The Business Year

Andrey Lavrentyev

KAZAKHSTAN - Industry

Wide Ambition

President, Allur Auto

Bio

Andrey Lavrentyev was born in 1979 and has an educational background in Medicine and Law, with degrees from the Republican Medical College and Adilet Higher Law School in Almaty, as well as an MBA. Between 2001 and 2003 he was the Head of Customs and Logistics Department at Bavaria Autocenter, following which he acted as the Owner and Managing Director at Allur Auto until 2008, following which he became CEO of GAC Allur Auto until 2012, when he became President. He is also the President of the Kazakhstan Auto-Business Association.

"The auto market only really developed after Kazakhstan entered the Customs Union (CU)."

Allur Auto was established in 2003. How has the company, and the Kazakhstani auto market, evolved since then?

The auto market only really developed after Kazakhstan entered the Customs Union (CU), because Kazakhstan—with a population of just 17 million—is a very small market. The Russian market, by contrast, is large. The CU was what gave us the ambition and commitment to become involved in car assembly and production. We had a distribution and import company here for some time, but our market share didn’t really grow, remaining at around 10%. The other 90% was dominated by unregistered used car dealers that didn’t pay VAT. There are 3 million cars in Kazakhstan, and 80% of them, about 2.5 million, are at least 20 years old. That’s because Kazakhstan didn’t have a customs duty on secondhand cars, so naturally that’s what everyone imported and sold. The CU increased customs duties to 30%, and car manufacturers were suddenly given incentives to develop. The government supports auto companies in Kazakhstan, although only two companies receive government support: our company—Agromash Holding in Kostanay—and Azia Avto in Ust-Kamenogorsk, which produces models for Skoda, Kia, and Avtobus, an old Russian brand. Our plan is to produce SsangYong, Peugeot, Iveco, and Zaz, a new, low-cost, market-leading producer from Ukraine. Today, our biggest competitors are Nexia—an Uzbek car—and AvtoVAZ. Generally, our customers don’t go for cars priced at over $11,000, and the same can be said for the Russian and Ukrainian market, given limited levels of disposable income. The people buying new cars today are largely those who formerly purchased secondhand vehicles.

You’re the official distributor of Iveco, SsangYong, Peugeot, and ZAZ. How have these brands performed competitively?

Iveco is our largest partner for which we produce commercial vehicles, and in November 2013 we commence manufacturing large industrial vehicles based on the Iveco Trakker. This model comes with one year’s free taxation in four classes, and Iveco approves of our strategy for the Russian market. The Iveco Power Daily, a commercial passenger vehicle, has proved especially popular. We have around an 8% share of the commercial vehicle market, approximately 7% of the auto market in Kazakhstan, and a 42% share or the agricultural vehicle market. We have a joint venture with Kominmash, a Belarusian company, and we’re currently in discussions regarding the production of CNH agricultural equipment, where CNH manufactures for New Holland and Case. The fact that Kazakhstan has a huge agriculture sector, being the sixth largest grain exporter in the world, makes this is a significant proposition. Iveco also produces for Fiat, which has an incredible range of models. Ultimately, however, our ambition lies in the Russian market, where sales revenues are large enough to keep our costs low.

“The auto market only really developed after Kazakhstan entered the Customs Union (CU).”

How do you view the government’s approach toward the car manufacturing industry?

The government understands process localization. We need time for localization and to develop this business. In November we’re taking our second big step in Kazakhstan, a CKD business, with painting and welding. We are expanding our business and the government is aware of our efforts. We have 30% localization for SsangYong’s Nomad model. The model, which SsangYong sells in the global market, is uniquely produced in Kazakhstan. For us this is a dream come true, because it means real localization. Combined with our strategy for exporting to the Russian market, this marks a significant national development. We discussed this opportunity with President Nazarbayev in 2010, when we met at our plant. I told him we have a real opportunity for innovation, along with a concrete business plan and strategy, and he gave his personal endorsement. In doing this we changed the entire strategy for this sector of the economy, as well as the approach of the government. I’ve given my all to achieving this, and it has finally paid off.

Do you have regional expansion plans?

For the Russian market, we think of ourselves only as producers, and not distributors. To develop owner distributorship in Russia involves a huge capital investment. In Kazakhstan we have 13 dealers, but in Russia we’d need 100 dealers. We’re also considering Belarus, although it’s a small market and quite risk-heavy due to political issues. We’re also thinking of Kyrgyzstan, but it’s also small and relatively volatile. Azerbaijan is an option, and though it isn’t in the CU, it doesn’t have excessive customs duties. We have a partner there and are currently discussing our expansion plan. We’re thinking of expanding there via Port Aktau. But for the next five years at least, or primary target is to develop exports to the Russian market. It’s such a big market and 70% of our capacity is dedicated to it alone.

What’s your outlook for Allurauto and Kazakhstan over the coming 18 months?

The market doubled in 2012 and will continue to grow. With around 168,000 vehicles, the market has yet to reach its full capacity of around 300,000 vehicles. I expect the market to have doubled by 2017. The B and C segment should grow substantially, as should the SUV market.

© The Business Year – February 2014

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