Focus: Auto Sector

Get the Gear Right

Get the Gear Right

May. 2, 2013

Azerbaijan's growing love affair with the car shows no signs of abating. Over five years the number of registered motor vehicles in the country has increased 47.9% from 773,318 in 2007 to 1.14 million in 2012. Fleet size also increased 10.2% in year-on-year terms alone from 1.03 million in 2011. The large majority of this total has been passenger cars. “The purchasing power of the population has significantly increased. Accordingly, demand should also be at a high level," Faig Safarov, President of Kia Motors, told TBY. In 2007, the GDP per capita PPP was $7,786, which increased by 37.4% to $10,700 in 2012. To help satisfy this increasing demand for cars, Azerbaijan's auto industry is slowly expanding to try and reduce the dependency on imports. In the first 10 months of 2012, Azerbaijan manufactured 542 cars, 632 trucks, and 618 tractors, totaling $196.5 million. This is an 8.2% increase on the year before for machinery and a 12.3% increase for cars.

PUTTING THE PIECES TOGETHER

Although production numbers are relatively small compared to its neighbors Turkey and Russia, Azerbaijan has three main production plants for vehicles: Ganja Automobile Plant, Nakhchivan Automobile Plant (NAP), and Az Samand. The potential in these three factories is much higher than their current production numbers. Ganja Auto mainly produces heavy vehicles such as tractors and MAZ trucks. It is in partnership with the Belarusian companies BelAgroMash and DorElecktroMash. Since it opened in 2007, Ganja Automobile Plant has manufactured 4,000 tractors and 2,000 trucks; however, it has a capacity to produce 1,000 trucks and 2,000 tractors per year. Ganja Auto also produces more specialized equipment, such as cranes, municipal service vehicles, excavators, plows, and other agricultural equipment. To date, the factory has produced 24 municipal vehicles, with another 16 in production, as well as 300 cranes. Production is also expected to increase in the near future. The plant signed a memorandum with Belarusian company AMKODOR to co-produce more specialized equipment including snow removal, forest, road construction, utility, and other vehicles and machinery. The Director of the Ganja Automobile Plant, Kamran Nazarov, told TBY, “there is great demand for heavy-duty trucks, tractors fitted with different equipment, specialized agricultural machinery, and municipal service and construction hardware in Azerbaijan." The factory's main aim at the moment is to satisfy the domestic market, and then look for avenues into foreign markets as the reputation of the Azerbaijani auto industry increases.

After a cooperation contract was signed in May 2009 between Azerbaijan and China, the Chinese company Lifan opened NAP, which was commissioned on January 11, 2010. The factory has the capacity to produce 5,000 units per year. It has state-of-the-art equipment on its 2.6-hectare plot from Germany, Belgium, and Italy. In February 2013, the plant announced it would be going into production of the Nazlifan LF 6401 Microbus. The bus will cost AZ10,500, and NAP is hoping to produce up to 1,000 of them per year. The third plant in Azerbaijan belongs to Az Samand, which is owned by Iran Khodro. It currently has the potential to produce 6,000 cars annually. According to Azstat, the automobile industry employed a total of 600 people directly in 2011.

HERE THEY COME

Compared to the increase in registered cars from 2011 to 2012, the number of cars manufactured in Azerbaijan is fairly small. There was an increase of 106,410 registered passenger cars between 2011 and 2012. The local auto industry produced just 546 cars, leaving just under 105,000 cars coming from other sources. In 2012, Azerbaijan imported 101,225 passenger cars worth $1.12 billion according to the State Customs Committee. Of that total, 89,652 were intended for private use and worth $760 million. Kia's Faig Safarov suggested, “The only challenge we face is a shortage of cars. We can't meet demand, which prevents us from expanding our sales and service centers to the desired level." As of 2011, the most cars on the road came from Russia, with 391,804 or 45% of cars on Azerbaijani roads of the Vaz series. The Vaz-2101 03-06 is the most popular model, with 201,462 units or 23.2% of the total fleet. Due to rising safety standards in the country, an import ban was imposed on the Vaz as of October 1, 2012. The new requirements mean that all imported and domestically made cars must now have at least one airbag and an anti-lock brake system (ABS). The aim of such regulations is to try and stem the rising death toll on the roads due to the lack of basic safety systems. After the Vaz, Mercedes-Benz is the second most popular model, with 124,833 on the road, or 14.3% of the total. The main internationally recognized brands in the country after Mercedes are Hyundai with 4.2% and Toyota with 3.1%. The Azerbaijani automobile market is largely dominated by a small number of brands; nine car brands make up 86.7% of the cars on the streets while 80 brands make up the remaining 13.3%. Of the luxury cars, Porsche is by far the leading brand with 699 cars on the roads, with its nearest rival the Jaguar having only 110. This huge influx of grey import cars has not gone unnoticed by the brands. Companies are increasingly building service centers and depots in the country to cash in on the growing fleet size and its need for spare parts.

There is massive demand at the moment in Azerbaijan for vehicles, which the domestic industry is slowly gearing to try and satisfy. The import market is likely to remain very lucrative, and even provide more opportunities as the government tightens up safety laws. There is a population of 9.5 million people in Azerbaijan at the moment, with close to 7 million people of driving age. As the purchasing power of the people increases, so will the demand for cars.