Russian Machines is a major Russian diversified holding company within the automotive OEM and component industry through GAZ Group, Russia’s largest automotive holding. GAZ Group is by far the largest company under Russian Machines, accounting for approximately 80% of its revenue.
Manfred Eibeck has been Chief Executive of Russian Machines since October 2012, after serving as Executive Vice President of Magna Europe and President of Magna Russia. Automotive World spoke to Eibeck at the Russian Machines head office in Moscow to discuss the issues facing the Russian automotive industry today and GAZ Group’s growth strategy moving forward.
How did the financial crisis affect GAZ Group in Russia?
For GAZ, in the 2008 and 2009 crisis years it was extremely difficult.
At the time it was not a pull operation, it was a push operation. We produced and put cars out in the market, but no one bought them and working capital management was not adequate for requirements. That had to be changed first, and the company had to be turned around. If you look at what has happened in the last five years, we have invested the equivalent of roughly $1bn.
Does the Russian automotive market have potential to reach – and exceed – German vehicle production levels, as it was once expected?
There are several studies that expect we are falling down to 1.9 million cars this year after nearly 2.5 million last year. At the end of June, AEB will make a new full year forecast, so let’s see what they will say, but from our point of view, we have a forecast, and we look at our production volume – because we export some of our products – so Russian production will probably be at least 10% lower than what we had last year.
It always depends on what stock you have from last year, and at the end of last year it was difficult for everyone. Some OEMs pushed the vehicles out, but we stopped selling for some time in December because we did not want the market to gamble with our cars.
How significant were jobs cuts during the crisis, and are you back to where you were before?
At Russian Machines we have 57,000 employees. We had a headcount reduction last year – which was very significant – to adjust to the downsizing we are going through now. We have a lot of clerical work in the background and these types of jobs we are cutting.
However, we created 5,000 new jobs through contract manufacturing, and what we are doing is concentrating on the direct workforce, on training, on education, and on the development of people. For the contract manufacturing business and for the new projects we are running, we need to have people who are ready to learn and who are ready to change. It was always a manufacturing country, and if we continue to do this, it can stabilise easily.
How integral is contract manufacturing to your business?
We contract manufacture three models for Volkswagen, and I believe we are the largest programme Volkswagen has ever made with a contract manufacturer. However, this is not the end because our partners are satisfied with what we are doing, and others can be satisfied as well.
Before you go and invest in a new plant now, especially now in Russia, you need to think twice. In our case, you can use our existing capacities, and can localise or start producing without investing €600m into a new plant.
Contract manufacturing is only producing something that is duplicated; we localise something which is already available somewhere else. The Mercedes Sprinter is in its third life. It was born in Germany, then had to go to Argentina, and is now manufactured by us in Russia. We do everything from scratch, we weld everything, we assemble everything and we paint everything.
What is important overall for us is that we have the trust of these companies and they believe in our capabilities. They are choosing to work with us, and together we are creating a plan for the Russian business.
With GAZ’s automotive components business, you are effectively your own Tier 1 supplier. Would it make sense to then expand your capabilities and make more components for yourself?
You need to understand what you want, what you define as your core business, and what you should make or buy. We decided part of our core component business is casting and stamping, for example.
With exhausts, we made a joint venture (JV) with Bosal. This was not a core business, but we needed to find a solution for exhaust supply. We make steel wheels, and we believe that there’s probably potential for another JV here. We have the facilities and we have the business, and there is a need for steel wheels. So, why not use this, together with the international company, to make a steel wheel business?
Of your 57,000 employees, only 11 are from outside of Russia. What does that say for the education system and the pull through of Russian people into the automotive industry?
We are very attractive for Russian talent as we are a Russian company. In a Russian company, a Russian national can go to the top. There should be always a Russian replacement for an international person, that’s how we are also planning it, and that makes us attractive.