Friday, September 7, 2012

Mercantilism and the Case of the Russian Automotive Industry

Mercantilism and the Case of the Russian Automotive Industry
The year was 1999 and the Russian automotive industry was in its final death throws, or so it seemed. No new plants had been built in 10 years and the existing ones were rotting before our eyes. Used imports, many with right side wheels and of questionable quality and safety, were flooding in. It was at this point that President Putin, on his first term, convinced the Duma to pass a 25% import tariff.
The gurus of capitalism, the IMF (International Monetary Fund but better known as the International Mafia Front, tasked with destroying one economy of another, with its "advice" and "strategy") declared that this would be it, the final, final stake, driven into the vampire of Russia. Well, not so fast. Not only was this not a stake, but the "vampire" that is us, has come back to life and is enjoying the sun and garlic.
From 1999 to the present, a dozen automakers have set up shop in Russia, many with multiple plants and the trend has not stopped. Russia has become the fourth largest and most important auto market in the world and Russian assembled cars, both of Russian and Foreign makes, are exported to surrounding countries. These plants range from just assembling the body and motor, such as in Mitsubishi, to assembly and purchase of all Russian made parts, such as VolksWagen. BMW's production plant has even been rated as higher quality than its plants in homeland Germany.
The Great Shock of 2007-8, which saw the bankruptcy of GM, Chrysler and Saab, saw Russia raise its tariff to 35% on imports. The motor industry again adjusted and again upwards. Credit is given to pro-industry business policies, low taxes and very high barriers to entry for competitors with finished products. The first half of 2012 saw sales increase of 15% over same period 2011, with a total of 1.1 million cars being sold. This is at the same time that Europe, the US and China are screeching to a halt. A gradual increase of minimal domestic parts usage, has also spurred growth of secondary industries.
And the expansion is not stopping. Ford, who opened their first plant in 2002 and started their second as a co-venture in 2011 is waiting for approval from the government to open their 3rd plant, with a planned investment of $150 million. Renault has increased production at its AutoFramo plant by 17% to 180,000 vehicles. Mitsubishi will start full production of its new Outlander, in its new Kaluga (Russia's motor city) plant in November 2012 and plants on producing the Pajero Sport in 2013.  VW will bring production of Audis, also in Kaluga, in 2013.
Even ancillary industries are growing, such as France's Michelin, who has invested heavily, to a tune of $44M in Davydov to increase the volume and range of its tyre production, as well as construction of a new distribution plant.
By this point, my more astute readers will be itching to point out the fact that Russia is entering the WTO and is facing a sharp decrease in tariffs. To that I say, correct. However, the Duma passed a surcharge for imports to cover "decommissioning" of the vehicles, a scrap tariff. When a car is brought in for personal usage, depending on motor size (1-3.5 liters), the charge is between 2,000 rubles 3,000 rubles. However, when a car is brought in for business use, to include sale in a dealership, the charges go from 17,200 rubles for a 1 ltr engine to 110,000 for a 3.5 ltr engine. Used cars range from 106,000 to 700,000.
Sure the open borders, free traders are screaming mad, but honestly who cares? Mercantilism is roaring its "ugly" head in Russia and Russians are now working, earning good salaries and paying taxes. How "ugly" is that?


Φωτοβολος Τοξοτης said...

At its fundamental level a nation state for it to exist, it ensures the protection and prosperity of its people. It is constantly engaged in a state of war whether it is a declared or non-declared war. It is an economic and the strategic military balance of power. If the economy falters, sooner or later the military prowess is lost too. In mercantilism governments set safety 'valves' so as to ensure a positive balance of trade. In neo-mercantilism, economic policy focuses on a rapid economic growth based on advanced technology. But how is a nation state going to leverage its borrowing power to promote a healthy economic growth? A nation state sets policies that tax, subsidize, set quotas and protectionism measures that in order to work efficiently foster the creation of supranational trading blocs, or in other words much larger defensive mechanisms. If unchecked they increase in size and scope such that corporate entities now control the nation state by setting the pace of growth and in most cases they are controlling the type and introduction of technology. They control the money supply and the resources and thus the economic stability of several nation states and all the military aspects. The so -called reciprocal benefits of trade due to a comparative advantage are soon lost. In the words of our own President Bush 'You are either with us or against us'. The idea of the 'modern economic theory' that there can be reciprocal benefits because 'both sides' can benefit is simply a fallacy. How can a small nation state argue that the natural resources found in its territory have a certain value? The value is set and bought by the supranational corporate structure; that is by individuals. If the nation state wishes to withhold its natural resources, even at the face of sanctions, then this structure manages to have either the government is replaced, higher loan rates are demanded, or usage is made of neighboring states to outright take over the 'rogue state'. It is the same thing at the personal level. The whole intent according to 'them' is of course at least three fold. First there must be total control of the earth's resources by these powerful structures. This includes monetary, water, food and mineral supply. Second, new technology is given, as it already exists, technology that brings down the cost of implementing a global marking system- the mark of the 'beast'. Technologies are also introduced that make life 'easier' and get everyone used to slavery. Third, the population of the earth or whoever is left after a WWIII, is 'prepared to join' a system of space alliances that already exist within the Luciferian structure and that prepare for another war with the forces of the Triune God. God has other plans. Russia, with its smart moves and policies of which the automobile industry is a key part, has managed to avoid being split into sections. It has avoided large wars. 'Tests of the resolve' of the Russian political structure have been dealt in a way that have some people sit back and scratch their heads thinking 'what now?' Russia has thus far also managed to put under control of most of its vast natural resources and to stay relevant in world real politics. The power players know very well that the most valuable entity is the not money or a piece of dirt. It is the Human Soul. That is where the fight is transitioning, to a race for the human soul. As before though where God sent Jesus Christ to fight for us and claim all the souls with His sacrifice, so fight it shall be once more, God will fight for us once more for Christ said so Himself. And then, then all this nonsense of money and power structures will end. Christ gave us the example by washing His disciples feet. We will learn to love once more and for those who wish it, they will receive freely from the tree of Life as John the Apostle tells us in his Apokalypsis.

Anonymous said...

Germans hate Lada - except for Niva.

Bring back a modernized real RUSSIAN Lada Niva to Germany and everything will be fine.
(PS: do not try to imitate VW. This is hopeless).

Irina said...

If this is supposed to be an article that demonstrates a miraculous comeback of the RUSSIAN auto industry, i am at a complete loss. Not a single mention of a Russian brand. Ford, VW, BMW are all western investments. What happens if they decide to pull out and relocate their plants somewhere else?

Stanislav said...


First, of all, what matters is not who owns the plants but who works them. Pulling out is not so simple as saying bye bye. If you pay attention to what happens in any European country, when a factory tries to pull out its a very long process. If they pull out, they loose out on the 4th largest automarket in the world, so no, I doubt they pull out. If the parent company declares war, then the plants get nationalized, which is even more reason that the oligarchs of Germany, US, UK, etc will push to keep peace.

Also, if one is to study actual economic and developmental history, one sees that what starts at first as foreign investment and production will always breed local new companies, many formed by the engineers and top managers of the original foreign investment.

So yes, this is a great growth and rebirth. In your country, the US, most of the real production is done by foreign companies, as except for Ford, US companies are defunct. Even Ford, the All American Brand is well over 70% parts produced in Mexico or China, while Mitsabushi, the Japanese foreign brand, uses 90% local produced parts.

Irina said...

what starts at first as foreign investmentand production will always breed local new companies, many formed by the engineers and top managers of the original foreign investment
So yes, this is a great growth and rebirth.

to that we say: Russia, you are totally welcome.

Funny how those opportunistic blood-sucking "grabbers" of the West come in handy sometimes, eh, Stanislav?