OREANDA-NEWS. December 10, 2012. Sergey Kogogin, Director General of OJSC KAMAZ, answered KAMAZ employees’ questions in an interview to the corporate newspaper Vesti KAMAZa.
In the First Person

Sergey Kogogin: "We must reach standards accepted in the global automotive industry"

Journalists consider Director General of OJSC KAMAZ to be open to the press. Sergey Kogogin has recently given Vesti KAMAZa an interview to bring up urgent issues.

– Mr. Kogogin, we are already used to the fact that KAMAZ is a socially responsible company. However, the factory workers are worried about the crisis and tough market conditions. What are our prospects? And do you plan to cut social projects?

– First, all social safeguards and benefits stipulated by our collective agreement and provided for by law will be implemented both this year and next year. KAMAZ didn’t close these programs even when times were bad. 680 million rubles were allocated for this year`s social support program. I believe that we should provide a greater number of people with benefits next year. Perhaps, we will have to give up some expense items and add others. But that’s a business of our trade union and staffing service which, by the end of 2012, will have to come up with suggestions for the budget.

– The company has already undergone some structural changes. In April, you announced that we would greatly reduce our costs. The company is currently optimizing 30% of its managerial staff. Who will be made redundant at KAMAZ?

– Workforce optimization is purely an economic term. In particular, we can’t raise labor productivity only with the help of investment methods nowadays. For example, though we buy expensive high-performance equipment, we cannot fulfill our plans.

We invited an expert to reduce our costs using non-investment methods (this is Tomas Navratil, he achieved good results in this sphere working at enterprises in the Czech Republic). And we saw that some problems in our company are associated with planning, workload, labor discipline. Unfortunately, the result is a 20-30% headcount optimization which is being carried out now.

Our company must reach economic and financial performance on the level of the global automotive industry. This is our goal now. If it is not achieved, our company will be ailing, and it will be very hard to meet its financial objectives.

– Tomas Navratil asserts that the main problem is in people’s minds, in their unwillingness to reform their attitude to work...

– Many people are in the habit of going to work. But they should be in the habit of working in the workplace. And I’m sure there are a lot of opportunities there. There is an everyday expression – “to lose freshness of vision”. A worker doesn’t see that he should move a box for his convenience, look at his workplace like a thrifty manager. We must move away from this attitude to work, especially as because there are methods to do it. Even four years ago, it was impossible to imagine that methods of scientific organization of labor, as it was called in the USSR, can be applied at KAMAZ. Having completed the first phase of lean manufacturing, we understood how to map flows, to build chains correctly. Our major industries are still greatly dependent on timely delivery of workpieces. But we are gradually standardizing this process at our enterprises, including the foundry.

– Will those who will remain at KAMAZ after optimization earn more than they do now?

– There is a concept – "own-product real wage". Today, it is 12-13%. We are not going to change our own-product real wage. I made it clear to managers and those who are engaged in this program, who are implementing it, that our wage fund remains the same. Decrease the number of workers, and they will be able to earn more money.

– What factors influence a sales slowdown?

– Let`s proceed from what is going on in the world. There are financial problems in the USA, Europe and China. Our partners CUMMINS and Daimler are preparing business plans for next year with a minimum of 10% decrease. And the same thing is done all over the world. So, we would like to understand what will happen in Russia. Russia isn’t situated on an isolated island where everything develops according to some special laws which are more favorable than everywhere else. We are all interdependent. We take an economic analysis, try to comprehend it, trace tendencies. There are different points of view: some people think that development will continue, others believe that something else will happen. And we have a huge advantage over other players in our market: the capacity of the Russian market is sufficient for KAMAZ to work steadily. The matter is in internal competition. It is capitally important.

So far, we have developed a business plan with a slight increase to the level of this year. This year we have produced over 47 thousand vehicles for sale, therefore, we plan to make more vehicles next year. We will take into account a number of factors that will potentially bring negative results. Firstly, it is the introduction of Euro 4. We are not sure that our customers will be ready to pay for Euro 4 by 200-250 thousand rubles more than a vehicle costs now. We are looking for a method to somehow reduce this impact on our customers, but, nevertheless, it will happen and influence the sales volume. Secondly, it is unequal competition in the Russian market. Russia openly imports cheap Euro 2 Chinese and Korean vehicles which are not compliant with today`s technical requirements. There is a violation of legislation in the product chain (manufacturer – seller – consumer), and this process is difficult to control. We became aware of unequal competition in April-May and started to analyze and discuss the situation with federal agencies. We also discussed it with the customs service, now they are determining the share of certification bodies in this process. I don’t rule out that the MVD will have to prohibit operation of a large number of vehicles sold in the Russian Federation because of their danger to the traffic. This work gives us an opportunity to return to fair competition with other producers in this country. Unfortunately, it takes very much time and energy, and many people have to carry it out...

– What changes can occur in connection with sagging sales till the end of this year? Will the production cycle be maintained or will it be necessary to pass on to a four-day working schedule?

– We expect that we will have signed several major contracts by the end of the year. This makes it possible to count on a rather successful outcome. But, certainly, I can’t say that the current state of the market will enable KAMAZ to work overtime, during the whole month.

Most likely, we will have extended time off work during winter holidays. For the present, I see no object in working during the last week of December and the first week of January. Our financial position doesn’t enable us to do it now. The reason we need winter holidays is that vehicles made in late December cannot be sold, and Russians are still in no mood for any activity during the first working week of January, and those who decide to purchase a vehicle are usually on holiday in this period of time.

And next year we will probably have to use various methods of such economy, depending on the situation in the market. But the main thing we are discussing now is that we should return to a common corporate summer vacation. This year we didn’t go on a common vacation, but it turned out that it was a mistake. These 30 days, 20 days to be more exact, which could have been our holidays in August, actually resulted in short working weeks we periodically had later. We need to learn to work steadily throughout the year laying our products in stock and selling them in summer, particularly in August.

– The mass media are tirelessly discussing KAMAZ’s contracts with Daimler and MAZ. Can you tell anything more precise and exact about them?

– I understand that our staff is very worried about it. But what happened when Daimler acquired its 11% stake in KAMAZ? How did it affect every person working at KAMAZ? There is, so to speak, a rotation of the share capital. Is KAMAZ interested in a strategic partner? Yes, it is. Cooperation with Daimler enabled us to reveal a number of business secrets, which we perhaps couldn’t have managed to do ourselves. This has to do with purchasing, introduction of lean manufacturing. We wouldn’t have achieved our goals so quickly without our partner. We appreciate that their experts hold consultations for us. This also applies to other investment costs, for example, conversion to a new cab – we have two projects, our own cab and Daimler’s cab. If there are any shortcomings in it, they are removed much more quickly, with fewer costs for a new project. Yes, negotiations are underway.

– But if we say that we need to change our people’s mentality, then probably it is not bad that they are interested in KAMAZ’s activities of all levels. Please tell us what our negotiations with MAZ will lead us to.

– You see, the negotiations with Daimler have well-defined techniques and a clear algorithm. It`s business. As to our possible relationship with MAZ, it is more related to politics. We and MAZ are following a clear path, but, suddenly, the process stops at some point, which indicates that it’s time for a certain political decision. It is very difficult for me to give an answer concerning this large corporation which is 100% owned by the state. We still rely on financial viability and business, and it is already estimated what our alliance with MAZ will bring and who will get these results.

– Did Daimler express its opinion concerning the merger of KAMAZ and MAZ?

– Daimler can’t express any opinion now because its opinion must be based on actual agreements. These agreements with MAZ are still cloudy. Working groups are organized. Our working group is headed by Akhat Urmanov, Deputy Chairman of the Board. He has a lot of experience. He is working with the Belarusian manufacturer very patiently. We will surely get good economic and financial results due to our scale of production – production of engines, gearboxes and other components. This will help us and MAZ reduce investment costs in the future. But, on the whole, I don’t think the process will be completed in the near future.

– Mr. Kogogin, you’ve mentioned KAMAZ’s competitors. Everyone is convinced that there will be more competitors after the entry into the WTO. And is KAMAZ’s product competitive?

– Rivalry on the market is growing speedily. All countries experience a decrease in truck sales. It is not as sharp as it was in 2008-2009, but the trend is negative. The Russian market attracts many producers – both European and Chinese ones – with its impressive scope. 125,000 vehicles will be sold this year.

Now, let’s speak about our product range. Today`s vehicle design enables us to compete with all players of our niche, and it is the average price segment. We are on firm ground. Components of our trucks don’t differ much from components of other trucks. Still, we have serious questions concerning the quality of vehicles, but we are dealing with them persistently.

– What steps have been made to build a new product range? Is modernization of the main assembly conveyor included in the budget?

– This task is worked out in advance, we know what costs will be necessary. It is complicated also because the auto giant has never solved such a large-scale and complex task of transition to a new product range. We have always followed an evolutionary path – we equipped our vehicles with better engines, improved our gearboxes, slightly changed the construction of our trucks, so we tried to meet market expectations. Conversion to the new product range is an extremely complicated task requiring great efforts, but it must be accomplished. The life cycle of our current vehicle line is coming to an end. And we have no time to extend it.

– And what can you say about KAMAZ’s joint ventures? What companies showed the best results?

– KAMAZ’s risk-sharing partnership policy has worked. CUMMINS KAMA, ZF KAMA are not only implementing their programs, but also expanding them. A KAMAZ vehicle equipped with a Cummins engine is a standard version now, and Russian customers welcome it. ZF boxes are also reliable due to their long useful life, high quality and manufacturability. Federal Mogul makes high quality cylinder-piston group components in necessary volumes. Knorr Bremse taught us how to work with our own products – we learned a lot of new things when we gave the Germans the right to manufacture brakes, even our own ones. I believe that this investment risk policy and our more experienced partners’ support worked well, and now we can say that we will be able to invest a program of our new-generation vehicle production without financial support.

– And the last question: many managers complain about a shortage of workers. How can we recover respect for blue-collar jobs?

– This is a problem not only of KAMAZ, but of the whole country. First of all, KAMAZ contributed greatly to the investment climate of Naberezhnye Chelny. There are many companies in the city, production gathers our suppliers, they draw off the workforce. I have already said that the city`s population should be increased to 200 thousand people to implement the programs of Naberezhnye Chelny, KAMAZ and other companies. Then, it would be possible to maintain the current state of production.

If the situation continues developing in the same direction, our only option is to increase productivity to meet the world’s standards. In that case, our current staff is enough for us. As of blue-collar jobs, an attitude to them will change in the future, because equipment and technology will also change. We should recover respect for blue-collar jobs, but even such a giant as KAMAZ can’t cope with this task alone. The state should focus its educational policy on this problem. Experience shows that there are such tendencies in this country.