News June 2009

CJSC «ZAZ» is included into «UkrAVTO» Group and is a sole enterprise in Ukraine having full-cycle production of passenger cars, which includes stamping, welding, painting, body trim and car assembly. New modern high-technology production, meeting requirements of international standards, has been created and is constantly improved at the plant. Up to the date CJSC «ZAZ» has facilities for full-scale production of 165 thsd. cars a year.

               High level of engineering support of CJSC «ZAZ» production became a basis for CJSC «ZAZ» fruitful cooperation with such leaders of global car industry as Adam Opel, Daimler AG, GM DAT, VAZ, ТАТА, Сhery, КІА. Production process complies with requirements of International Standard ISO 9001:2000 and requirements shown by CJSC «ZAZ» partners; it is aimed mainly at the customers of С class cars (the mostly fast-growing market segment).

               CJSC «ZAZ» priorities include constant intention to improve own products, activities on introduction of new ideas and widening of car models range. For the past 10 years CJSC "ZAZ" expenses for investment program implementation exceeded 2,4 bln. UAH.

Press Production: fundamental modernization made it possible to produce all Lanos car body panels with the capacity of more than 160 thsd. sets a year. Die cushion drawing press made by Fagor company was commissioned. Stamping force of 2 000 tons and hydraulic die cushion with the force of 400 tons allow to make stampings of such body parts as «side panel», «roof panel». First stamping line is equipped with 6-axis robots of «АВВ» company, which allowed to increase capacity of parts' production. There were commissioned four new mechanical presses with effort of 200 tons, two of which are equipped with automatic coil feeders. New coiled steel blanking line and new tandem line produced by «AIDA» company and consisted of five presses were also put into operation. Time required for parts resetting was shortened to 20 minutes. Product range of the shop was enlarged to 15 items per line. In the result of such technical re-equipment CJSC «ZAZ» got the possibility to manufacture all Lanos body parts without exemption, and now is  ready to apply in press shop dies for any car model of А, В, С, Е-class. Today it manufactures all body parts for Slavuta, Tavria-pick up, Lanos Т-100,  Т-150 and Lanos HB. Unique equipment has no analogues at the territory of CIS and as a whole provides the company with a possibility to fulfill orders for local market and export, expanding significantly the possibilities for establishing cooperation with the global car-makers, as well as for products sales.

Welding production: it is equipped for the production of «Lanos» and Т-150 cars with the capacity of 15 JPH; after putting into operation of additional equipment capacity was increased to 22 JPH.

Paint production: modernization of paint lines made it possible to use them for painting «Slavuta», Т-100, Т-150 and VAZ car bodies. Solid paint line was modernized. There were installed nine new robots, five of which are designated for paint and four for clear coat. Bodies are painted in 12 colors on the conveyer moving with the speed of 3,75 m/min.

Plastic parts production: full cycle of paining is ensured by pre-treatment unit, three paint booths, oven, as well as flame treatment robot. Capacity of parts' powder-paint line is 700 thsd. m2/hour, there are 32 new injection machines.

Activities on «Lanos» car localization: body welding, painting and assembly are arranged. Components are manufactured not only by CJSC «ZAZ», but also by suppliers in Ukraine and CIS. Those activities made it possible to achieve localization rate of more than 50%, ensuring possibility for duty-free export to Russian Federation.

Purchases: CJSC «ZAZ» operation is supported by 1 383 companies-suppliers, among which there are 1 120 Ukrainian companies. Total number of CJSC «ZAZ» subcontractors exceeds 10 000 companies. Within the frame of the program for localization (mastering production of components) of Sens and Lanos cars Zaporizhia Automobile Plant together with Ukrainian suppliers mastered a range of materials and components, which made it possible to enlarge volumes of purchase at the market of Ukraine. During the period 2004-2008 suppliers have mastered 160 items of components. Nowadays more than 29 thsd. items of materials, tools and components are purchased for the process of car production .

   Contribution to Zaporizhia region development: According to the results of activity in 2008 CJSC «ZAZ» sales made up approximately 20% of the total sale volumes of industrial companies in Zaporizhia region. Total sales in the region - 64,2 bln. UAH, including CJSC «ZAZ»   - 12,7 bln. UAH. Total salaries paid in the region - 5 477,9  mln. UAH, including CJSC «ZAZ»  - 471,1 mln. UAH. In 2008 CJSC «ZAZ» remitted 2,9 bln. UAH as taxes to the budgets of different levels. For comparison: Total budget fund of Zaporizhia region made up 2,5 bln. UAH. in 2008.

                     «UkrAVTO» Corporation takes all possible actions to achieve sales  level required for stable operation of the company. It initiates improvement of the legislation background for the benefit of car industry development; ensures operation of the distributor network, improves servicing, enters new sales markets, improves production facilities and purchase chain. However, main reason of decrease in cars sales is reduction of purchasing capacity of the population, connected with toughening the conditions for granting the credits, imposing the ban on pre-term draw out of deposits, exchange rate fluctuations and shortage of cash.  Market of car crediting reduced from 25,5 thsd. cars in April of the last year to 0,5 thsd. cars in April of this year, i.е in  50 times.  Since January 2008 till April 2009 $ exchange rate changed three times. In April of this year average salary of the population expressed in $ reduced for almost 60% compared to September 2008.

                     Law of Ukraine «On inputting the changes to some laws of Ukraine for the purpose of improvement of balance of payments of Ukraine in view of the global financial crisis» took effect since March 16, 2009.

                     13% increase to import duties was adopted for the purpose of improvement of the payments balance of Ukraine, taking into consideration such an ideological circumstance as need in support of domestic manufacturer.

                     According to the requirements of the GATT Art. ХII («Limitations for the purpose of ensuring balance of payment»), Ukraine has the right to increase import duties when it is necessary to avert an inevitable threat of considerable reduction of monetary reserves or to stop such reduction, or when country has extremely low monetary reserves and wants to achieve reasonable rates of their increase. Companies-exporters work with maximum possible capacity, but their products are not enough to cover increase in import. Under the conditions of sweeping outflow of capital from Ukraine even minimum red ink is unacceptable for foreign-trade operations, as it results in additional outflow of reserve funds of the National Bank of Ukraine - to inflation. Prior entering the WTO import duty rate was higher than now  ( 25% > 10%+13%), however, even despite of 10%import duty import declined in the 4^th quarter of 2008 and 1^st quarter of 2009.

                     Realizing the importance of the State support during the period of crisis, governments of all leading countries use a wide range of anti-crisis actions to save their native automotive industries, allocating millions dollars for their implementation:

1.        Rendering financial support to automotive industry and car-makers, in particular, for development of new «green processes».

2.       Financing by the government of cheap consumer credits and reduction of interest rates for credit designated for new cars purchase.

3.       Payment of the State bonuses in case of old car replacement with the new one (such practice is applied in 10 countries of the world).

4.      Exemption of ecologically pure cars from tax for car owners.

5.      Increase of import duties rates.

6.      Return of VAT to new cars buyers.

7.  Reduction of taxes while buying new cars.

8.      Development of programs for governmental purchases.

9.      Support of car-makers' leasing programs.

10. Partial reimbursement to car-markers of costs for payment of interests under credits taken for  technical re-equipment.

                     As far as the Government of Ukraine has no possibility to render financial support to the companies, rates regulation is considered to be the only one efficient step. It is necessary to prolong effect of the temporary increase to import duty for the vehicles at least for additional 6 months, that is till March 2010. This would allow maintaining Ukrainian automobile industry during the crisis and ensuring additional earnings to the State budget from import.