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Customer LoginsVW extends GAZ Group manufacturing alliance until 2025, to supply GAZ LCVs with diesel powertrains
VW and GAZ have extended their contract manufacturing alliance; the German OEM looks to be a prime mover in the Russian market as it slowly emerges from a prolonged slump.
IHS Markit perspective
- Significance: The VW Group has announced that it has extended its passenger car manufacturing agreement with GAZ Group in Russia until 2025, and it will also supply GAZ with diesel powertrains for LCVs.
- Implications: The successful alliance between VW and GAZ has been in place since 2011. Despite the difficult environment in the Russian market in recent years, this extension shows VW remains heavily committed to the Russian passenger car market.
- Outlook: With this agreement VW is taking an optimistic view of the development of the Russian passenger car market - with which any OEM that wants to be seen as a global carmaker must be involved - and it makes sense to extend the relationship with GAZ which has run smoothly since its inception. GAZ will also get advanced diesel powertrains for its LCVs, which will give it potential access to international markets.
The Volkswagen (VW) Group and the GAZ Group have agreed a new deal to extend their existing passenger car contract manufacturing alliance until 2025, while in a second element, VW has agreed to supply the Russian OEM with diesel powertrains for its LCVs. According to a company statement, under the powertrain supply deal VW will supply GAZ with 2.0-litre turbodiesel powertrains for LCV models, with a view to creating sales potential in markets outside Russia. The extension means that VW and Skoda passenger car brand cars will continue to be produced at GAZ's main assembly facility in Nizhny Novgorod. The new agreement is said to define the VW group passenger cars to be manufactured at the plant over the timescale in question, although no mention of specific models was made in the press statement. Commenting on the agreement extension the head of VW's Russian operations Marcus Osegowitsch said, "We are extending our successful partnership with GAZ Group for contract manufacturing because local production has always been a key element of the Volkswagen Group's long-term development strategy in Russia. Even during last three crisis years we continued to develop our business in Russia, investing an additional EUR500 million in production and facilities. We are proud to be part of the Russian automotive industry, to support its development, and to provide new jobs."
In addition VW will supply the GAZ Group with the 2.0-litre turbodiesel engine from the Salzgitter plant in Germany for the new GAZelle NEXT family, which includes drop-side trucks, full-metal vans and minibuses. The LCV is the best-selling van in Russia and for GAZ, the deal to supply the next generation of the vehicle with a contemporary diesel powertrain is an opportunity to expand export sales and make the unit's operations less dependent on its domestic market.
Outlooks and Implications
VW and GAZ commenced their contract assembly in relationship back in 2011, when the Russian light-vehicle market was a far more optimistic environment than it is now. In 2012 the market sold 2.94 million units, only for that figure to subsequently more than halve by 2015 as the Russian macroeconomic situation deteriorated severely as a result of falling oil and gas prices, economic sanctions and a dramatic decline in the value of the currency. However, VW has remained constant in its commitment to the market and this shows the company is taking a long-term approach and believes that the signs of a mild recovery that are beginning to coalesce with three months of consecutive sales rises will gather momentum. So far, under the contract assembly relationship, GAZ has assembled 200,000 units since 2011, split between the VW Jetta, Skoda Yeti, and Skoda Octavia. This remains well under the built capacity of the VW Group production capability at the plant, which stands at 132,000 units per annum (upa) and reflects the downturn the market has experienced in recent years. The GAZ contract assembly arrangement supplements the production of the VW Group's wholly owned facility at Kaluga. Peak VW Group vehicle production at Nizhny Novgorod hit 60,000 units in 2014 and IHS Markit data shows that it will take some time before output recovers to this level. At the moment the only additional VW Group model we have being added to production at the plant is the Skoda Kodiaq and with the Jetta and Yeti set to be dropped from the production roster at the plant by 2018, we did not previously predict output at the GAZ facility exceeding 60,000 units for the foreseeable future. However, this re-commitment and strengthening of ties between the two business is likely to mean that more models will be added to the VW Group roster at the plant, with the Yeti's replacement the Karoq a logical candidate for production.
About this article
The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.