THE CAR MARKET AND THE DEPRESSION

The world automobile industry has turned out to be one of the most vulnerable to the global economic crisis which set in last autumn. Almost every day, the media reports that the leading automakers of the USA, Japan and Europe are losing profits, cutting production or closing their factories. Forecasts for the next two years are also pessimistic, as almost all leading automakers are predicting losses and cuts in production. Of course, the global automobile crisis could not but affect our country as well. Car imports have fallen considerably, while sales have shrunk because many banks refuse to issue loans for cars.

The Azerbaijani market of new and used cars is almost totally oriented towards imports. For example, in January this year the number of cars in the country exceeded 800,000 and is increasing by 70,000-80,000 per year on average. For comparison, last year the country imported a record number of cars - 89,044. One year earlier this figure was 70,963 (an increase of 25.4 per cent) and in 2006 - 70,031.

Car sales will halve

Alas, this year began with quite alarming statistics: according to the State Customs Committee, 5,091 cars were imported in January; compared with January last year, car imports dropped by 41.7 per cent. At the same time as the fall in the volume of cars supplied to the country's automarket, prices have also been falling steadily since November last year, and this tendency is most evident in the used cars sector.

The automarket was affected most of all by the refusal of most Azerbaijani banks to issue loans for the purchase of cars. As the risk of loan defaults increased in autumn last year, the banks reconsidered the structure of their credit portfolios for individuals. First of all, they sequestrated programmes on capital-intensive and long-term credit - cars and mortgages. "Earlier, no less than 60 per cent of cars were sold via bank loans. Now, following the halt to such loans, we can expect cars sales to at least halve," said Rasad Aliyev, director-general of the Toyota Centre in Baku.

Some car dealers have already announced special discounts or special offers on cars bought for cash. However, he believes it is difficult to compensate for the lack of car loans by such measures. Rates on car loans have also increased significantly: while banks were issuing loans with an annual interest rate of 19-21 per cent last year, this figure has now increased to 24-25 per cent. What is more, although some banks are continuing their cooperation with automobile sales centres and dealers supplying new cars, the riskier secondary market has lost banking support altogether. A situation has developed in which in suing a person who fails to pay off his debt for a used car, the bank itself is having difficulties in selling it. As a result, sales in the secondary market are falling: we have seen a 20-25 per cent fall since the beginning of the year. The average price of a car has dropped from 20,000 manats in the middle of the last year to 14,000 manats by February this year, and this tendency may continue until the beginning of next year, experts suggest.

Auto production with the emphasis on tractors

Historically, all Soviet Union auto plants were based outside Azerbaijan. The only exception was the Baku Car Plant (following privatization in 2005, it was renamed the Baki Avtomobil Sanaye open joint-stock company) which was built in 1969 and in the early 1990s produced chassis for small buses for some time.

In subsequent years, the state and the private sector considered various options for the production of means of transport in our country. The first experience of this kind was the Kamaz truck plant, set up by Azmotors Co LTD in 2002 at a workshop at the B. Sardarov factory. This enterprise was projected to produce about 500 trucks per year, but production failed to reach this level over several years and the project was closed for a number of reasons. In any case, over the last two years, the management of the Kamsk automobile plant has been in ongoing negotiations to set up a major car assembly plant, with the further localization of spare parts production.

Nevertheless, the most remarkable event in the destiny of the country's automobile industry was the opening of the Ganca car plant (GancAZ); construction began in 1986, but was not completed because of the collapse of the USSR. The Ganca car plant's debut was the assembly in 2004 of the Oka minicar, with spare parts from Naberezhnyye Chelny, and one year later it began producing a number of models of the Ulyanovsk car plant (UAZ). The Ganca plant assembles several models of four-wheel drive UAZ vehicles, including the Hunter and Farmer, as well as the UAZ 39629-016 van - an ambulance.

Azerbaijan has embarked upon a clear path of reducing its dependence on food imports and increasing domestic production. An important element of the development of the agrarian industry and ensuring the country's food security will be the production of agricultural hardware within Azerbaijan. To this end, GancAZ began producing trucks of the Minsk automobile factory (MAZ) and Belarus tractors at the end of 2006. All in all, in 2007-2008 the Ganca factory assembled about 200 MAZ trucks and more than 900 Belarus tractors in six different models. Under a contract with the Belarusian enterprise Dorelektromash, the production of 15 models of rigging for construction equipment based on Belarus tractors was launched in Ganca in 2007.

GancAZ's successful activity is furthered by the fact that most of its communal and agricultural equipment is purchased by state organizations according to plans agreed beforehand and in this way the activity of the factory does not really depend on fluctuations in demand on the market. For example, about 80 per cent of the tractors were purchased by the Agroleasing open joint-stock company for leasing on to farmers, while the rest were sold directly to the private sector.

Cooperation with the Agro-leasing state body will provide the Ganca factory with orders for many years ahead. However, GancAZ's potential does not end there, because the factory's production capacity allows it to produce 1,000 large-capacity MAZ vehicles and more than 2,000 Belarus tractors.

In order to expand production and access foreign markets, GancAZ and the Minsk Tractor Factory are planning to set up a joint venture to produce tractors. As the joint venture works up to full capacity, 2,000-3,000 tractors will be assembled per year. The cost of the six models of tractors assembled at the Ganca factory varies between 13,000 and 35,000 manats, and these prices are quite competitive for access to foreign markets. Specifically, in the next three years the joint venture is planning to produce about 8,000 units of hardware and to supply some to other countries in the region - Georgia, Kazakhstan, Turkmenistan, southern regions of Russia, as well as to Iran and Turkey. "We are planning to open our own representation in Istanbul in the near future," said Xanlar Fatiyev, director of the Ganca car plant.

Soon, another Azerbaijani enterprise - ZeyemKendMash, based in Samkir District - will start producing tractors and rigging. This project was initiated by the Azerbaijani company AtaHolding and its partner Ateshpar - a subsidiary of Turkey's Ates Oto, which is engaged in the production of STEYR tractors, cultivators, mowing machines, as well as spare parts for agrarian equipment. Ates Oto is a leading Turkish manufacturer of agricultural equipment and exports it to 35 countries, including Kazakhstan, Georgia, South and North Africa and Europe.

Another project to produce agricultural equipment could be implemented within the Sabirabad repair and mechanical factory. In 2007, the Azerbaijani company Qafqaz Holding set up a joint venture with Russia's Kirov factory to manufacture wheel excavators and K-744 Kirovets tractors made by the St Petersburg Tractor Factory.

The Azerbaijani automobile industry is a promising business

The Evsen group of companies is implementing a successful project to assemble cars. In early 2006, it launched a factory in Samaxi to assemble AzSamand cars. The factory assembles about 2,000-2,500 AzSamand cars, receiving spare parts from Iran and France. AzSamand cars are equipped with a 1.8-litre 100-horsepower engine and, depending on the equipment, prices vary from 14,000 to 15,500 manats. In the middle of last year, the major Iranian automaker, Khodro, and Evsen signed a 73 million dollar contract for the supply of units and parts to produce 10,000 AzSamand LX, EL and Soren cars.

Evsen is also planning to start making limousines in Samaxi with parts from the French Peugeot model. The limousine, with a 2-litre, 120-horsepower engine and with a price of about 30,000 manats, will be assembled only to order. In Samaxi it is also planned to assemble Peugeot-206 and Peugeot-405 models.

The local company Azerauto, which was set up in 1996, has also announced plans to assemble cars. Until recently, it was engaged in supplying Japanese Isuzu trucks and Ukrainian-Japanese Bogdan-Isuzu buses to Azerbaijan. Azerauto is considering making Isuzu trucks in Azerbaijan and is in ongoing negotiations with another Japanese company, hoping to start making cars in the future. The Iranian company Hashi Co has also expressed interest in making cars in our country. It is planning to make the Pajan 3000 6V offroader in Azerbaijan.

Of course, the world economic crisis has had an effect on the plans of both local and global companies to make cars in Azerbaijan. It is possible that some projects will be reconsidered and curtailed, and new projects may be put on the back burner. However, in the long-term, there is a great interest in setting up car assembly plants in our country.