Russia revival: Contract assembly, cargo vans fuel GAZ rebirth
NIZHNY NOVGOROD, Russia -- GAZ Group, the Russian automaker that nearly ruined itself with a costly foray into passenger cars, is back from near collapse.
The company shed unneeded layers of management, dumped unprofitable passenger car lines, upgraded its Gazelle cargo van and is producing vehicles for Volkswagen Group and General Motors.
The man who orchestrated this turnaround is Bo Andersson, the former GM purchasing chief who was named president and CEO of GAZ in 2009.
When he arrived at GAZ, the former Swedish army colonel was asked to resuscitate a company that was teetering toward bankruptcy.
In 2006, GAZ purchased the U.S. production tooling for the Chrysler Sebring and used it to produce the Volga Siber, a replacement for the Volga sedan that had been in production since 1974.
It was a costly investment. GAZ had hoped to produce 65,000 Sibers a year, but Andersson halted production after just 9,000 were produced.
"It was the wrong vehicle at the wrong time and the wrong cost," Andersson told Automotive News Europe. "I was concerned that we would build them and people would not buy them."
Toward the end of the Siber's run, Andersson introduced a pre-payment system for the car. No vehicles would be built unless GAZ had the money in advance.
Gazelle to the rescue
After he killed off the Siber, Andersson focused the company's limited resources on its Gazelle light commercial vehicle.
A copy of the fourth-generation Ford Transit from 1986, the Gazelle generated half the company's income, despite being sold virtually unchanged since its introduction in 1994.
Andersson introduced the pre-payment system for the Gazelle, and he also launched a campaign to upgrade its shaky quality.
He asked the company's 220 dealerships to report warranty claims at 3 p.m. daily, identifying the worst problems. "Fifty percent of issues came from the supply base," Andersson said.
Poorly made parts -- even those made in-house -- were jettisoned in favor of components from recognized suppliers.
Then GAZ introduced a face-lifted van dubbed Gazelle Business that was launched alongside the base van in 2010. Next year, GAZ will introduce a new, upmarket version of the van.
"We got the approval of ZF Sachs, Bosch, Magna and others to use their name," Andersson said. "It helped us to say to the Russian consumer, 'This is something different.' "
Last year, production rose to 130,725 units, which is back to pre-crisis levels. Remarkably, this was achieved with half the number of employees.
Less is more
GAZ had 100,000 employees when Andersson arrived. Now, the payroll is down 53,000 workers. Likewise, management was slashed from 14,000 supervisors down to 3,000.
The vast factory in the industrial city of Nizhny Novgorod also has shrunk. The sprawling complex is 15 times the size of Monaco -- an impossibly large facility for efficient modern production.
It has been home to GAZ production ever since the company was launched in 1932 with Henry Ford's help.
Andersson plans to shrink its floor space to 1 million square meters, down from 3 million square meters. "When I started here we had 482 buildings," Andersson recalled. "In the first year I took down 100 buildings. This year I will take down another 50."
GM, VW business
Some of those vacant buildings will house GAZ's latest venture: contract manufacturing. The company assembles the Yeti small SUV from VW Group Czech subsidiary Skoda. Next year, GAZ will begin producing the redesigned Skoda Octavia hatchback and VW Jetta sedan. Total production for VW will amount to 110,000 units a year.
In a separate building, GAZ will start making the Chevrolet Aveo subcompact next year, assembling up to 32,000 units annually.
And in the Gazelle's assembly plant, GAZ will produce 20,000 Mercedes Sprinter commercial vans annually on a new line to be launched next year.
Andersson says he has worked aggressively to line up customers for his contract assembly venture.
"We brought everyone in here who had interest in building vehicles in Russia — the Chinese, Japanese, Europeans and Americans," Andersson said. "We had a lot of demand."
Automakers like the deal because it requires little investment, and GAZ handles the intricacies of import tariffs, factory renovations and personnel.
All contract vehicles are built from complete knocked down (CKD) kits. But GAZ produces some parts onsite, and Andersson wants to offer his customers top-quality stamped components.
But he won't spend money the way GAZ did before the crash: "This business is very capital intensive. We want to be on the low end of that."
You can reach Nick Gibbs at firstname.lastname@example.org.