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Viewing cable 09STPETERSBURG103, LOCAL AUTO INDUSTRY HIT HARD BY ECONOMIC CRISIS

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Reference ID Created Released Classification Origin
09STPETERSBURG103 2009-08-13 14:16 2011-08-24 01:00 UNCLASSIFIED Consulate St Petersburg
R 131416Z AUG 09
FM AMCONSUL ST PETERSBURG
TO SECSTATE WASHDC 2820
INFO AMEMBASSY MOSCOW 
AMCONSUL ST PETERSBURG 
AMCONSUL VLADIVOSTOK 
AMCONSUL YEKATERINBURG 
EUROPEAN POLITICAL COLLECTIVE
UNCLAS ST PETERSBURG 000103 
 
 
E.O. 12958: N/A 
TAGS: RS ECON EIND
SUBJECT: LOCAL AUTO INDUSTRY HIT HARD BY ECONOMIC CRISIS 
 
1. (SBU) Summary.  The economic crisis has severely disrupted 
the auto industry in the St. Petersburg region, with all 
manufacturers having sharply curtailed production over the past 
several months.  A key part of the regional economy, the auto 
industry has endured a series of production halts and work 
furloughs at various foreign-owned auto manufacturing plants in 
St. Petersburg and Leningrad oblast that call into question the 
longer-term prospects for developing a robust automotive 
production sector here.  End Summary. 
 
2. (SBU) Over the last several years car manufacturing has 
become an important component of the regional economy.  There 
are four main manufacturing plants in the region: Ford (which 
has a production capacity of 125,000 cars annually); GM 
(70,000); Toyota (20,000); and Nissan (50,000).  All of these 
plants were built with the support of the respective local 
government administrations who expected a rapid expansion in the 
Russian car market. 
 
3. (U) Contrary to earlier expectations that consumer demand for 
new cars would continue to grow, the first six months of 2009 
saw a marked slump in sales of new cars in the Russian 
automobile market.  According to the Association of European 
Business (an independent non-commercial association of European 
entrepreneurs who work in Russia), the year over yeardecline in 
sales has grown progressively worse throughout the year, with 
sales dropping 38% in February; 47% in March; 53% in April; 58% 
in May; and 56% in June. 
 
4. (SBU) The national downturn has negatively affected the auto 
manufacturing industry in St. Petersburg and Leningrad oblasts, 
as reflected in a steady barrage of press accounts detailing the 
industry's troubles.  There has been a series of production 
halts and slowdowns at all of the region's auto manufacturing 
plants, with GM, among others, halting production at its 
newly-opened St. Petersburg factory for two months, from early 
July through August 31.  Toyota recently put its staff on 
mandatory leave for two weeks. 
 
5. (SBU) Ford introduced a four-day work week on June 6, and 
announced plans to eliminate its third shift.  The company 
completely halted production on July 1 for ten days.  It briefly 
resumed normal operations, but completely halted production 
again on July 20 for three weeks.  The plant has since resumed 
normal operations, but Ford plans to again return to a four-day 
work week in October, with the new work schedule likely to last 
through February, 2010. 
 
6. (SBU) Nissan announced its plans to completely halt 
production from August 3 through August 16, during which time 
its workers will be on annual leave.  Nissan's actions starkly 
show how unexpected the downturn in the auto market was, as its 
plant only opened on June 2. 
 
7. (SBU) Suzuki responded to the economic downturn in late July 
by cancelling the planned construction of a 30,000 cars/year 
capacity automobile plant that was to have been located in St. 
Petersburg.  Construction had not yet begun on the plant when 
Suzuki cancelled the lease agreement it had made with the city 
for the land on which the plant would be built. 
 
8. (SBU) Hyundai, like Suzuki, also had plans to build a new 
plant in St. Petersburg when the crisis hit.  Unlike Suzuki, 
though, Hyundai had already begun construction of its plant 
prior to the downturn.  Construction began in June 2008 and the 
plant is expected to be operational by December 2010, with a 
production capacity of 100,000 cars a year.  In a recent 
interview with the local press, the Managing Director of Hyundai 
Motors CIS confirmed that construction is progressing in 
accordance with the original timeline, that the company does not 
intend to change its plans, and that Hyundai is hopeful for a 
turnaround in the Russian auto market. 
 
9. (SBU) Overall, the automobile manufacturers in St. Petersburg 
produced only 7,000 cars during first half of 2009: 4,400 at GM 
(73% less than in 2008), 2,400 at Toyota (61% less), and 200 at 
Nissan.  These figures are far lower than the expectations the 
city government had last year for production of 47,000 thousand 
cars in 2009.  Ford, which is located in Leningrad oblast just 
outside the city, has seen its production drop by about 40% this 
year, with its plant producing just 25,000 cars in the first six 
months of this year, compared to an initial production plan 
calling for 83,000 automobiles to be produced in all of 2009. 
 
10. (SBU) Comment.  Turning St. Petersburg into a "Russian 
Detroit" had been one of the top priorities for Governor 
Valentina Matviyenko's administration.  However, our local 
expert contacts have been critical of this policy, arguing that 
the government should have paid more attention to improving the 
overall business climate in the city rather than concentrating 
its efforts supporting a specific industry.  Their caution 
appears to be supported by  the recent slump in the auto 
industry, illustrating the risk of having too many developmental 
eggs in one industrial basket.  Ironically, Matviyenko's desire 
to create a "Russian Detroit" may have succeeded only in 
encouraging the region's dependence on an industry currently 
unable to deliver desired economic growth. 
 
 
HUBLER