Tuesday, September 15, 2009

The Future of Russia's Automotive Industry: Toys

BROOKLYN, New York -- Togliatti, the home of Russia's largest carmaker, AvtoVAZ, has not weathered the global recession well. Car sales in Russia have plummeted this year, and factories are promising huge layoffs.

Luckily, the Russian Industry and Trade Ministry has a plan: let them make toys.

In an effort to revive the fortunes of this beleaguered region, where tens of thousands are already unemployed or underemployed in the colossally inefficient auto plants, and thousands more may be laid off soon, the government announced plans Tuesday to create a special economic zone designed to attract manufacturers of toys and games.

The government plans to provide incentives to both foreign and domestic producers to locate production and development facilities in the region around Togliatti. According to the minister, Stanislav Naumov, the special zone would be centered around a design and production facility proposed by Hong Kong-based toy company Grand Toys. The company manufactures products for several well known companies, including Mattel, Hasbro and Nintendo. It was not immediately clear how many jobs this program would create.

In addition to preserving manufacturing jobs, the ministry cited several advantages of the program, though none of them seemed to make much sense. For example, the government believes that this will reduce the price of toys in Russia - I don't think that this is a very big problem, nor do I see how relocating production from China to Russia could possibly reduce the price. Also, this plan would reportedly reduce Russia's dependence on foreign imports, despite the fact that the import substitution model does not have a stellar track record, and there is no reason to prop up such an insignificant industry as toy production.

Needless to say, a few jobs molding plastic toys are unlikely to turn around the fortunes of this city. In late July, AvtoVAZ announced plans for 27,000 layoffs at its plants in Togliatti, which currently employ around 100,000 workers. Despite their astonishing Soviet scale, these plants produced a paltry 140,000 cars in the first six months of this year, making them some of the least efficient in the world. The government has already plowed US$750 million into the company to keep it afloat, but those efforts appear to be in vain.

In a related story, the New York Times ran a piece on Saturday about Moscow's famous "Detsky Mir" toy store. The building is undergoing a huge renovation, and many preservationists fear that, like so many other buildings in the city, its architectural integrity is being compromised. You can read the full report on threatened architecture in Moscow from the Moscow Architecture Preservation Society (MAPS) here.

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