Daimler, Russia’s Kamaz Merge JVs in Efficiency Bid

LONDON – Daimler’s streamlining of its commercial-vehicle operations in Russia is meant to achieve a sounder footing in a market hobbled by falling oil prices and Western economic sanctions, the automaker says.

The European Commission’s competition authority on Feb. 24 approved Daimler’s plan to merge its two joint ventures with Russian truck manufacturer Kamaz OAO: Mercedes-Benz Trucks Vostok OAO and Fuso Kamaz Trucks Rus, which produce and distribute Mercedes and Fuso trucks, respectively.

“It’s to make it easier for us to combine the management of these two brands in Russia,” Bjorn Grozinger, a spokesman for Daimler commercial vehicles, tells WardsAuto. “The decisions were taken long before the Ukraine crisis started and they’re based purely on operational and business decisions.”

Grozinger’s reference to Ukraine is apt, given that Kamaz also makes military vehicles, including some of the armored vehicles used by Russian-backed rebels fighting to carve territory from Ukraine.

But the JVs only are a civilian business, as an EC note stresses: “The (merged) joint venture will be active in the production of light-duty and heavy-duty trucks and in the welding and painting of truck cabins.”

Brussels’ competition assessment of the deal only focuses on its commercial implications and not any political or sanctions-related issues: “The Commission’s investigation found that the proposed acquisition will not raise any competition concerns, because the joint venture will only be active in Russia and Belarus.”

Asked about the prospects of the Russian auto market, Daimler is sanguine: “I'm afraid nobody can be positive at the moment,” Grozinger says. “Market development has been quite disappointing. The truck market overall decreased 25% to 30% last year, and we were affected.” However, on the plus side, he adds: “We continue to be positive about the potential of the Russian truck and commercial-vehicle market in the long term.”

Daimler’s concerns about the Russian market were underscored last summer when the German company declined to increase its shareholding in Kamaz, as it had planned.

The German motor industry association, the VDA, also is downbeat about Russian prospects. “The sales situation may well continue to be extremely difficult. The Crimean crisis, inflation, the falling price of oil and the ongoing Western sanctions are all risk factors and could lead to the worst collapse on the Russian light-vehicle market since 2009,” VDA spokesman chief Eckehart Rotter tells WardsAuto.

A sales upturn in December was not the onset of a recovery, Rotter says: “It is much more the case that panic buying triggered the higher sales in December in view of the plummeting value of the ruble.”

As for Kamaz, spokesman Oleg Afanasiev cites cost cutting as the main motive for the merger but does not disclose more details, citing confidentiality agreements between the partners.

“I can only confirm that such a deal was made. The shareholders have reached an agreement on it,” Afanasiev says. “The main objective is to decrease management costs and increase the work efficiency of these companies.”

The Russian automaker already has started to see the benefits of the new merger, however. Kamaz stock rose 73.8%, from RR30.5 ($0.49) to RR53 ($0.85) per share following last week’s announcement, marking their highest price in over a year.

Both existing JVs are located in Naberezhnye Chelny in the Republic of Tatarstan, an autonomous region in Southern Russia. Igor Korovkin, executive director of the Association of Russian Automakers, says the single JV will make the companies’ production lines more cost efficient and strengthen their position in the Russian light- and heavy-duty truck market.

 “The end result will be a better position of both companies on the market,” Korovkin says. He expects the new deal will allow Mercedes to offer lower prices than its competitors and make significant gains on the Russian market.

 “Mercedes is currently not among the sales leaders in the Russian Federation, not in this segment, but thanks to high localization, the company will have more opportunities to play with its pricing.”

Kamaz sold 38,900 ready-made trucks in 2014, with almost 32,600 units going to the Russian market and more than 6,000 exported, the manufacturer says.

– with Lena Smirnova in Moscow and Keith Nuthall