Hundreds of thousands of Russian car workers finally went back to work this week after automakers sent them home for extended New Year's holidays in an attempt to stave off the crisis and destock unsold cars.
Although new measures have been introduced to revive the sector since the financial crisis hit last autumn, the problems Russian manufacturers face are deeper than just a credit crunch or falling off in sales.
Like the incoming U.S. administration of President Barack Obama, Russia's government is considering a bailout package for the auto industry, particularly GAZ, which owes an estimated $1.5 billion debt and is owned by debt-burdened metals magnate Oleg Deripaska.
"GAZ with its huge debt is in the most difficult situation," said Yelena Sakhnova, a transport analyst at VTB. "They have no doubt that the help will come because they are the leader in several sectors."
The entire sector has been hit hard by the crisis, with workers at AvtoVAZ, Russia's largest car manufacturer, only returning to work on Monday after the company suspended production in mid-December. Currently employees are down to a four-day week, with two six-hour shifts. The company hopes to restore full capacity in April.
"There is hope that the situation will change, the market will wake up and by March retail sales will be much higher," Vitaly Vilchik, AvtoVAZ's senior vice president in charge of production, told reporters.
However, analysts are more pessimistic about domestic producers being able to resume production so quickly, warning that this is a short-term measure to avoid redundancies.
"They need to make layoffs because the company is clearly overstaffed," Sakhnova said. "If you look at productivity ... you will see that AvtoVAZ lags far behind its competitors."
So far AvtoVAZ has laid off 400 workers, while other companies such as Volkswagen and Land Rover have made no redundancies.
The economic crisis has caused a sharp decline in demand for cars, as loans have become harder to get, leaving AvtoVAZ with a large stockpile of unsold cars. The government has offered subsidised loans for cars costing less than 350,000 roubles ($9,600) to help revive the market.
Foreign producers have not been immune from the crisis and have also reduced employees' hours and pay, with staff at the General Motors plant near St. Petersburg now working three days a week.
"We've cut it to three days per week for the next few months," GM spokesman Sergei Lepnukhov was quoted by Reuters as saying. "Like all automakers, we are of course feeling the impact of the crisis and the fall in demand."
The problems for Russian producers were evident before the crisis really began to bite this winter, with foreign models eating up more of the Russian models' market share. Before a higher, 30 per cent import duty came into force in January, Russian models only accounted for a quarter of the vehicles sold.
"The government may help the industry through difficult times but this will not change it," said Sakhnova, of VTB. "The industry is outdated, it needs to be restructured and modernise its range of models."
Russian automakers have yet to announce any plans to improve efficiency, in contrast to the United States, where the bailouts are contingent on presenting restructuring plans to the government.
"In the long run nothing will change, though AvtoVAZ will become a manufacturer of Renault cars," Sakhnova said.
Much has been made of the increased import duties, which have caused mass protests in the Far East port of Vladivostok, where the primary industry is the importing of second-hand Japanese cars. Foreign manufacturers have sought to downplay the effect these policies will have on them.
"The new tariffs don't affect our locally-produced cars, so we are in a good situation," said Andrei Gordasevich, a spokesman for Volkswagen.
But he also criticised the higher import duties and warned that consumers would end up footing the bill.
"Such a policy has never been useful. It's an established fact," he said. "The customer is forced to pay more and can't choose. For some this is critical and they can't buy the vehicle they want."
Other companies were more positive about the protectionist measures for domestic producers, arguing it could help to boost production.
"On the one hand we understand the government's measures favouring the Russian car industry," said Svetlana Lisitsina, a spokeswoman for Subaru. "But consumers should have the right to choose which car they prefer."
The higher import duties are likely to cause price rises for companies that do not have production facilities in Russia, but there is no guarantee it will lead to consumers not buying imported cars.
"Under the circumstances we'll just have to raise prices," said Julia Malina, a spokeswoman for Land Rover and Jaguar in Russia. "The efficiency of such measures will be seen within a few months. How many Russians will change their preference in favour of domestic models?"
Another factor has been the depreciation of the rouble, which has made imported cars more expensive in recent months.
"The crisis and the weak rouble have made the situation and the choice even more difficult" for consumers, Lisitsina said.
About 1,800 workers at the giant state-owned AvtoVAZ factory in Togliatti turned out for a demonstration in support of government policies for the industry last week, with banners proclaiming; "We support Putin. We support the car industry."
With over 100,000 people in and around Togliatti working in the automobile industry, this gathering was not as big as it could have been, however. Alexander Lekhtman, an organiser with the Institute for Collective Action, a leftist protest movement, said the government's policies were not protecting workers.
"These measures are of benefit to the employers, not the workers," he said. "It changes nothing, the workers gain the same pittance they used to and the infrastructure remains obsolete. The government just pretends to provide help."
In the long run Russia remains a good potential market for car sales, with still only about a third as many cars per person than Western Europe and the United States.
"In two or three years when the crisis is over, we think that Russia will restore its reputation as one of the fastest growing globally," said Sakhnova.
By protecting domestic producers, the government hopes that they can use the breathing space to improve efficiency and develop new models, but analysts remain sceptical that Russian carmakers can catch up with leading global brands.
"Russian companies continue to put out these outdated models, but demand for them is decreasing," said Sakhnova. "They have lost the opportunity to become really good producers."
In live speech
Moscow car workers blame bosses, bureaucrats for crisis cutbacks
Employees at the Avtoframos factory in Moscow, which makes Renault Logan cars, say they are being forced to accept salary cuts and late payment of wages, and fear that widespread job cuts could be around the corner if the car market doesn't pick up.
Nadezhda Mumladze, a trade union activist:
The warehouses are overflowing. There is nowhere to make cars, and nowhere to store the cars we make. Only the office and sales staff can remain calm at the moment. We are on a so-called holiday and only get two-thirds of our salary. The management should have reduced their own salaries as it won't affect them as much, but of course they didn't.
They are even cutting back on paper hand towels. The bosses say that dismissals are not expected, but people know what is happening at other factories, and are not so optimistic about that. We will hold a meeting against dismissals on 14th February.
Olga Gusheva, a mechanic: The people who have suffered most are from other cities. They have to send money to their families.
Pavel, a mechanic: The night shift workers have still not been paid for December, though it was promised in January. Before the New Year, we received about 10,000 roubles. Just about enough money for a holiday, I guess. The management shifts the blame for payment delays onto computers that need fixing, technical problems and system administrators. The IT department is working on the situation, but they aren't in charge of it.
Yelena Sergeyeva, a mechanic:
Salaries are not being paid and attendance is low in, for example, the accounts, IT and human resources departments. Our trade union is having difficulties with legal support and independent lawyers have no access to the factory. The management acts surprised when we express our indignation about salary cuts.
The bosses say: "Twenty roubles? Is that so much? 20 roubles is a metro ticket, for God's sake!" They promise that we will finally go back to work on the 12th, then on the 14th, and so on. The workers from other cities have been hardest hit, because they have to pay for travel and then don't get a full refund on it when they don't have to come to work.
Yevgeny Sizov, a mechanic: Everything is alright. We aren't working full-time at the moment, so it's just normal that we don't get the whole salary. We receive 75 per cent of it by just sitting at home. Not so terrible at all!
We aren't the only ones suffering from the crisis. Other factories (such as AvtoVAZ, as I heard) just fire people or send them on unpaid holidays.
It doesn't depend on our employers - people just aren't buying cars. They can't help it - it's just the situation. Avtoframos didn't start the crisis. It was started by politicians and bankers. Also it wasn't started immediately; everyone knew where it's leading us. Bureaucrats are OK, though, because it's regular people who are suffering again, as usual. It is similar to the 1998 default. I assume politicians are covering their debts at our expense.
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