Recycling fee will make MAZ takeover inevitable

The recycling fee for vehicle importers was introduced on March 1.

2013 proved one of the most difficult years for Belarusian truck manufacturers. Introduction of the vehicle recycling fee coupled withweak investment demand on the Russian market will bring about a further decline in sales. For MAZ (Minsk Automobile Plant) the lack of compensation for the additional costs means a choice between two options: a significant drop in sales, production and possible termination of activity or a merger with KamAz (Kama Automobile Plant) on the terms of the Russian party.

In 2013 the production of trucks in Belarus decreased by one third compared to the volume of production in 2012, the main reason being the drop in demand for these vehicles in the Russian market. The lack of an established system of maintenance service in EU countries makes it impossible to sell MAZ vehicles to freight forwarders focused on the delivery of goods to Europe. The markets of Venezuela and Syria have been lost, and the supplies to the Ukrainian market were discontinued in February. As few as 7% of trucks are delivered to markets outside the CIS.

Under the pressure of WTO, Russia introduced the recycling fee on manufactured automotive equipment on January 1, 2014. This fee will increase the cost per unit of output by EUR 4,500 when speaking of the best-selling range of MAZ trucks. Russian producers are covered by compensation included in the 2014 budget, which will allow them not to increase the price of manufactured vehicles. MAZ is not granted this compensation, which will result in a significant loss of its competitiveness on the Russian market. In January 2014 MAZ produced 480 trucks, of which more than 210 have not been sold and are sitting in the warehouse. A year earlier MAZ manufactured more than 1,300 trucks during a month. In February KamAz switched to full-time weekly working mode.

No compensation for the recycling fee means that MAZ needs to increase prices despite the overall negative demand dynamics. Under these conditions the manufacturing capacity utilisation will inevitably decline, it will be followed by a transition to a shortened work week, decline in human resources, and difficulties with payments for raw materials within the established policy of feather-bedding. An alternative is cooperation with KamAz, which would bring certain privileges on the Russian market and the volume of orders within the framework of cooperation. The Belarusian party’s disagreement as regards the organisational structure of the future holding company was an obstacle until recently. The decline in production and growing social tensions among the staff of the largest enterprise in Belarus will make the Belarusian authorities more amenable to transferring the enterprise management to the Russian party.

Thus, the Belarusian authorities have managed to keep MAZ as the property of Belarus but reduced interest of the Russian party in the project by delaying negotiations while putting forward various unrealistic demands. The Russian party will take advantage of MAZ’s sales problems in 2014 and will set new, more favourable conditions which will have to be accepted in order to maintain the working capacity of the enterprise.