Industry, manufacturing

KamAZ goes up-market with Russian production of Mercedes-Benz trucks

18 Mar '11
Oleg Kouzbit, Online News Managing Editor

Daimler and KamAZ have announced the launch of their $15m Mercedes-Benz truck project in Tatarstan. After months of focusing on marketing and imports the JV partners now intend to assemble Mercedes Benz trucks on Russian soil. The initial production is only 1,100 trucks a year and most components will be imported, but the partners want to more than quadruple production in two years. With double-digit domestic market growth, the partners are counting on the Mercedes pedigree to win over buyers.

Germany’s Daimler and Russia’s KamAZ have officially launched a $15m Mercedes-Benz truck manufacturing project on KamAZ’s home premises in Naberezhnye Chelny, Tatarstan. The announcement comes on the heels of the January decision by the two partners to start a large-scale, $65m production of truck axles and components, and completes the six-month ‘trial period’ for Mercedes-Benz truck manufacturing on Russian soil.

The principals

The JV set up by Daimler and KamAZ and dubbed Mercedes-Benz Trucks Vostok was created in November 2009. Since then, its focus was predominantly importing and marketing specialized vehicles under the Mercedes-Benz brand, as well as Mercedes-Benz and Setra buses. The JV also promotes sales of the German vehicles via a network of a reported 20 dealerships in Russia’s largest cities.

As Russia’s largest heavy truck maker, with a 50% domestic market share, KamAZ ranks eleventh internationally. It is also the world’s eighth in diesel engine production. KamAZ Group reportedly comprises 110 production sites, including those abroad (predominantly in CIS countries), and 13 R&D, manufacturing, component design and marketing divisions. It is 11% owned by Daimler.

Germany’s Daimler AG is an international major with an arsenal of global brands: Maybach, Mercedes-Benz, Smart, Freightliner, Sterling, Western Star and Setra.

Production plans

The JV has plans to produce this year about 1,100 Mercedes-Benz trucks and sell 2,000-2,500 vehicles, both assembled at KamAZ and imported from Germany, said JV CEO Boris Billich.

According to KamAZ, the JV will be making the Atego, Axor and Actros models—the latter was selected by Mercedes-Benz Trucks Vostok last October for trial localized production. The Zetros and Unimog models will be reportedly added as the project unfolds.

Mr. Billich expects MBTV to reach its peak capacity of 4,500 trucks a year in 2013. He also told media the JV was considering possible full-cycle production, including welding and painting.

German parts, Russian labor

The JV partners haven’t elaborated which components will be made in Naberezhnye Chelny, but Daimler has made it very clear it wants to phase out KamAZ parts in favor of its own. As an 11% owner of KamAZ, Daimler has enough clout to realize its plans for an across-the-board discontinuation of KamAZ gearboxes, axles, cabs and even engines in the entire KamAZ product line in favor of German-made parts.

Although KamAZ has been a major truck engine producer for decades, analysts are doubtful that current Russian-designed engines can be reworked to meet rigorous Euro-6 environmental standards to be introduced by 2018.

Balancing act

Although few would argue that German-made components and engines are more reliable than Russian parts, Daimler has to be careful not to throw out the baby with the bathwater.

If it doesn’t use enough locally made parts, it could lose significant RF benefits.

Russia’s new Industrial Assembly policy framework gives foreign auto makers duty-free imports of vehicle parts into Russia on condition that it localizes up to 60% of its auto component production (also purportedly limiting the number of SKD kits that any one automaker can assemble in a year).

The minimal production capacity for a manufacturer to be eligible for the benefit is now 300,000 vehicles a year—a sharp increase from just 25,000 when the benefits were first announced.

Looking for largesse

With KamAZ incapable of this kind of production and wanting to beat the March 1, 2011 program deadline for these RF benefits, Daimler and its Tatarstan partner quickly joined the AvtoVAZ-Renault-Nissan alliance and filed an application for a sort of a ‘group benefit’ plan.

Although the AvtoVAZ-Renault-Nissan-Daimler-KamAZ super alliance has an aggregate production capacity of more than 1.5 million vehicles a year, analysts are divided on whether or not the RF will grant the consortium benefits.

The newly set-up Ford-Sollers JV, Volkswagen, Fiat, and GM alliances are smaller but still qualify. With Toyota and Hyundai-Kia’s production volumes below the required minimum, it appears that they will simply have to continue their Russian business without duty-free imports.

Growing demand for domestic

With the Tatarstan-based JV running on all cylinders Mercedes-Benz Trucks Vostok expects Mercedes-Benz trucks will control 15-22% of Russia’s mid-range truck market. Its challenge will be to win over some of current customers of Scania, Volvo, MAN, Renault, Iveco or DAF. In the long-range truck segment, it looks like the Mercedes-Benz brand will have a clear road to become dominant.

Current truck sales in Russia are 350-370,000 year. Analysts predict this number will grow to 450-470,000 by 2013-2014. Imports, although up sharply since 2009, are still less than 5% of sales, leaving plenty of room for the KamAZ-Daimler JV to grow.
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