Ukraine’s LuAZ and one of China’s largest carmakers sign contract
by Orysia Kulick, Kyiv Post Staff Writer
Jul 13 2006, 02:27
Ukraine’s second largest car producer, the Lutsk Motor Plant (LuAZ), and one of China’s largest carmakers, Dongfeng Motor Corporation, signed a contract June 30 to jointly develop a new freight and cargo truck manufacturing plant in Cherkasy Region.
In a recent press release, LuAZ announced that the new facility will produce freight and cargo trucks with a capacity of 2-10 tons, and is expected to be operational by the end of 2007. The plant will have the capacity to produce 12,000 freight and cargo trucks annually and potentially about 1,000 new jobs as early as next year.
LuAZ is part of the Bohdan Corporation, a group reportedly linked to pro-presidential businessman Petro Poroshenko, which deals with the production, sale and distribution of cars, trucks and buses of various sizes and trademarks.
About $35 million will be invested into the project by the group, according to a spokesman for the company’s Kyiv office, Serhiy Krasulya. China’s Dongfeng Motor Corporation will supply modern equipment and technical support for the facilities, and will also help set up and launch the new plant. Krasulya could not say whether the trucks would be sold under the Dongfeng trademark or another trademark adapted to the Ukrainian market.
Oleg Omelnytskyj, director of Autoconsulting.com.ua, said that this step “will strengthen the position of Chinese freight and cargo trucks on the Ukrainian market and also make them more affordable to local consumers,” adding that in addition to the new LuAZ facility, two others currently produce trucks of this size – Foton, also in Cherkasy Region, and the Kremenchuk Car Assembly Plant in Poltava Region, which reached an agreement with another leading Chinese car manufacturer, First Automobile Group, Corporation (FAW), to begin commercial assembly of FAW trucks in the fall of 2005.
LuAZ’s new freight and cargo truck plant will adhere to the most stringent European environmental regulations, according to the company press release. The company said it will invest more than $3 million just on equipment that ensures these environmental standards at the new plant.
Elena Fedorey, spokesperson for AIS Corporation, an official dealer for FAW, said that LuAZ’s new facility in Cherkasy “is first and foremost another sign that the range of automobiles being assembled on the Ukrainian market continues to diversify,” adding that FAW is China’s leading manufacturer of freight and cargo trucks and that they haven’t observed significant competition from Dongfeng automobiles because they are in a different price bracket.
Fedorey noted that although the demand for cargo trucks continues to increase in Ukraine, the projected production capacity of the new plant seems ambitious. “In all of 2005, for example, only about 1,800 Chinese freight and cargo trucks were brought to the market.”
LuAZ recently inked a contract with Dongfeng Motor Corporation as part of general expansion efforts by the company, which in addition to developing the freight and cargo truck plant, is also in the process of moving its car manufacturing facilities from Lutsk to another plant located in Cherkasy Region.
This new car manufacturing facility in Cherkasy is currently under construction and is expected to open in 2008. The plant will include a new paint shop and testing facilities for completed cars, and is projected to assemble around 60,000 Ladas and 60,000 Hyundai and Kia cars annually.
According to Krasulya, the company acquired an existing facility from the car manufacturer Roto two years ago to consolidate their manufacturing facilities in central Ukraine and expand their production of automobiles in Ukraine.
“The car market is growing dynamically and it was not possible to expand our facilities in Lutsk because of certain limitations,” Krasulya said, adding that by concentrating their manufacturing facilities in Cherkasy, the company will also be able to economize on logistical costs.
Autoconsulting’s Omelnytskyj concurred that “the Bohdan Corporation’s current strategy is geared toward concentrating their main operating facilities in Central Ukraine … a justifiable location given that it makes little logistical sense to transport cars and trucks from its facilities in western Ukraine to buyers in eastern regions.”
Moreover, according to Omelnytskyj, western Ukraine also has a considerable bus manufacturing tradition, which should make the Lutsk plant’s transition from auto and bus to exclusively bus manufacturing a natural one.