Auto parts companies from around the world are weighing up expansion in the fast-growing Russia market before government import incentives are scrapped in 2018 - a condition of Russia's planned entry to the World Trade Organisation (WTO).
The Russian government has waived import tariffs for overseas car manufacturers and suppliers in return for a future commitment to local manufacturing, but was forced to set an end date for the trade deal as part of the WTO talks.
"We have 52 (tier one) supply companies, with plans for another 150," said Deputy Industry Trade Minister Alexei Rakhmanov, when asked by Reuters if many auto parts companies have made an investment commitment to Russia.
He named U.S. suppliers Delphi Automotive, Johnson Controls and Lear among the group, as well as Japanese firm Asahi Glass.
Rakhmanov was speaking at a networking event for 13 U.S. auto parts and services groups on a trade mission to the Russian cities of Moscow, St Petersburg and Samara in search of new sales and understanding of the emerging market.
Russian car sales are expected to grow around 6 percent on last year to 2.8 million units in 2012 -- taking it to the cusp of pre-crisis levels and on the way to becoming the biggest market in Europe by the middle of the decade.
General Motors, Ford, Renault, Nissan and Volkswagen are among the car manufacturers who have already expanded capacity in Russia to take advantage of duty free incentive on parts, but they have to increasingly improve their localisation quota as part of the deal -- and in 2018 it will be scrapped altogether.
Autos suppliers qualify for the same kind of agreement, whereby if they increase their own local presence in Russia they too are not subject to import tariffs.
"We have to abolish the support in 2018 .. It was the most painful negotiation process during WTO (talks)," Rakhmanov said.
BIG PROSPECTS
U.S. Commerce Deputy Under Secretary Michelle O'Neill said exports of U.S. autos parts to Russia had grown 98 percent year on year in 2011, and were on track to hit 90 percent growth in 2012.
She said this was down to a maturing Russian car market, where an emerging middle class have become more discerning in their choice of vehicles -- a move away from the dominance of the Soviet Union-era Lada models.
Members of the U.S. delegation said they saw Russia as an important growth market and were seeking ways to expand -- particularly outside the main hubs of Moscow and St Petersburg.
"We are looking to expand to the rest of the country – we are looking for dealers ... There are big prospects given the rise in disposable income, " said Ivan Martinez, director of Global Business Development for Keystone Automotive Operations -- a wholesale supplier.
Engineering group Fluxtrol said its main business in Russia was to supply the country's more traditional industries including oil pipes and tubes, but said it saw the auto industry as a potential target in "three to four years"
"The auto industry is strong here, it's just not very modern," said Fluxtrol President Robert T. Ruffini.