In an exclusive interview with AMS, Bruno Ancelin, General Manager of Renault Russia, describes about how the French carmaker, together with Nissan and AvtoVAZ, is putting in place additional production capacity with the goal of cornering 40% of the Russian passenger car market
Like most of his colleagues at the Renault Moscow (Avtoframos) plant, Bruno Ancelin has just stepped back into his office after a summer break. While he has been away, the plant has been gearing up for production of the Duster, the third model based on the Logan platform to enter local production.
AMS started off by asking what changes had been made at the plant in order to prepare for the new model, and the background behind the decision to brand the Dacia models as Renault in the market.
Bruno Ancelin: During the summer holidays we normally take the opportunity to carry out process maintenance [at the plant], but this year we scheduled special work because we’ll launch the new Duster at the end of the year. In Europe, the model is known as the Dacia Duster, but here in Russia they’ll be produced under the Renault badge. We don’t use the Dacia brand here because the Russian people don’t associate with the Romanian brand. This is why we launched the Logan as a Renault in 2005.
AMS: Can you give us a little background history of the Renault Russia plant in Moscow?
BA: The facility is located in the suburbs of Moscow. It was started in 1997, when we were re-assembling cars imported from Turkey (Oyak-Renault, Bursa, Turkey).
AMS: It was a CKD operation?
BA: It was what we call DKD, we disassembled the engine, seats, wheels, and so on. This was the Renault Symbol.
AMS: This was done to avoid the import tax? BA: At that time, yes. After this experience, it was decided to install a paintshop and a welding shop as part of manufacturing the Logan. This was launched in Russia in 2005, only a year after it entered production in Romania (Dacia Automobile, Mioveni, Romania). Logan was chosen due to cost reasons; it is a low-cost product with high reliability.
There were many reasons for taking this route, the costs were good, it achieved the target price for the Russian customers, the capacity of the plant compared to the product was right. So we had a lot of reasons to choose Logan at that time. Then, total plant capacity was 80,000 units per year. The speed of the manufacturing line was 15 units per hour, with a four-minute takt time.
BA: The Logan proved to be a huge commercial success, due to its quality and reliability. It still is very good value for money. The price of the Logan now is about RUB300,000 ($10,300). If you compare that to a Lada, or an imported car that has between 30 and 45% in excise duty added to the price (based on engine size), the Logan is considered better value for money.
Due to the success of the Logan, in 2007 the decision was made to double the capacity of the plant, increasing capacity to 160,000 cars per year. We invested in 2009, 2010, even over the economic crisis here in Russia. The official launch of the new capacity was at the end of 2010.
AMS: Did you install an additional line?
BA:We decided to invest in new machines on the assembly line, increasing assembly line output from 15 to 30 units per hour. We also doubled paint and weld capacity by adding new shops. Now, how the plant is located between main roads, the engineering team, programme management, and myself, have agreed that we have reached the maximum capacity of this plant.
BA: Yes. I think there might a little room to further increase capacity, but we will not double capacity again like we did in 2009. We might be able to reach 170,000upa using Kaizens across the plant. Of course, I’ll push for that! But we are quite sure that it will be impossible to reach 200,000upa or above.
AMS: Can you tell me which models are produced on the line?
BA: We launched the Logan in 2005, and in April 2010 we introduced the Sandero, which is a derivative of the Logan.
This has been a huge success, as the Russian hatchback market has been growing. Russian consumers consider the Logan to be comparable in spirit to a reliable Lada.
AMS: The 2110 is the comparable Lada model?
BA: Yes, that’s right. But further to this, in March this year, we decided to localize the manufacturing process of other Renault models, so now we’re also producing SKD versions of the Megane and the Fluence.
AMS: All on the same line?
BA: Yes, but for SKD production of these models, we import painted bodies from our Turkish plant.
AMS: Are they trucked or brought in by rail?
BA: First they’re shipped via the Black Sea to Odessa in Ukraine, and then they are trucked to the plant. Some other plants we are supplying in Romania have their bodies delivered by rail; we’re using all means of transportation.
AMS: Going back to the ‘B0’ range of models, are they all based on the same platform?
BA:Yes. Of course, they’re not exactly the same, they’re slightly different. For example, the Duster is offered with 4WD, so the rear of the chassis is not the same, but we are sharing a lot of common parts for the platform and between cars.
AMS: B0 is the name of the line being installed at Togliatti as well?
BA: That’s right. In Togliatti, we will also put in a line for production of the Logan platform. It will be the same production mix, adding further to capacity to the Moscow plant.
By sales, the best seller is the Logan, then Sandero, Fluence, and Megane. Maybe 90% of all Russian sales are being produced at the Moscow plant. One of the reasons Renault is such a success is that we pay no customs duty. For us, localization is probably the first driver of growth and also cost reduction. Our customers cannot afford to pay import tax when buying Logan, Sandero or Fluence.
AMS: Can you talk about car production in Russia. First, at Moscow, do you have a full blanking and stamping operation?
BA: No, we do not have these facilities at the Moscow plant. We have a supplier located about 15km from the plant at the AMO ZIL facility, this JV supplies us with main stamped parts for our products. This same JV will also deliver parts for Duster production.
AMS: The deal is already in place for that?
BA: Yes, that’s right.
AMS: How about the quality, are you happy with them? Do you have Renault representatives in the plant ensure that quality is maintained?
BA: Yes, the managing director of engineering and manufacturing is there, he takes care of the management of this company. Since he has taken over, we are very happy with the quality. But this is part of the overall quality improvement of Russian suppliers. We have the same programme for all suppliers, except for powertrain, as this is not currently localised at all –
AMS: But it will be!
BA:Yes, it will be, but we need some additional capacity in the AvtoVAZ plant to localize powertrain. We have already announced that we will localize 1.6 petrol engines in this plant. The engine will be used by all partners, Renault, Nissan and AvtoVAZ.
AMS: But just the 1.6 petrol?
BA: Yes, there very few diesel engines in the Russian market, except for luxury cars and some SUVs. Market share for diesels here is probably about 5%. If you compare that to France, with 75%, it’s very low!
AMS: Moving on from stamping to the weld shop. What is the depth of automation in this area?
BA: Today we have robots for finishing car bodies, but many operations are still carried out by hand because of cost reasons. If you compare the cost of manual welding and robotic welding, even here in Moscow, which is a very expensive city (in terms of cost of living), if you compare the cost of a worker with amortization of robotics, it’s still best to stick with the manual worker.
AMS: Would you consider bringing used equipment in from France to cut the required investment for automation?
BA: No, because it is very difficult to do this due to Russian regulations. Here, you have many rules to stop imports and there are specific regulations to stop the import of equipment.
AMS: Who is your main automation provider in the weld shop?
BA: ABB supplies most of the robots.
AMS: Do they have a strong presence in Russia?
BA: Yes, but they are the usual supplier for Renault. There are others, KUKA, and some other suppliers.
AMS: In the paintshop, who supplied the paintshop facility and how much automation is involved?
BA: The paintshop was provided by Geico, the same company that is installing the paintshop at AvtoVAZ. There’s very little automation there. We have some paint machines to apply the top coat, this must be automated as it’s very difficult to do this by hand due to the design of the car. The other operations, such as sealant application, these are manual.
AMS: That’s not so unusual, sealants are notoriously difficult to apply.
BA:Yes, but in our French and Spanish plants this is totally automated. Again, we are always looking at the difference between the cost of a worker and the cost of a robot.
AMS: And it has always worked out - to this point - that the worker has been a better value than the robot?
BA: Sometimes! It depends on the cost of the worker!
AMS: Russia is a very volatile market. Does Renault have a plan of action if it goes into downturn again?
BA: We continued to invest by doubling the capacity at our Moscow plant even when the local market declined by 50%, 2009 figures compared to 2008. We did this under the assumption that there would be a quick and huge recovery in the market – and we were right! Even after doubling the capacity of the plant, we still do not have sufficient inventory.
If I could produce one more car, it would be one more customer!
Of course, we know that it will not be quiet, there could be further crises, but we think that the general direction of the market will be continued growth, and [the market] has demonstrated all the right characteristics to support this. In 2008, the market was 2.9m units. In 2009 it dropped 50%, to 1.4m. Last year it was 1.9m, and this year we expect the market to achieve close to 2.7m units. The forecast for 2016 is 4m units.
AMS: How did your analysts get to the four million-unit figure?
BA:More than 50% of the cars on the street here are more than 10 years old. The ratio of cars to people is half that of Western Europe, and [per capita] income is continuing to grow. Overall, the fundamentals of the Russian economy are very good.
In Western Europe, we’re talking about government debt. The debt of the Russian state is one of the lowest in any developed country, 6% of GDP. When you rank state debt across the world, South Korea is number one [lowest] and Russia is number two. The Federal government of the Russian Republic is pushing us to develop capacity and help the recovery of the Russian automotive industry. They want to help the automotive industry as the first priority of an overall industrial recovery in Russia. Of course, this is good for Renault, but it’s good for AvtoVAZ as well.
AMS: But the Alliance will gain from being able to add AvtoVAZ figures to the company books?
BA: The primary benefit will be to gain AvtoVAZ as a supplier in order to localize part supplies. This is important for us, they are highly localized.
AMS: You’re looking to increase localization in order to comply with Declaration 166?
BA: Yes. Excluding the powertrain, we have localized more than 55% of our parts supply for Logan and Sandero, and we have a target of 75%. This is the reason why we have a huge programme with Nissan and AvtoVAZ, to improve the efficiency of the Russian suppliers, exactly as we did in Romania.
AMS: But on a larger scale!
BA: Of course, but for bigger gains.
AMS: How are the processes at AvtoVAZ? Do you need to help them a lot or just a little?
BA: They are older than Renault processes, of course, and they know that. This is the reason we decided to disassemble the existing line [at Togliatti] and make the new B0 line for the Logan platform. The new line will have the capacity to produce 60 units per hour, 320,000 cars per year. From this total capacity, AvtoVAZ will have 25% of the capacity, Nissan the same, and Renault will have 50% of the capacity.
AMS: AvtoVAZ is going to produce a Lada model based on the Logan platform?
BA: That’s right. AvtoVAZ will produce two models for the Lada brand, Nissan will produce one model, also based on the Logan platform, and Renault will produce two models. On this line, we will manufacture a minimum of five models. I say ‘minimum’ because we will probably have other projects, but we have yet to confirm these. We have to be very careful to consider the diversity we can manage on this line. But for a first step, there will be a minimum of five different cars.
AMS: There’s also another plant, Izhavco?
BA: Yes, this is complementary capacity. We are going to ask AvtoVAZ to consider buying this company; it’s a highly-flexible company that could launch highly-diverse, low-volume products very quickly. It could also be very useful while we are modernizing existing lines. While we are installing the new B0 line at Togliatti, the cars previously assembled on this fourth line are now assembled at Izhavco. So today it’s acting as a buffer. In the future, we will need more capacity and Izhavco will be used to produce additional unique models.
AMS: Lower-volume specialty models?
BA: Currently it’s producing specialty models, but in the future we could use Izhavco as we use Moscow or our other lines. At Izhavco they have two assembly lines, each with a capacity of 30 units per hour. Each of these is another Moscow.
AMS: Who currently owns Izhavco?
BA: Izhavco is owned by [Russian bank] Sberbank, but the future owner of Ishavco will be AvtoVAZ.
AMS: If AvtoVAZ takes possession of the plant, then the Alliance will own it?
BA: What we can say today is that Izhavco will be one of the plants inside the AvtoVAZ Group. This will comprise the four manufacturing lines at Togliatti, each with up to 60 units per hour, and there will capacity for another 60 units per hour in Izhavco. Why would we advise AvtoVAZ to acquire this company? First, to have a buffer while modernizing other plants. The second is that in the future, when the market reaches four million units per year, we plan to have 40% of the market. Forty per cent of 4m is 1.6 million and we will have that capacity if we include Nissan St. Petersburg, the Moscow plant, the AvtoVAZ plant and Izhavco.
Plus or minus 2%, the 40% will be divided 25% for Lada, 8% for Renault and 7% for Nissan. Today, Renault is 6% and Nissan 5%, roughly speaking. Lada is between 22 and 23%. Today the total market share of all Russian activities is about 34.4% and we will look to increase that to 40%.
AMS: It seems quite achievable.
BA: It’s not too far, especially when you consider that now we don’t have enough cars for the market. We currently have 6% of the market, when we don’t have enough cars! Where there are the fundamentals of growth, we have clearly set out a plan that will lead to the development of the Russian automotive market.
AMS: How’s the bureaucracy in Russia, when it comes to automotive, on a day-to-day basis?
BA: Of course, the bureaucracy is huge! We have to fill out a lot of paperwork, there are a lot of things to sign! But if you take into account the length of a project it doesn’t take a lot of time, and if you meet the regulations, things can happen quite quickly.
When a government, region or city, commit to do something, they commit. It’s not just speeches for the politicians. You know the Decree 166, requiring us to meet part localization levels? This was negotiated between the government and all the car manufacturers, starting in the middle of last year, through to June 1 this year. When I had to sign the decree as the representative of a consortium of six companies, including AvtoVAZ, Renault and Nissan, I was honoured to complete the document, but I had to sign 925 times!
It took two hours, but at least I was sure that we would have the commitment of Decree 166 and that we would be exempt from the capital duty. Four days after I signed the decree, I had the paper from the government that exempted me from paying the duty on the SKD Fluence and Megane models being imported from Turkey, because these were not covered under the former decree. So it took a long time to negotiate, but it was on time; it was scheduled for signing on June 1, but we signed on June 2, and we had the required paperwork four days later. It was unbelievably quick.
AMS: So do you think things are improving in terms of bureaucracy?
BA: I think they’re making a lot of effort in this area to simplify everything, but it’s a huge job. There are a lot of reforms coming through.
AMS: Can you comment on environmental issues in Russia? If Renault takes control of AvtoVAZ, is there any type of clean up that’s going to be required at the plant, do you have to meet the Alliance environmental standards regardless of local regulations?
BA: This is part of our negotiations as we look to increase our share in AvtoVAZ, so I cannot comment on this directly. I can say that there are many things we have to look at that could increase our risk. When it comes to such matters, you cannot compare Russia with places such as Sweden.
AMS: Visiting Thailand earlier this year, I was surprised to learn that there are no government regulations with regards to the environment and auto production, but transplant carmakers there carry over their global policies. Is that what you’re doing in Russia?
BA: In the plants here, we carried over the environmental activities and requirements that you find in Western Europe. In the future, we will plan to put in place the same requirements that we have at plants in Western Europe. I cannot go further into this as I do not have the exact details.
AMS: Out of everything that you need to do, what is the highest priority?
BA: Good question. One of the highest priorities is to bring on line the increased capacity of the Moscow plant, because as I said, we don’t have sufficient units to supply the market. After this, my priority will be to succeed in the modernization of AvtoVAZ.
AMS: You’re talking about new conveyors, or other equipment that is needed at the plant?
BA: When I talk about the modernization of AvtoVAZ, I’m talking about modernizing the equipment, the plant and the building, but it’s also modernization of the cars, achieving new standards in build quality. More than 50% of the Russian population own a Lada. On the road, there are about 34 million cars. That’s 17 million Ladas, it’s an enormous number of cars – but for us, and for the Lada brand, it’s a great opportunity for the future.
Russians love the Lada brand. We have conducted many surveys about Lada; as you know we are investing in the brand. If you ask Lada owners if they’re satisfied with their car, many will say ‘no’, they’re not reliable, fit and finish is not good. But, if you ask if they will buy another Lada, 90% say that they would buy another if it was reliable. The Lada is the Russian national car, so there’s big potential in the brand.
AMS: You’re going to do a ‘Škoda’ and turn the brand around?
BA:We did it with Dacia in 1999. Dacia was nothing. Now it’s one of the most reliable brands in Western Europe. I think we can go quicker and better with the Lada brand in the Russian market because there is a value, a real value, backed up by a kind of national pride.
AMS: Any final words?
BA: In conclusion, I’d like to highlight the potential for our supplier network. In Moscow, we manufacture 140,000 cars per year on the Logan platform. At AvtoVAZ, we’ll build more than 300,000 per year, based on the Logan platform. This is 400,000 units and in total, we’ll probably reach about 500,000 units per year. For a supplier, this is very good business. No one else is making 500,000 cars per year in Russia.
AMS: Do you have supplier parks around each plant, or are parts delivered from distance?
BA: We have local suppliers, not far from the shop, like the stamping supplier.
AMS: Is there anything you can’t manufacture in Russia, anything that requires skills or technology that is not available in-country?
BA: In this case you must import what you cannot find, like the very specific steels. Today, we have problems locating steels with very high elastic limits. So we can either import them from another country, or we must adapt the car to accept the local material.
AMS:Which is preferable?
BA: It depends! If you can find local steel, it’s much better to replace the high elastic limit steel with standard steel and add a lot of unofficial parts. You must adapt to what you can find locally. The same goes for the plastic in bumpers. The plastic used in Russia is not the same as that used in Europe – but that’s not the same as North American plastic. So we must adapt the bumper or door trims, etc., to use the local material. For localized parts, we are using localised materials.
AMS: Is that one of the reasons why you can’t build cars in Russia and ship them to Europe?
BA: I’m not saying that we don’t meet European regulations, I’m saying that we’re meeting regulations by other means. If I had to pay for the cars to meet European regulations, I could do that, but that’s not high on the [priority] list. Of course, when we add unofficial parts, we increase body weight and as that increases, this can break regulations. But our first priority is to fight for local market share and to achieve the required capacity.