A downturn in new auto sales in Russia this year has not deterred Zheijing Geely Holding. The Chinese car maker has entered an assembly venture in Belarus with the ultimate goal to get closer to the volatile, but promising Russian auto market.
Under an agreement finalised during the visit by Alexander Lukashenko, the president of Belarus, to Beijing last week, Geely will team up with two Belarusian companies to build up to 120,000 vehicles a year.
Assembly lines controlled by the ‘Belgee’ joint venture will soak up about $245m of investment and roll out hatchbacks, sports utility vehicles, crossovers and passenger sedans.
Wedged between Russia and the European Union and a member of the Moscow-led Customs Union, Belarus “represents an important step” in Geely’s international expansion drive that has recently taken China’s biggest car exporter to Egypt and Uruguay.
But it is not the Belarusian market that Geely is really after. Belgee’s “production capacity will subsequently be expanded to allow it to supply Russia, Ukraine and the wider CIS market,” Geely said in a statement on Monday.
Auto sales in Russia made a phoenix-like recovery from a slump in the global financial crisis to reach a record 2.93m vehicles in 2012, but the market has contracted this year as slowing economic growth puts the brake on runaway consumer spending.
While sales of new cars in Russia dipped by 6 per cent year on year in the first half of 2012, Geely has been bucking the trend. The Chinese auto maker sold 11,700 vehicles in Russia in the first half of this year, 87 per cent more than in the same period of 2012, according to the Association of European Businesses.
Many of the world’s top car makers, including Ford, Renault-Nissan, Toyota and Volkswagen, have established local assembly ventures in Russia to get closer to the market, that although volatile, is expected to expand further in the years ahead.
In a recent report the Boston Consulting Group forecast that Russia would overtake Germany to become Europe’s biggest car market and the fifth biggest globally by 2020. However, BCG warned that rocketing energy and labor costs were eating into Russian auto makers’ margins and undermining the competitiveness of the industry.
Geely is trying to get the best of both worlds. Its Belgee assembly venture will be in easy reach of the Russian auto market and benefit from subsidized energy prices and comparatively low wages in Belarus.
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