As Russia contemplates raising import duties on foreign-made finished vehicles still further, foreign carmakers are continuing to negotiate the high cost with the assembly of vehicles from complete and semi-knockdown kits shipped to the country which are subject to a much lower level of import tax. Mitsubishi, Renault and VW have all made announcements this week about the use of knockdown deliveries.
 
Mitsubishi has begun production of Outlander SUVs from kits at its joint venture plant with PSA Peugeot-Citroën in Kaluga and this month expects to produce 800 vehicles of a planned annual total of 7,500. Mitsubishi spokesperson Tetsuji Inoue told Automotive Logistics News that the vehicles will be assembled from SKD deliveries shipped to Kaluga from Mitsubishi’s Mizushima plant in Japan by NYK.
Once assembled the finished vehicles will be distributed by Rolf SCS to dealers in the Russian market.
 
The Kaluga plant was officially launched in April this year and production kicked off with the Peugeot 308, followed by the Citroen C4. The plant also produces the Peugeot 4007 and Citroën C-Crosser.
 
Production is expected to hit 25,000 vehicles this year, which will rise to 160,000 vehicles when it is fully operational around March 2012.
 
Elsewhere, from next month Renault will begin assembly of its Mégane and Fluence models at the Avtoframos plant southeast of Moscow (a joint venture with the Government of Moscow), also from SKD kits, shipped from Renault’s Bursa plant in Turkey by logistics provider Geodis. (It also announced last month that it will be launching the Duster, the new automatic Logan, Sandero and Sandero Stepway models from complete knockdown kits, or CKDs, from 2011.)
 
Currently the Mégane and Fluence models for the Russian market are assembled at Bursa and carried as finished vehicles but they will now join the Logan and Sandero at Avtoframos which are currently built from scratch.
 
The number of Mégane and Fluence models assembled at Avtoframos will be small to start with. “From October 10 to January 11, only a few cars will be assembled,” a Renault spokesperson said, with production in earnest beginning after that date.
 
The majority of foreign producers in the country use SKD component assembly. With Logan and Sandero production Avtoframos is one of only three companies building vehicles with significant domestic content. Volkswagen has done so in Kaluga, though this week it has moved to full CKD assembly there, but it is in talks this month with GAZ for SKD imports (see below). Meanwhile, Hyundai will start SKD imports next year to its plant in St Petersburg.
 
Renault Nissan is pursuing a strong localisation plan in Russia but domestic content will not be increased until component producers can meet the requisite quality demanded. Likewise, the standard of the logistics supporting this sourcing is still something the company is working to raise, meaning SKD imports are likely to be a feature for some time to come.
 
Speaking earlier this year at the Automotive Logistics Russia conference in St Petersburg, Jean-Philippe Jouandin, supply chain director, Renault Russia –Avtoframos, said the role of logistics in Russia is to support localisation by affording quick and cost efficient transport solutions for locally-sourced parts. But he said, “We have to ensure the transport conditions that are the standard of the Renault Nissan supply chain in the movement of these parts and supply them in the condition specified. It is not very easy and today it is not a standard in Russia.”
 
Local sourcing is important once the difference in costs are compared with imports. Based on Renault figures presented by Jouandin, in volumes today 50% of the parts are imported and 50% are localised. However, 74% of the cost is due to importation and 26% of the cost is due to localised sourcing.
 
Renault Nissan implemented a single organisation for logistics at the end of last year, merging teams from both companies to accelerate synergies in Europe. The scope of this merger is extended and Europe covers everything from Morocco to Vladivostok and thus includes Russia.
 
Meanwhile, Volkswagen’s talks with Russia’s GAZ Group this month involve the set up of contract assembly of its vehicles at GAZ’s plant in the country from imported SKDs.
 
The announcement follows a meeting between VW’s chairman of the board of management Martin Winterkorn and Russian prime minister Vladimir Putin on 2 September.
 
The talks are expected to be complete by the end of September and until then details of the contract remained undisclosed. According to The Moscow Times assembly of the VW models could take place in the factory space used to produce the Volga Siber at GAZ’s plant in Nizhney Novgorod.
 
VW was planning to make use of GAZ capacity in the medium term until construction of a second line at the company's main plant in Kaluga is complete.
 
The Kaluga plant officially began full production with the VW Tiguan and Škoda Octavia in October last year, having started operations in 2007 with SKD assembly. In the second development stage, it will be expanded to include a body shop, paint shop and final assembly for up to 150,000 vehicles a year. This means a significant change in the demands made on the plant with assembly sets supplied as individual parts and modules, and delivered straight to the assembly lines.
 
As part of an agreement with Russia's economic ministry, September 3rd was the last day the company was permitted to supply SKD kits to its Kaluga facility. Full cycle production from CKD kits will now take place with a second shift added in October.
 
Volkswagen’s investment in the Kaluga plant is €570m ($776m) and a customs post was opened there last summer, making rail transport logistics easier.
 
Volkswagen is targeting Russian sales of 360,000 vehicles by 2018.