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The auto maker is far from world class, insiders admit. But gains are evident, and there’s a solid strategy in place for improving productivity and quality that has top executives believing they are on the right track.
Contract manufacturing to move GAZ forward 20 years in short time, officials believe.
Fast-Forward 20 Years
The most obvious proof of the revolution taking place is found in new contract-manufacturing operations, whereis being trusted to build world-class-quality cars for Group and GM, and soon will launch production of Mercedes Sprinter commercial vans for . The new lines are expected to be at capacity building 155,000 vehicles in 2014.
Despite Deripaska’s efforts,was in dire straits in 2009 when Andersson jumped into the fire from out of the frying pan of a bankrupt GM. At the time, the Russian auto maker was buried under some $700 million of debt, brought on by a doomed plan to revive its Volga car brand with a new model based on previous-generation Sebring tooling.
Ultimately, only about 9,000 of the new-but-dated Volga Sibers were built.
The ill-fated vision, Deripaska says, called for cultivating a Russian parts-supply network in a partnership with Canada-based conglomerateso that GAZ eventually could develop its own home-grown car.
The Siber project was an attempt “to develop a shortcut to passenger cars,” he admits, adding the global economic crash of 2009 played a role in derailing the effort.
“We thought we would be able to develop a crucial component industry for the passenger-car market,” he says. “(But) the issue is it’s not enough to have a product. You need to reach customers.
“If you look at the OEMs that are successful in Russia, they are developing a very complex distribution network,” something GAZ was poorly positioned to do.
To clean up the mess, Andersson slashed 50,000 employees in a now legendary purge and convinced dealers to pre-pay for vehicles to get cash flow going. In return, retailers were promised 12% margins and delivery within six days of order.
He reined in supply lines where it made sense, bringing all of GAZ’s light-commercial-vehicle seat production in-house in a move that cut costs for those components some 30%.
Andersson also went on a tear-down and renovation binge, knocking down about 100 of the 400-plus buildings on the 3,000-acre (1,214-ha) grounds here, while renovating cafeterias and locker-room facilities at key plants and spearheading a much-needed 3-year project to facelift the group’s crumbling engineering center.
He showed up every morning at 7 a.m. sharp to personally oversee construction at the engineering operations. “I went through three contractors,” he says, just in renovating the center’s cafeteria.
Another hurdle was getting a wary workforce to trust management, but GAZ’s union eventually agreed to freeze pay for 2009 and 2010 in exchange for profit sharing – a mostly unheard-of concept in Russia.
Distributions have equaled about 1.5 times the average $600-$650 monthly income the past two years. This year, the rank-and-file will get a 75% share of a $60 million bonus pie, with 25% earmarked for management.
Employees also were encouraged to look for additional process efficiencies, with the pledge no more jobs would be eliminated and they would get a 50% cut of any money saved.
“This is how you change the direction of the next-generation (worker) – give them a way to participate in the success,” says Wolf, chairman of GAZ parent Russian Machines.
Management also began to win over the rank and file by improving working conditions based on employee feedback. In the last 18 months, 500 actions – ranging from setting up smoking areas in plants to ensuring there’s hot water for locker-room showers – have been taken, officials say.
“That was completely new in Russia,” Wolf says of the employee surveys. “Nobody has asked workers before how they feel, what we should change.”
But the biggest piece of the puzzle is the contract-manufacturing work, which executives see not only as a revenue-generator but an incubator for productivity and quality improvement.
“I told Deripaska we can gain 20 years’ (experience) in a very short time,” Andersson says of pitching the plan to turn GAZ into theSteyr of Russia. “We can get the credibility. We can challenge (our people) and see how they react.
“If we (hadn’t done) something, we would have just died.”
The retooled Siber operations used forand GM production are state-of-the-art. The $29 million Chevrolet Aveo facility, to employ 700 workers building 30,000 cars annually, is the less sophisticated of the two, with some manual welding operations and parts coming in kits from GM’s South Korean plant.
The VW operations required a $235 million investment. Capacity of the body shop, identical to VW facilities elsewhere, is 100,000 units per year on three shifts employing 1,250 people. It can weld up to four different body styles. Three are scheduled, with the Yeti currently in production, the now-launching Jetta and the Skoda Octavia sedan due to enter the mix midyear. All three vehicles, as well as the Aveo, will be sold in the Russian market.
The 506,000-sq.-ft. (47,000-sq.-m) VW assembly plant largely is carryover from the Siber. Currently, it is operating at 20 jobs per hour, but as Jetta and Octavia are fed into the system, output is slated to ramp up quickly to 440 units per day on three shifts, employing 1,356 workers.
“We’re on a very aggressive launch curve,” Andersson points out. “It’s not normal to launch three products in one year.”
VW’s global quality standards must be met by the operation here or GAZ will be paid less for every car it builds. To ensure targets are hit, an expansive, 31,500-sq.-ft. (2,900-sq.-m) training center has been set up to teach workers proper assembly, painting and finishing techniques. So far, 752 employees have been processed through the facility, with a total of 3,565 expected to be indoctrinated here by year’s end.