GM Uzbekistan looks to domestic demand to survive crisis

By bne IntelliNews April 24, 2009

Clare Nuttall in Almaty -

Even as the future of General Motors hangs in the balance, the company's Uzbekistan joint venture is pushing ahead with plans to actually step up production of Chevrolets. With Russia and its other export markets contracting, GM Uzbekistan is focusing on the local market as it prepares to ride out the crisis.

General Motors is urgently drawing up plans to avoid bankruptcy. The carmaker is understood to be planning to close some of its production plants, shut dealerships and scrap some models up to four years earlier than originally planned. However, the parent company's international difficulties won't affect its activities in Uzbekistan, according to a spokesman for the company. "We are currently transitioning to build much more Chevrolet cars. There are no questions about the future of the joint venture at all," Marc Kempe, communications director at GM Central and Eastern Europe, tells bne.

GM Uzbekistan - a joint venture between the US carmaker and Uzbekistan's state-owned Uzavtosanat - was launched just a year ago. It has taken over the former UzDaewoo Auto factory, which was taken under state control after the South Korean company itself also went bankrupt. Production is gradually being turned over from Daewoos to Chevrolet models, with the company planning to spend around $50m to modernise its production facilities by the end of this year.

The joint venture is licensed to produce the models Chevrolet Lacettis, Epicas, Captivas and Tacumas. In addition to its main facility at Asaka in the Fergana Valley, it's currently setting up production lines at the Chkalov Tashkent Aircraft Production Plant for Epicas and Captivas, according to reports in the Uzbek press. It's also investing a further $11m to convert a production line to build Damas minivans that run on liquefied gas; the line is due to be ready in 2011. In addition, GM Uzbekistan is planning to build a $37.3m press shop. By the end of 2009, the factory will have annual capacity of 1.37m vehicle body panels, with an additional production line to be added next year.

Exports decline

GM Uzbekistan is certainly not immune to the global economic crisis, though. While Kempe says the plant "has always been primarily serving the Uzbek market," exports accounted for a substantial part of its business. The plant was intended to serve Russia and the wider Central Asian market as well as Uzbekistan. Across the region, car ownership is still relatively low, and demand has - until recently - been strong. Uzbekistan's tight controls on currency convertibility provided a further incentive to export.

The situation has changed recently, with Russia - and to a lesser extent other CIS markets - slashing car imports. Russia imported just 88,400 cars in January and February, down 66.3% on year, according to the Federal Customs Service.

Observers on the ground say the reduction in exports has benefited the local market. Cars sold to the local population used to be limited, as GM Uzbekistan sought to keep up exports, while it was extremely difficult to import cars - again, because of difficulties with currency convertibility. "In the past, a Nexia, for example, cost around $11,000 officially, but there was a waiting list of around six months. If people wanted one right away, they would go to the bazaars where they would pay between $18,000 and $20,000 for the same car," says one Tashkent-based analyst. "Today, you now can get a Nexia straight from the plant just one week after placing the order for $10-11,000. Local customers are very happy!"

This pent-up demand for cars in Uzbekistan, where the population is 27m and growing, has grown considerably in recent years as disposable incomes have also risen, which means GM Uzbekistan has considerable scope to sell while other car companies are struggling. The lack of cars is evident in Central Asia's largest city Tashkent with a population of 3.5m, where there are no traffic jams even at peak times.

Even with Uzbekistan's large domestic demand, production at GM Uzbekistan fell 14% on year in January and February, to 22,570 units, Interfax reported. The decline follows a successful 2008, during which the joint venture produced 195,038 cars - up 13.5% on the previous year. However, Kempe insists the situation in Uzbekistan is still positive. "It is true of any car plant in the world that exports are down to a certain degree, perhaps more true in this region than elsewhere," he says. "There is a dip now, but looking at a five year timeframe, we are absolutely optimistic about Uzbekistan."

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