Crossroads Asia

Explaining the GM Uzbekistan Scandal

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Crossroads Asia

Explaining the GM Uzbekistan Scandal

Simple corruption, delinquent Russian distributors, or political struggle?

Explaining the GM Uzbekistan Scandal

A Daewoo Gentra, sold by GM Uzbekistan in Russia as a Ravon Gentra.

Credit: Timuraxunov / Wikimedia Commons

Tohirjon Jalilov, general director of GM Uzbekistan–jointly owned by Uzavtosanoat (75 percent) and General Motors (25 percent)–was detained in late April by Uzbek authorities, according to RFE/RL. Jalilov and almost a dozen others have been accused of fraud, money laundering, and embezzlement relating to a scheme in which GM Uzbekistan cars ostensibly destined for export to Russia only made it as far as Shymkent, Kazakhstan, and then were labeled as imports and sold into the Uzbek market at higher prices. The detained executives allegedly pocketed the difference.

According to Bruce Pannier of RFE/RL, “GM Uzbekistan sells vehicles to Russia at less than half the price the cars and trucks sell for in Uzbekistan — about $6,400 in Russia but as high as $18,000 in Uzbekistan.” Citing reports from RFE/RL’s Uzbek service, Ozodlik, Pannier said that during Uzbek President Islam Karimov’s April 25-26 visit to Russia he “discovered there were delays in the shipment of GM Uzbekistan vehicles to Russia.” After returning, he directed the authorities to investigate, leading to Jalilov ‘s arrest.

An early May report from Reuters carried a slightly different characterization of the investigation, based on comments from a marketing executive at Ravon, GM Uzbekistan’s Russian-market brand. Yelena Kuznetsova, director of marketing at the Russian representative office for Ravon, told Reuters that GM Uzbekistan as being investigated “because the Russian distributor was unable to repay its debt.” According to Kuznetsova’s account the Russian distributor was unable to pay for cars shipped last year due to the rouble’s depreciation.

If Kuznetsova is right, the allegedly missing funds are due to non-payment by a Russian distributor rather than an embezzlement scam, but this doesn’t quite explain Jalilov’s detention (which Kuznetsova did not confirm to Reuters). Notably, Reuters wasn’t able to get many comments from other involved parties: GM Uzbekistan “said Jalilov left the company last month but declined to comment on the investigation” and both the Uzbek prosecutor general’s office and the National Security Service passed the buck, saying they were not involved. “[T]he Interior Ministry declined to comment. Jalilov could not be reached for comment.”

Another possible way to read the events is as the outward signs of an internal political contest; Stratfor’s analysis points out connections between Jalilov and Deputy Prime Minister Ulugbek Ruzikulov, who RFE/RL reported was brought in for questioning. Ruzikulov is chairman of a domestic automotive industry association. Stratfor says Ruzikulov is presently under house arrest, “following his attempt to flee the country,” as a warning to Prime Minister Shavkat Mirziyoyev. Stratfor further adds that Mirziyoyev “has been locked in a bitter standoff with Security Service Chief [Rustam ] Inoyatov because both are vying for power ahead of the succession of longtime President Islam Karimov.”

To keep track, that’s three possible explanations: a relatively straightforward embezzlement scheme, a debt-ridden and delinquent Russian partner, or a power struggle. Of course, reality is likely a mix of all three.

One more facet to examine is the overall trend in car sales from Uzbekistan to Russia. In April, the Conway Bulletin reported that sales of GM Uzbekistan cars to Russia had risen for the second consecutive month, “raising hopes that the car-making industry in Central Asia has reached a turning point and pulled away from the low it hit in January.” Seems those hopes were premature, built on inflated sales numbers for cars that never got further than Kazakhstan.

Although oil prices are flirting with $50 a barrel again, a seven-month high, the Russian economy is not so quickly rescued. The sale of cars, a luxury good, is one barometer of an economy’s health. GM Uzbekistan saw its sale of cars to Russia drop by nearly half between 2014 and 2015; sales remain nowhere near their 2012 peaks.