Executive Director of NAPAK Mr. Mikhail Blokhin

1. Национальная Ассоциация Производителей Автомобильных Компонентов Член Европейской Ассоциации Поставщиков Автомобильных Компонентов www.napak.ru E-mail: napak@napak.ru Program of Modernization and development of vehicle components manufacturing in Russiafor 2005 – 2010. November 23-th, 2005 Executive Director of NAPAK Mr. Mikhail Blokhin

2. Национальная Ассоциация Производителей Автомобильных Компонентов Член Европейской Ассоциации Поставщиков Автомобильных Компонентов www.napak.ru E-mail: napak@napak.ru 2 The structure of vehicle components manufacturing before the middle of 1990-th 10% 90% Russian automotive plants Components manufacturing Components manufacturing Independent suppliers Components manufacturing R&D Components manufacturing Components manufacturing

3. Национальная Ассоциация Производителей Автомобильных Компонентов Член Европейской Ассоциации Поставщиков Автомобильных Компонентов www.napak.ru E-mail: napak@napak.ru 3 Nowadays state at the Russian market of vehicle components 40% 60% Russian automotive plants Components manufacturing Independent suppliers Components manufacturing R&D Components manufacturing Components manufacturing Components manufacturing

4. 4 Nowadays situation at Russian vehicle components market Low quality of production (from 250 up to 1000 ppm, required 60-100 ppm). Declared quality policy is formal. Low value of R&D products and big term of engineering and production tooling. Outdated technologies and equipment (basis assets are on average worn out for 70-100%) Low qualification and large number of a staff. Supply system does not corresponded with “just-in-time” system. Clear strategy for development of production is absent. Independent engineering companies are absent.

5. 5 Sales of new passenger vehicles in Russia from 1995 to 2004, in thousand items

6. 6 The program of modernization and development of vehicle components manufacturing in Russian Federation National market capacity is not equal to minimum necessary volume of effective production. When the call and export possibilities are limited only realization of one project in respective arias becomes possible.

7. Manufacturing assembly 7 THE GOVERNMENT OF RUSSIAN FEDERATION REGULATION №166 29-th of March, 2005 ABOUT MAKING ABOUT MAKING OF CHANGES IN CUSTOMS-TARIFF REGARDING TO VEHICLE COMPONENTS, IMPORTING FOR MANUFACTURING ASSEMBLY

8. Manufacturing assembly 8 Import of components (goods), classified by commodity items of foreign-economic activity (CIFEA) for “manufactuting assembly” of motor vehicles, is realizing in accordance with Agreement between the Ministry for Economic Development and Trade of Russian Federation and Russian Legal Entity and a statement for enter of production facilities.

9. Manufacturing assembly 9 • Production facilities must meet next requirements: • Issue program – 25 000 vehicles per year, • Welding and painting of body, • Assembly operations (mounting of interior equipment, power plant, steering unit, front and rear suspension, exhaust system, mounting of electric equipment, exterior parts, testing) • Number of importing materials and components (relating to their cost) to custom territory of Russia, regarding to commodity items of foreign-economic activity for “manufacturing assembly”, must be less then 70% from the whole volume of ones necessary for manufacturing of a finish product.

10. Manufacturing assembly 10 • The list of manufacturing operations can be reduced during development of manufacturing facilities. • Organization of body welding and painting: • for working enterprises – during 18 months, • For creating enterprises – during 30 months.

11. 11 Stages of reduction of importing goods list Stage I – welding, painting, assembling • Not later than 18 months after a date of Agreement validation

12. 12 Stages of reduction of importing goods list Stage II – reducing of the list on 10% • Not later than 24 months after Stage I

13. 13 Stages of reduction of importing goods list Stage III – reducing of the list on 10% • Not later than 42 months after Stage I

14. 14 Stages of reduction of importing goods list Stage IV – reducing of the list on 10% • Not later than 54 months after Stage I

15. Manufacturing assembly 15 • Requirements of “Manufacturing assembly” concept for next goods: • 1.1. Engine: • work volume not less than 2,5 l: - manufacturing facilities – not less than 25 000 items per year, - machining – not less then 4 basic parts • work volume more than 2,5 l: - manufacturing facilities – not less than 15 000 items per year, • machining – not less then 2 basic parts • assembling and check operations, engine ass. testing 1.2. Gearbox: • manufacturing facilities: • - torque less than 30 kg*m– not less than 25 000 items per year, - torque more than 30 kg*m– not less than 5 000 items per year • case machining • assembling and check operations

16. Manufacturing assembly 16 • Addition for Regulation №166, spreading “manufacturing assembly” conception, is preparing for next assemblies and units: • clutch ass. • steering units • brake sysrems • telescopic legs and shock absorbers • driving axles with differentials ass. and non-driving axles • seats, • exhaust systems • door closing mechanisms • seat belts with pre-tensions • air bags • other components

17. 17 Example reduction of components List importing for manufacturing assembly A vehicle cost is $ 6000

18. Example of calculation 18 Assembly set (% of cost)

19. Example of calculation 19 Assembly set, USD

20. Example of calculation 20 Components recommended for decreasing

21. Example of calculation 21

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25. Example of calculation 25 List of decreasing items (stage II) • Quantity of details in the List must be reduced so that their cost should be more than 10 % of car set cost (without body)

26. Example of calculation 26 That is: • 6000-840(body cost) =5160 • 10% from $ 5160 is$ 516 • So, it is necessary to decrease the List to achieve whole cost of decreased items more then $ 516

27. Example of calculation 27 Example*: * red marked items must be excluded

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30. Example of calculation 30 Total: • The total cost of 15 deleted elements is $ 521 – the condition of reduction of the List on 10 % on the 2nd stage of the Agreementis executed • Other details in the List must be similarly deleted according to stages of the List reduction. Thus,at each stage car set cost is constant.

31. Example of calculation 31 After executing Agreement conditions: • In the List there are details with total cost$ 660 • The list is reduced on$ 1712 Agreement conditionsare executed

32. Thanks for Your attention!