Our talker - Andrey Lavrentiev - a businessman, Chairman of Director boards of AllurGroup ( "Allur"Group of companies" JSC), president of the Association of Automobile Business of Kazakhstan , knows everything about the domestic car market. And was he to whom kursiv.kz decided to ask a number of questions about what our car market expects in the coming year.
Andrey Sergeevich, how do you evaluate the situation of the Kazakhstan car market today?
According to the data of Association of Automobile Business of Kazakhstan, official sales of new cars in November decreased by 16.1% compared to October (7590 units). During just 11 months of this year official dealers sold 91 050 units of new cars.
To be objective, we had a very difficult year and a half. The end of 2014 year and the whole 2015 year were full of doubts about the strategy for further development. But the participants of the car industry decided that it should be in Kazakhstan, since our automobile industry has the potential for growth and has qualified personnel that produce cars that are highly competitive in quality with European and international standards. The outgoing year was difficult, but it allowed us to identify all weak "points" of the market, the whole industry, the model range, the development strategy and take some corrective measures. We did not allow the market to collapse, including thanks to the Concessional lending program. It helped us to refocus the attention of the people of Kazakhstan on cars manufactured by native producers.
And what is with the native auto production?
The expected result of local auto production of the current year is 15 000 cars. And this is, under current conditions, a perfect indicator. Based on the results of eleven months of 2015 year at Kostanay plants of AllurGroup were produced 4675 passenger cars and commercial vehicles of auto brands. Total in January- November of the current year were sold 6019 cars produced ate the production sites of AllurGroup.
How did the market respond to the changes in whole? We have been for over a year included into EEU.
This year was difficult like in the film «The perfect storm». And we also had our own “perfect storm”. But in the film people died, and we have survived. I would like to detail: for the last year and a half everything, that could happen at our auto market for its destruction, happened, but one thing is clear: in the common economic space we need to find a possibility for own production.
How will the national brand rescue us in this case?
Own auto brand gives independence from brand owner. Do you know what the problem of any brand that we just produce having no rights for it is? For example, there is an X model of Y brand, and we decided to supply it to the Russian market. Suppose that yesterday we signed the agreement: President of Y brand of the first part, I-from the second part, and in the presence of the Head of State. And then it turned out that tomorrow the President of Y brand would be replaced, and a new President, no matter what the reason was, didn’t want to export the cars to Russia. Of course, we would get compensation in the amount of 5 million dollars, and that would be all we would get! And what is a national brand? This is when we have all the rights to make decisions, we have all technologies, drawings, own plans for how much to produce and how much to sell. To invest public and private money in the development of industry, and see no potential for development of the production of our own auto brand, when we will insure all risks - this is not right. The existing schemes of the automobile industry are successful in terms of making a profit, but it is important for us to develop the car industry in Kazakhstan. And that's why to fix on the production of foreign brands is not exactly what we are aiming for. But all projects that we have already launched will be developed in parallel. When we launch a national brand, this does not mean that we will terminate or stop the production of existing projects at the enterprises. That will be in no case. All the activities that we had on contract production will be developed further with an increase in the percentage of localization.
There are a lot of risks related to the project. Are they an obstacle for you?
I could hardly understand why we should be afraid of national brand creation. You know that the main problem of such breakthrough projects is precisely the level of populism and a general pessimistic attitude. You will never find such pessimism concerning high-tech projects, for example, in European countries. Just ten years ago, no one could have ever thought that Apple would create a vehicle. But it was not just produced, but it has been already announced about the beginning of sales in 2019 year. Just recently there was information that the date for the total ban on the use of petrol cars in favor of electric cars in the leading countries of the world, including Germany and the United Kingdom, has already been determined, that, after 35 years, are preparing to introduce a ban on the operation of cars running on conventional fuels. That is, after 35 years, the usual vehicles equipped with diesel and gasoline engines, may be outlawed. The main argument of the supporters of electric cars is that environmentally friendly engines will drastically improve the situation with emissions of harmful substances into the atmosphere and save the European economy from black oil addiction. 50% of motorists in Europe will have electric cars already by 2030, and by 2050 their share will compose almost 95%.
In general, faith in our own auto production has not been shaken and we are ready to move on?
Let's return to the recent past again. Just 10 years ago, people said that the auto business somewhere in Kazakhstan, Malaysia, and Korea is a dream. But in fact today it exists, and is ready to develop further. Maybe today the national brand for the same people seems to be also pompous, but I am sure that in 10 years it will become as real as the car industry existing today. Auto brand is not just the presence of a name, but also the availability of technologies together with three-five models in product line. We are already working upon all this, and this takes time. Good engineering is a detailed development of production mechanics, where the starting point begins from an understanding of the mechanism for production start, written on paper, to the choice of raw materials from which the brand will be created. And all the simplest processes of automotive production are complex technical processes. It is also necessary to invest a lot in the education of people, so that they do not step away from the accepted norms, for today we have our own rather rich material and technical base. You cannot just take the motor, the gearbox, the engine control unit, the safety structure, the lights and the doors with the wheels to assembly a car, although most of the people have exactly this idea of automobile production in Kazakhstan, but this is far from the truth
How much will it cost?
The cost of this project will be high, without any doubts, but don’t think it to be a cost of a car. And, of course, we couldn’t implement it ourselves.
Is public financing expected?
No. Now we are choosing a strategic partner and have already settled upon two huge companies: European and Chinese that are ready to offer technologies and developments necessary for us.
And what will you offer?
We offer a market and state support. In fact, the state has already done everything to make our market attractive for foreign partners. For example, we already have the necessary preferences, laws, conditions for mutually beneficial cooperation, which are necessary for this project.
Do you mean only the Kazakh market? Or Russian too?
Naturally, we are interested in the market of CIS countries and Russia in priority. We understand the mechanism of the entry of Kazakhstan cars into the Russian market. But the Russian market is needed not today, and we have time to carefully think over everything.
Why particular electric cars?
The presence of hybrids or electric cars in the product lines of the auto manufacturer in Europe gives evidence of the development of its enterprise. This is a sign of the growth of the country's automotive industry and the self-sufficiency of its market. Practically all international auto manufacturers have the trend of transition to launching the production of their own electric car. The last major world automobile exhibitions are a direct proof of my words. Secondly, not only in Kazakhstan, but also in the world, the issues of ecology are concerned about. The realization that the electric car is a motor vehicle of the future already exists, and we cannot give up the prospect of filling a niche in this production. We cannot ignore the development of new technologies, and their implementation in the global automotive industry, and not only in the automobile industry. Who hasn't managed to implement them today is late in using them forever, because in 5-7 years they will be considered old-fashioned. It is not our development scenario. The world is changing. And if we don't take a qualitative step today, tomorrow we will not come anywhere, but will always be in the position of a "catching up". Yes. We will produce the same brands that we currently produce, but could we call it our own automobile production? Still, this is a contract production with full dependence on the brand owners. Yes, with localization and a huge number of job positions, but it is necessary to create your own national brand. We are included into EEU and it is clear that we will have to compete in this territory. For us, for business, the market is obvious and understandable.
Is our potential enough?
We're not starting from scratch. I think that now we have a real opportunity to create a national brand. Moreover, it should include both an electric product line and gasoline product line, since we are not yet ready to switch to electricity in the context of infrastructure. But, nevertheless, it needs to be developed, because everything is moving towards electric cars. By the way, today there are many companies that create technologies that they sell to auto corporations for assembly line production. And among the new proved ideas are those that can even be more interesting than the same Tesla car.
Are you sure that people in Kazakhstan are ready to drive electric cars?
We are planning to produce not only electric cars, presumably the cars with gasoline engine will be also available. The key obstacle for a full transition to electric vehicles is a charging process. If it were possible to drive to the gas station and fully charge the batteries in 3-4 minutes (about that much time is needed to refuel the full tank with gasoline), then the electric cars would have already displaced gasoline. Taking into account the cost of repairs, consumables and the availability of additional spare parts (there are 1,500 components in the electric car in whole, and more than 5,000 in an ordinary gasoline engine), the entire system is simplified.
It sounds encouragingly. But the main problem is related to a charging device and infrastructure for it, isn’t it?
Concerning the charging device to date there is graphene. This element is a pure poetry and it is able to replace lithium. Graphene battery is two times lighter than a lithium ones and by 77% cheaper, and I s charged in 8 minutes. You could drive a fully-charged car up to thousands of kilometers, and the service life is of about 20 thousand cycles of charge. This is approximately for 6 years. About the graphene battery one of the Spanish engineering groups said a year and a half ago. And at that time it seemed that till its release a lot of time should pass. But just a little time has passed, and the battery is now spoken of as about a fait accompli in the new technologies of the car industry. It's like with mobile phones. Some time ago it seemed that the touch phones would not soon fall into habit, but today hundreds of models of touch phones are offered. That is, our generation is at the stage of development and creation of another, super-technological world. It is really important for the Kazakhstani auto industry not to lag behind the general trend and to improve production and implemented technologies. The electric car in such a strategy is a logical result. In fact, we need to build up our team and cooperate with real engineers in this direction.
What will be a national auto brand?
Something like a Renault Sandero B+, with an increased ground clearance, with a cabin in which the whole family can seat, with a trunk in which a box with a large TV and also skis on the roof will fit in. And, of course, the electric car should be affordable. The cost is a key moment while choosing a car.
And what is a priority goal: to create a national brand, or to provide Kazakhstani people with an affordable car?
The main aim is to give to Kazakhstani people an affordable car related to which we will take decisions ourselves.
Are you not scared of the Russian experience of E-mobile?
E-mobile is a perfect idea, but he was created mostly for other goals.
Andrey, turning to our reality. What changes does our car market expect in the nearest future (growth, further decrease)? For example, Russian analysts think that 2016 year will be no less difficult for Russian auto market as the current year. What in your opinion could lift auto market of Kazakhstan out of crisis? What anti-recessionary measures are taken by AllurGroup?
Critical moments sometimes could lead to new opportunities. And this, firstly, has positive effect on auto consumers. Auto centers adapting to the situation offer cars on more favorable terms, launch promotional actions on provision of additional service and maintenance. Yet today official dealers have expanded the range of favorable offers on purchasing of a car –they are discounts, loyalty cards, trade-in system, and favorable financial instruments such as: deferred payments, credits and easy-term loan. AllurAuto, as an active participant of Concessional lending program, has enlarged product lines of automobile brands of affordable segment of JAC. In total are produced 5 models in the price range from 2.7 million tenge to 6.7 million tenge. It means that we produce models of more required market sector. It gives the possibility to satisfy the demand for new cars that have the same production quality as the foreign analogues and experience difficult times for auto market. As a result the clients have started to refer to purchasing of a car as to investment of their own funds.
Do you plan any production restructuring? Does the company plan to expand collaboration with other auto manufacturers? Is it planned to expand the product line? If yes, what cars will also appear in auto centers of AllurAuto?
In 2016 year into product line of AllurAuto were included JAC cars – J5, S3, S5, J6 and M5, that have already been presented n auto centers, and also JAC commercial vehicles - Jac Dumper, Jac Mixer and JAC Ankai, new model of SsangYong Tivoli, Iveco New Daily commercial vehicles. Also restyling of Mitsubishi ASX and new model of Pajero Sport are expected.