. The mission program will also include opportunities to meet key Russian Government officials and decision-makers, one-on-one meetings with potential business partners and site visits to automotive assembly plants and component manufactures.

In order to provide mission members with high quality service, participation in the U.S. Automotive Parts and Component Business Development Mission to Russia is limited to the first fifteen qualified applicants. Interested U.S. companies are encouraged to apply for participation without delay.


II. Commercial Setting for the Mission

The Russian appetite for personal automobiles is voracious. During Soviet times, average citizens spent years on waiting lists for the 4 or 5 models of car available, most based on 1960s technology. Quality control was minimal, as whatever product rolled off the production line was eagerly snapped up.

Throughout the economic turmoil of the 1990s, as many industries declined precipitously, Russia's giant auto plants remained relatively unaffected. With the advent of high inflation, auto parts even became a valuable barter commodity. As the Russian market opened to imports the few wealthy Russians able to afford imported vehicles opted for new foreign cars. At the same time, imported used cars began to compete with new Russian cars in the rapidly expanding mass market. The financial crisis of 1998 and the significant devaluation of the Russian ruble made imports more expensive and thus provided a stimulus to Russian manufacturers.

In 2001, car ownership in Russia - a country of 145 million consumers - grew to 140 vehicles per 1,000 inhabitants, more than double the 1993 rate of 59 cars per 1,000 people. This compares to around 500 cars for every 1,000 Americans. Sales of cars and trucks in Russia are currently growing at an annual rate of 9.5 percent, a trend that is expected to continue over the next 6 years. Approximately 24.5 million vehicles are on Russian roads today, including 19.5 million cars of which 4.6 million are foreign imports. The replacement rate is expected to be high in the coming years as almost 50 percent of cars in Russia's car park are over 10 years old.

In 2001, Russian customers purchased 1.5 million cars. This figure includes 1 million new Russian-made cars, 100,000 new imported cars and 400,000 used imports. Official dealers reported total sales of 72,500 new foreign cars, a considerable increase over the 42,500 units in 2000. In addition to purchases from official dealers, many Russians import cars individually. Importers forecast continued rapid growth of approximately 40% in 2002. Results for the first three quarters of 2002, show year-on-year growth of 40%. With a record number of used vehicles imported to Russia in 2002, the final tally for total car sales is likely to exceed 1.7 million vehicles. Driving this growth is sustained GDP growth and rising income levels.

Over the last several years the Russian economy has grown at a healthy pace. GDP increased 9 percent in 2000, 5 percent in 2001, and is currently expected to increase in the 3.5 to 4.5 percent range through 2006. Continued economic growth and higher income levels will continue to help Russian citizens satisfy their large pent-up demand for cars. Rising incomes are expected to increase the demand for higher quality vehicles and a higher level of trade-ins, which Russian producers must either meet or sacrifice to foreign imports. The recent appearance of loan financing and leasing arrangements for cars will also increase demand.

The auto industry in Russia is centered near the cities of Togliatti in the Samara region and Nizhni Novgorod. The giant AvtoVaz auto plant, one of Russia's largest industrial enterprises, is located in the city of Togliatti. The plant boasts an annual output of 750,000 Lada and Zhiguli models, approximately three quarters of Russia's car output, and has annual sales of approximately $3 billion. AvtoVaz produces cars in the $3,000 to $6,000 range for the Russian market and exports about 10% of its output to the former Soviet republics.

The GAZ car plant in Nizhni Novgorod produces around 250,000 Volga sedans and Gazelle light trucks. GAZ also has a successful truck division, which it rolled into a 50/50 joint venture with the Italian firm Iveco in late 2002. GAZ was recently purchased by the Base Element industrial group and has a new management team, which is actively seeking ways to enhance the value of its assets.

Russia's improving commercial and investment climates, coupled with growing market demand, are at the root of the decisions made by Ford and General Motors to open car assembly plants in Russia. In July 2002 the first Western-designed Ford Focus - assembled in Russia with 95 percent Western components - rolled off the production line at Ford's $150 million plant near St. Petersburg. The plant's initial capacity is 20,000 units per year, and can be expanded to 100,000 units per year. The Russian-produced Ford Focus with a sticker price of $10,500, is significantly less expensive than the price of Focus imports. Consequently Ford is working with local components manufacturers to develop their capabilities as suppliers, and is encouraging Western manufacturers to consider establishing facilities in Russia. In fall of 2002, the International Finance Corporation, with a grant from the U.S. Trade Development Agency, hired consultants to work with Ford to develop the supply chain in Russia.

GM's $335 million plant in Togliatti, a joint venture with Russian auto giant Avtovaz and the EBRD, is the largest U.S. investment in Russia outside of the energy sector. In September 2002 GM-Avtovaz began producing an inexpensive SUV, under the Chevrolet-Niva brand, which is based on a platform designed by Avtovaz. The JV will manufacture 75,000 vehicles for the Russian market and export, through AvtoVaz's dealerships in the former Soviet Union and GM's distribution network.

Both GM and AvtoVaz have an interest in working with suppliers in the Samara region which has two major industrial centers - the City of Samara and Togliatti - that constitute the center of the Russian automotive industry with around 200 automotive component manufacturers of varying sizes interested in improving the quality of their products and upgrading their technology.

There are also a number of smaller international automotive ventures in Russia. In the Russian 'exclave' of Kaliningrad, the Autotor joint venture with Kia and BMW will assemble around 5,500 cars in 2002. In Taganrog, DonInvest is assembling the Hyundai Accent. Scania plans to build a second plant to assemble buses in the St. Petersburg region with a capacity of 200 buses per year, for which it already has taken 370 orders. In 2002, Renault restarted trial assembly of the Clio Symbol model in Russia, after a break of two years.

Goodyear has a tire production facility in Yaroslavl and is planning to expand production. In 2002 Continental signed an agreement to manufacture tires in Moscow, and Michelin is building a tire plant in the Moscow region with the help of a $20 million investment from the EBRD. The EBRD has also announced that it is targeting the Russian automotive sector for significant future investment.

Bosch, with its Russian JV partner, supplies 82 percent of the Russian ignition plug market from its 30 million-unit capacity plant in Saratov. Lear manufactures car seats in a facility within GAZ's plant in Nizhni Novgorod. Outside of that town, Ingersoll Rand makes power tools and steering columns, for which it recently won an order from Mercedes. Delphi produces wiring harnesses in its plant in Samara.

Given the current dynamics in this automotive sector, the U.S. Commercial Service strongly believes that significant opportunities for growth and expansion exist in Russia for U.S. manufacturers of automotive parts and components. The arrival of two U.S. auto manufactures in the market, prospects of increased European investment and efforts to improve the quality of domestic vehicles have set the stage and opened significant opportunities for western automotive parts and component producers.

Industry experts have indicated that there are especially good prospects for manufacturers of engines, electric and electronic components, trim, exhaust systems, plastic parts and instrumentation. In addition there are increasing opportunities for export of air conditioners, ABSs, airbags, power steering and automatic transmissions, which are currently not manufactured in Russia.

III. Mission Goals

The goal of the U.S. Automotive Parts and Component Business Development Mission to Russia is to provide U.S. original equipment parts manufacturers a timely, efficient and cost effective, opportunity to explore current business prospects in Russia by:

IV. Mission Scenario

The Mission program will begin in Moscow and will include site visits and consultations in Samara /Togliatti. In addition to market briefings by industry experts, mission members will have an opportunity to meet key Russian Government officials responsible for formulating and implementing the government's automotive industry policies and plans and potential business partners matching individual participant's market interests.

V. Mission Timetable

April 6 Arrive Moscow
Evening: welcome event.
April 7 Briefings/Presentations/Meetings with key Russian and American automotive industry executives, consultants and officials, followed by an evening VIP Reception.
April 8 Presentations by major Russian automotive companies, followed by one-on-one meetings
and an evening cultural event.
April 9 One-on-one meetings in Moscow and departure for Samara/Togliatti.
April 10 Meetings with auto industry representatives and regional government officials and plant visits in Samara, followed by an evening networking event.
April 11 Meetings with auto industry representatives and regional government officials and plant visits in Togliatti, followed by return to Moscow
April 12 Depart Moscow.

Applications for mission participation must be submitted to the U.S. Commercial Service in Moscow by February 14, 2003. Applications received after that date will be considered only if space and scheduling constraints permit.

VI. Criteria for Participation and Selection

A maximum of 15 U.S. companies, involved in original equipment automotive parts and component manufacturing will be selected.

The criteria for participation are as follows:

Participating companies' products/services must be manufactured or produced in the United States, or if manufactured/produced outside of the United States, the product/service must be marketed under the name of a U.S. firm and have U.S. content representing at least 51 percent of the value of the finished good or service.

Any partisan political activities of an applicant, including political contributions, will be entirely irrelevant to the selection process.

Interested companies must submit a completed Mission Application, a signed Participation Agreement and Certifications, and Participation Fee of $ 3,900 by February 14, 2003. Travel to Russia and lodging expenses in Moscow are not included in the cost of participation. Travel to and from Samara/Togliatti and accommodations associated with this leg are included in the participation fee.

Recruitment of mission members will be conducted by the U.S. Commercial Service in Russia in an open and public manner utilizing U.S. Department of Commerce resources, Commercial Service Export Assistance Centers, industry teams and associations. Promotion will include publication of the event in the Federal Register, direct mailing, e-mailing, broadcast fax, posting on the Commerce Department trade missions calendar (www.ita.doc.gov/doctm/tmcal.html) and other Internet websites, and promotion through a network of associations.

VII. Contact Information

Additional information on the trade mission, and registration materials are available from Geoffrey Cleasby or Marina Vigdorchik, U.S. Commercial Service Russia at 7-095-737-5023/13 or from the website www.buyusa.gov/russia/en.

U.S. Commercial Service - Embassy Moscow
Tel. 7-095-737-5030, Fax: 7-095-737-5033
E-mail: Geoffrey.Cleasby@mail.doc.gov
Marina.Vigdorchik@mail.doc.gov

http://www.buyusa.gov/russia/en/

U.S. Contact: Phyllis Bradley
Department of Commerce
14th & Constitution Ave., NW, Room 1235
Washington, DC 20230
Tel: 202-482-2085
Fax: 202-482-2456
Email: Phyllis.Bradley@mail.doc.gov