Despite a recent decline in domestic sales, the long-term future of the Russian car market still looks bright. The new GM plant in St Petersburg illustrates what foreign OEMs moving into the region can expect

John Burton is General Motors’ Executive Director of Greenfield Projects. Having been involved with car manufacturing for 40 years, he has first-hand experience of both the good and the bad when it comes to the business of building cars. In a career that spans such companies as Austin Rover and Nissan before joining GM, his latest assignment has been to oversee the building of the company’s three new greenfield plants, located in India, Mexico and Russia. This latest plant, in Shushary, just outside St Petersburg, came online on November 5, 2008.

“We broke ground in June 2006, so this plant took 18 months (to build). Mexico took 22 months and India was 23 months. My favourite expression is ‘18 months ago, this was a swamp’. There were poisonous snakes out here that we had to carry serum for, there are still swamp adders in the (surrounding) forest. We had to put warning signs all over the place – I couldn’t believe that there were snakes in such an environment.”

In addition to good planning – and avoiding the snakes – completing the project on time took its fair share of good fortune. “We’re six degrees off the Arctic Circle. We were very lucky during the building schedule, the winter was very mild – it only got down to about -6ºC – so we were able to continue building. In winter, -25ºC is quite normal. As we progressed, I was asked ‘are you going to get this built in time?’, to which I kept saying, ‘I have no reason to say no at the moment’.” With a smile, Burton adds, “I had a lot more hair 18 months ago.”

Strong potential of Russian market

Joking aside, Burton highlights the reasons for the decision to build a plant in Russia, and specifically in St Petersburg. “Obviously, like India and China, Russia is a growth market,” he says. “So, as we saw the market develop in Russia, we thought we should put a plant here.

Considering the costs, we can’t continue to build plants in more expensive places and ship the product, so let’s build in the regions we want to sell cars. And there are other positives, such as being able to bypass all the import tariffs.

“It’s important to be seen as part of the country: we’re here, we’re providing jobs, we’re investing money; people get engaged with the product and want to buy it. We saw it in Sunderland, UK (Nissan), we saw it in Gliwice, Poland (GM). When you’re building cars in a country, it generates a good feeling in the local area. So first of all there’s a marketplace. Secondly, we want to be inside the market, building products in it. Then comes the decision regarding where to build the plant. This starts a complex exercise deciding where to locate the facility.”

Local politics played a part in convincing GM to build the Shushary plant, though even with the number of OEMs coming into the area, the local process is still being refined.

“Every country has its challenges. The governor has done a good job in attracting the OEMs here. This place feels like the Detroit of Russia. Going back to the bureaucracy, there are challenges, but that’s the entry ticket. The EU has its rules, America has its rules and Russia has its rules, too. When you’re in Russia, you have to follow the rules that the Russians lay down.

“The one thing that will bring change to the local authorities is the OEMs giving them feedback on how their systems work.

Then its up to Russia to make any changes. Poland was also difficult in the beginning, but the authorities wanted to learn from us, because they knew they’d be going into the EU at some point. So they had to modernise their system, which was an ideal opportunity to work with them and help them with their customs clearance processes, for example. Russia will get to that point at a future date.”

St Petersburg – automotive centre in the making

How did GM decide on St Petersburg as the location for the new plant, was it a flexible exercise or a preset checklist rating various locations?

“There is an absolute, determined site selection checklist that we go through. We examined things like what incentives we’d get from the local authority to come here, how they are going to help with taxes and with all the required permissions to build here. Then, is there an available workforce? Has that workforce got the right skills and ability for us to train them? Then you go into things like logistics. Where do we get all the parts from, how do we get all this into the plant, which is a strong point in regards to St Petersburg and the port. Also, anything that you bring in, you have to truck it to its final destination, which in this location is no great distance, a big advantage.”

Choosing to build the GM plant in St Petersburg was far from the cheap option, nor was it easy to find a company to carry out the plant’s construction.

“We’re in Russia, in the second-most expensive city in the country. There is a building boom in this city. Every construction company is busy. All the OEMs are here. Toyota’s across the road, Ford’s already here, Nissan’s building close by, Suzuki are talking about coming, Hyundai’s coming here, the dealerships are going up.

Where else do you have a concentration like that? The competition is very strong.

“We actually hired a Turkish company to build this plant for us, Enka, and they did a great job. But they were bringing a lot of their own workers in from Turkey because they couldn’t get the skills on the market here. Unemployment here is officially 0.5 per cent, but for our purposes, there’s essentially zero unemployment in St Petersburg. It’s a very energised marketplace.”

Ensuring staff retention

In addition to the difficulties of finding a suitable contractor, staffing the plant has also proven to be a challenge.

“Recruitment and hiring has been a big task, getting the right people,” says Burton. “People don’t seem to have much loyalty. They’ll go where the money is, so you have to get your sweet-spot right. Hiring them is one thing, retaining them is a completely different matter. You want to be the employer of choice, you want to do the right things for the people. The management here has to take a lot of responsibility for this.”

Low unemployment effectively creates a workers’ market, where employees can freely move between companies to take advantage of higher pay and better benefits. With the training investment that GM puts into each hire, Burton is keen to keep those individuals that are brought on to the payroll.

“In regards to training, we have the company induction that teaches (new employees) about General Motors, we teach them about GM Europe, GM Russia, about the plant, their department, then about the global manufacturing system at GM, then about quality, safety, other things, and then we teach them how to do their jobs. So that’s a big up-front investment.

“We looked around here for colleges to support us in training, but decided against it. Instead, we built a 1,000m², purposebuilt onsite training facility where we have a simulated work environment that everybody goes through, from secretaries to engineers, admin staff to plant managers. It’s a day in the life of lean manufacturing. Essentially, it’s a miniature line on which they build small wooden cars.

They use the andon system, we can introduce faults into the system that they have to figure out. There’s also a continuous improvement activity, which demonstrates how long they took to complete a certain task, how much money was lost in a day because you didn’t build your volume, and through that one day, they get a chance to improve their results. It’s very good, very thorough – we put exactly the same thing in Ellesmere Port (UK) to teach them about lean manufacturing.

“You can never determine what particular thing you did made the difference, but it’s like baking a cake; put it all together and hopefully you’ll get a nice dessert.”

Utilising local knowledge

The Shushary plant is not the first Russian facility to produce GM vehicles. “We already had a joint venture with Avtotor; they were building for us on their assembly line. Even before this plant, we already had well over 100,000 locally-built units on the road here in Russia.”

Further to this, once GM had signed the agreement to bring the plant to St Petersburg, Russian tax codes allowed a 30-month interim period within which the company could start local vehicle assembly.

“I’ve been overseeing this project since November 2006,” explains Burton. “We disassembled cars in Korea, containered them over here and, in a small facility in the centre of St Petersburg called the Arsenal, we have been building cars, three jobs an hour in two shifts. It’s been a great training programme to understand the rules and regulations here in Russia. The 30-month window comes to an end in February 2009.”

To start, the Shushary plant will be a standard assembly facility, using body parts produced in South Korea.

“We are importing all our parts from Korea. Of course, that doesn’t make sense, so as we work towards the establishment of the plant, we have a strategic plan to localise our part sourcing. That brings more investment into the country, as well as being an in-country requirement.

“The next level I see is that the suppliers will start following us all in. And that’s a good thing; we’ll get our localised parts, with very little or no set-up costs.”

Localisation will require GM to source parts from local suppliers, a process that can be handled in a variety of ways.

“There is a phased period of localisation, which we have already started. Of course, everybody has a slightly different calculation on how to do it, but we looked at the legislation for the country and localisation runs along the lines of 10, 15, 24 per cent of total parts. Though, if we set up a GM engine plant somewhere (in the region), that will be considered a localised part.”

“When we brought Nissan into the UK, we had to localise 80 per cent of the value of the vehicle within about three years – of course, that meant within the EU, not just the UK. Here, we will first start to localise the higher value parts. Of course, why do we want to bring in a fuel tank from Korea, basically shipping fresh air, taking up container space? Why do we want to pack bumpers and fenders?”

To that end, the first steps towards localisation are already in the pipeline. “There’s a local company which will be painting bumpers for us. We’ll bring the parts in from Korea, send them immediately to the supplier so they can spray paint them, complete a small subassembly and then send them back to us. Eventually, we’ll want them to do injection moulding, just to get the whole bumper done there and then.”

While the localisation of parts might require some flexibility in what is available, and to some extent what is possible, the plant itself is the product of what is becoming a tried and tested template. In fact, between the three latest greenfield sites, there is very little difference.

“In all three of the recent greenfields we’ve set up, the lines, the bodyshops and the general assemblies are all principally the same. A country doesn’t determine how the process should run. It’s the most efficient layout, the most efficient use of resources and equipment that determines how a plant is set up. And as we build these plants, in three different continents, we should almost be able to get a cookie-cutter style. Essentially, you ask how many jobs per hour you want completed, then everything else is driven by that number. Here’s the timeline, here’s the number of people we need, this is the hiring curve – this is what we’re working on, bringing that to the forefront for GM, to be the most efficient we can be.

“Best of all, it saves you money! You don’t have to go in and re-engineer everything, just go in with your team and execute. You almost want this McDonalds look. We need to have that sort of mentality as we build new plants, a GA will look like this, a paintshop will look like this.

The previous collection of greenfields we did – Poland, Shanghai (China), Rayong (Thailand) and Rosario (Argentina) – started this, and with these three, ten years later, we’ve really refined the process. Global teams operate across the three sites, making sure we do the best practice.

We copy and pasted training processes we developed into all three plants, we didn’t even have to think about it.”

Guardian against over-automation

In regards to equipping the plant, Burton says that there has to be a balance between capital investment in automation and the cost-effectiveness of using local labour.

“The thing you have to consider when building these greenfields is that it’s a huge capital outlay. You’re often going into a marketplace where you may not be quite sure how the market’s going to develop. With a relatively lowcost labour environment in a market that’s still developing, you aim to minimise your capital and maximise your labour. So you put a fairly low-tech plant in, with a manual bodyshop, and as the market grows, you expanded with further capital investment. You get the balance of the human capital of building the car, or the capital invested in the equipment, and you do that business case.

“In all three of these greenfields, we’ve looked very carefully at how much capital we would spend, and what level of automation we would need to build the car effectively. Now our paintshop is fully automated, it is identical to what we would have in any of our more traditional plants in higher-cost markets. On the other hand, our bodyshop is entirely manual, we have no robots in there. We have a geometric framing station, which determines the dimensional accuracy of the vehicle, but all the spot welds we put on by hand. There’s no problem with that whatsoever. With a well-trained workforce and a defined standard of operation, people will put the spot welds on sometimes more efficiently than a robot.

“You can get to a point when you can’t expect to do the job manually. But when you’re capital-constrained – and you should always be thinking about the capital – automation doesn’t make any sense. As this plant grows and expands, every time we carry out an expansion decision, we will take a look at what we’re going to do in terms of capital investment or people.”

As GM pushes to bring uniformity between plants, Burton says that, in cases such as St Petersburg, to exclusively equip the plant with global cells would be to over-automate.

“We’ve looked at where we’re going with all the global standards, and as we looked at the development of the plant, and you know the situation with GM as well as I do, quite frankly we’ve been very careful with any capital investment. So what we did, when the Azanbuja, Portugal, plant was closing (former production site of Opel and Vauxhall Combo Vans, moved to Zaragoza), we took some of the equipment out of there. In fact, the whole paintshop was brought over from there.

“We put in a new alkaline phosphate system, then everything was disassembled, containerised, shipped over and we’ve reassembled it here. In total, it took 18 months. It’s a good policy, machine reuse.

The guys we have here are the same guys we had in Azanbuja. We also took CMM machines from the Portugal plant; we made very careful decisions on what we could use, what we could reuse, and where we would buy new.”

Benefiting from economies of scale

The marriage station was another key area where Burton was able to save money. “When we looked at our marriage stations, the traditional suppliers quoted us costs that were just out of the question, so we went out and looked where else we could go. We actually took a supplier, Saisung, based in Hong Kong; we packaged the whole deal across the three greenfield plants, plus some American plants, and now they’re putting in our marriage systems across the company. It’s a good example where globalisation, and leveraging our size, gets us a technically competent supplier able to do the job – at the best prices. Saisung have done a great job for us.”

Burton is also responsible for the line itself, employing engineering teams to pull together the company’s global concepts into an executable, one-size-fits-all plan. “As we organise globally in GM, we’re getting much better at this,” he says. “Instead of the regions trying to do their own thing, we try to standardise around best practices.

For example, the paintshop is being determined by the radius, so the layout of the building was determined by the paintshop itself. However, our general assembly area was determined by our global set-up, taking a T-shape form. What I mean by T-shape is that you have trim lines going in one direction and chassis lines running in another, and our final finish running in another direction. It’s a concept we first used ten years ago in Poland.

“We still believe that the T-shape is good, for several reasons. One, it’s easy to manage. You can stand in the middle and see everything. Secondly, it has easy access for material, so you can deploy your material and store it around the ‘T’ in a very effective manner; shortening lengths of material supply, which with increasing levels of complexity and variations in colour and option, gets more and more difficult.”

In regards to model complexity, how much inventory does the St Petersburg plant carry? “As all our parts are currently coming from Korea, a 42-day journey, our inventory is a little lower than most plants, so we only keep about two days of stock here. Other GM facilities are talking about lowering inventories and shortening lead times as a way to cut costs, with lower inventory around the track.

That’s something we’re also trying to do. It’s a fundamental. It reduces the required storage space and it reduces the amount of parts you’ve got tied up when you perhaps have a quality problem or a design change.”

As for environmental regulations, Burton says that Russia has some surprisingly strict guidelines. “The environmental rules and regulations are stronger here than in Europe,” he says. “The government worked with us to do all the checks on the land, some people had dumped a lot of stuff here and we had to clean that up. When we did the grading and analysis of the soil, under Russian law, this area was considered extremely dangerous. Under German law, with the same measurements, we would have built the plant without even thinking about it.

“This also applies to emissions. This is a so-called ‘sanitary zone’, so you have to take into account the chimney stacks, the exhaust from the cars within the building, all this is combined into a package to understand our total emissions. Don’t ever think that ‘this is Russia, you can do what you want’. There are very strict rules.

General Motors follows the rules of the country and my job is to create a plant that is environmentally correct within Russian legislation. That’s a tough call, though we’ve driven some money into the project specifically to make sure we do the right thing.”