GAZ Group Annual Report 2008

Annual Report 2008

GAZ Group

Contents

Statement of the Chairman of the Management Board ...... 3 GAZ Group general information ...... 5 GAZ Group profile ...... 5 GAZ Group mission and strategy...... 7 Organizational structure ...... 9 Key events of 2008...... 10 Key events of the beginning of 2009...... 17 Main lines of business ...... 19 Light commercial vehicles (LCV) and medium commercial vehicles (MCV) ...... 19 Buses...... 25 Trucks ...... 30 Construction equipment...... 33 Passenger cars...... 37 Powertrains ...... 38 Auto components...... 43 Corporate governance...... 46 GAZ Group’s corporate governance system ...... 46 Board of Directors ...... 47 Remuneration ...... 51 Committees of the Board of Directors...... 52 Executive bodies...... 53 System of internal controls...... 58 Risk management ...... 60 Report on the payment of declared (accrued) dividends on the company’s shares...... 61 Equity capital...... 62 Sustainable development ...... 65 Quality control...... 65 Environmental protection ...... 67 Employees ...... 71 Cooperation with the state authorities ...... 75 Social responsibility to society...... 76 Contact information...... 79 Major transactions and interested-party transactions ...... 80 Major transactions approved by the Board of Directors of OAO GAZ in 2008 ...... 80 Interested-party transactions approved by the Board of Directors of OAO GAZ in 2008...... 80 Appendix ...... 82 Consolidated financial statements for 2008...... 82

Statement of the Chairman of the Management Board This reporting year was a pivotal one, both for the company and for the Russian automobile industry as a whole. This period will go down in economics textbooks as an unprecedented stage when rapid growth gave way to a dramatic fall in the market. In the fourth quarter of 2008, the effects of the global financial crisis on the automobile industry in Russia and worldwide reached their zenith. The sharp drop in activity in the main consumer sectors, the fall in solvent consumer demand, the lack of access to credit, and the contraction of the market by up to 80% in some segments inevitably affected the company’s financial performance in 2008. These factors reversed the positive trends seen in the first half of the year, in which the revenues of GAZ Group grew by 20% compared to the same period in 2007. For the year as a whole, consolidated revenues dropped by 7%, to 146 billion roubles. However, responding to this rapid deterioration in market conditions, we mobilized our forces to significantly raise our business performance indicators. The results of the crisis management program implemented by GAZ Group confirm that a crisis is not only a period of difficulty, but also of new opportunities opening up for automobile manufacturers. This situation has spurred us to improve our key profitability drivers: increasing worker productivity, reducing costs, streamlining assets and the management system, deep cuts in management personnel, and changes to investment policy. GAZ Group was one of the first in the industry to implement a crisis management program. The measures taken since October 2008 to reduce costs, cut inventories of production materials and finished products, and streamline technological processes allowed us by the end of the year to adjust the production process in line with changes to market demand, cut selling expenses by one third, avoid a glut of inventory, and retain our workforce capacity. The government commission on increasing economic stability declared the crisis management program of GAZ Group to be “one of the most promising that we have looked at”. The implementation of the crisis management program is based on the potential that the company has built up over the previous years, including the results achieved in 2008. Over the past year, the company continued its work to update its model range and expand the product line, which is fundamental to the Group’s competitiveness in the longer term. In 2008 there started the projects of GAZell with improved specifications and the development of the next-generation LCV GAZelle-3. Production of an upgraded UMZ-4216 gasoline engine, used in GAZ Group light commercial vehicles, began in 2008. In 2008 GAZ Group rounded out its full line of buses of all classes and purposes. New models were introduced to the market: the Real compact-class city bus, the KAVZ 4239 medium-size low-floor bus, the GolAZ 6228.10 extra-large suburban bus, and Russia’s first hybrid full-size bus, the LiAZ 5292. In the road-construction equipment segment, the company introduced six new products: the EK-20 wheeled excavator, the ET-20 tracked excavator, the ET-26i tracked transfer loader, the V- 140 front-end loader, the GS-25.11 grader, and the Asf-G-3-08 asphalt layer. The vehicles dispose of imported components, have higher productivity, and improved cabin ergonomics. Preparations were underway to begin mass production of new URAL off-road vehicles, equipped with comfortable interiors that cede nothing to their Western competitors in terms of ergonomics. The year 2008 saw the completion of a large-scale project – the construction of a new manufacturing complex for passenger cars that meets global quality standards. The complex has the capacity to produce about 100,000 vehicles per year. The flexibility of technological processes

3 allows us to re-orient production to different vehicle platforms and different classes. Under conditions of rising exchange rates and higher customs duties, the opportunity to organize the assembly of automobiles within Russia at existing facilities becomes even more attractive to foreign investors, with whom negotiations continue on joint automobile manufacturing projects. In 2008 the products of GAZ Group enterprises received numerous prestigious awards, attesting to consumer recognition of the advantages of our vehicles. The Real bus and the low-floor hybrid LiAZ 5292 were recognized as the year’s best domestically manufactured city buses at the International Automotive Transport Forum 2008 in Moscow. The Ural-6563 dump truck was declared the best domestic truck of the year as part of the eighth annual contest Best Commercial Vehicle of the Year in Russia. The Ural-63685 dump truck was recognized as the best large-capacity domestic vehicle at the exhibition Auto + Auto Mechanics-2008. The GAZ-330202 GAZelle refrigerated van was declared Popular Commercial Vehicle of Russia 2008 at the 9th ComTrans International Specialized Exhibition. The GAZelle brand took first place among Russian automobile brands in the annual Best Russian Brands survey conducted by Interbrand Zintzmeyer & Lux. Experts assess the value of the brand at USD 139 million. In 2008 we continued to develop public–private partnerships on environmental protection, employment and social programs. GAZ Group continued its participation in the Education national project, supplying 1,150 GAZelle school buses to 76 federal subjects of the Russian Federation. GAZ Group received the Gold Medal and a certificate for winning the European Quality Gold Medal Contest in the category Russia’s 100 Best Organizations for outstanding achievement in environmental protection and ensuring ecological security. An extremely important outcome of this period was the mobilization of the company’s many thousands of workers at all levels to implement crisis management measures at the end of 2008. The far-reaching measures demanded that our actions be coordinated and prompt, and sometimes even courageous, but these actions have laid the foundations for the company to see the crisis through with minimal losses and maximum business performance. The steps taken in 2008 will allow us to achieve the goals of GAZ Group’s crisis management program: ensuring that operating activities at all production sites reach breakeven level, and creating a positive cash flow in order to service the loan portfolio and suppliers contracts on time. Sergey Georgievich Zanozin, Chairman of the Management Board

GAZ Group general information

GAZ Group profile GAZ Group is one of Russia’s largest car manufacturers. Its product line includes light commercial vehicles, passenger cars and trucks, buses, road construction equipment, engines and fueling equipment, auto components for the entire model range in the LCV segment and mid-size trucks, and also spare parts. GAZ Group has seven divisions1, each responsible for a line of business, and each of which includes manufacturing enterprises as well as the relevant sales & distribution companies. The Group includes 18 major automobile and equipment manufacturing facilities in ten regions of Russia. The parent company and center of consolidation of GAZ Group’s financial results is OAO GAZ. The senior management body of OAO GAZ is the General Meeting of Shareholders. OOO GAZ Group Management Company is the executive body of OAO GAZ; its director – the Chairman of the Management Board – is appointed by decision of the Board of Directors of OAO GAZ. OAO Russian Machines is the principal shareholder of OAO GAZ.

Divisions and main enterprises of the Group

Light Commercial Vehicles Division2 • OOO GAZ Automobile Plant (commercial vehicles); • LDV Group Limited (Birmingham, UK).

Passenger Car Division • OOO GAZ Automobile Plant (passenger cars).

Truck Division • OAO Ural Automobile Plant; • OAO Saransk Automobile Plant.

Bus Division • OOO Pavlovo Bus Plant; • OOO Likino Bus Plant; • OAO Golitsyno Bus Plant; • OOO KAVZ; • OAO Kanash Auto Components Plant.

Construction Equipment Division • OAO Tver Excavator; • OAO Bryansk Arsenal; • ZAO Chelyabinsk Road Construction Machines; • OOO Kovrovets Excavator Plant;

1 Five Divisions in 2009 2 At the end of 2008 the Light Commercial Vehicles Division was merged with the Passenger Car Division into the Light Commercial and Passenger Vehicles Division; however the number of lines of business remained seven. In preparing the 2008 Annual Report, we used the previous classification of Divisions that was in effect throughout the reporting year. 5

• OAO Zavolzhsk Caterpillar Tractor Plant.

Powertrain Division • OAO Autodiesel (YaMZ); • OAO Ulyanovsk Motor Plant; • OOO Nizhny Novgorod Motors; • OAO Yaroslavl Diesel Equipment Plant; • OAO Yaroslavl Fuel Equipment Plant.

Automobile Components Division • OAO GAZ (automobile components).

Sales revenues of GAZ Group breakdown, 2008 *

1,8% 3,9% 15,2%

0,3%

0,9% 29,5%

9,7%

5,5%

12,3% 20,9%

Passenger cars Light commercial vehicles Trucks Buses

Construction equipment Engines Fuel-delivery systems Stationary units

Other core products Other types of activity

* Here and throughout the report: source - GAZ Group data

GAZ Group mission and strategy The Mission of GAZ Group is to manufacture commercial vehicles that guarantee benefits to purchasers thanks to uncompromising quality and reliable servicing, supported by highly competent personnel and suppliers, and innovation in both manufacturing and products. Pursuing this mission will make it possible to maximize shareholder value and make a substantial contribution to improving the quality of life in the regions where we have a presence, among other things by implementing advanced environmental standards.

The Objective of the Group is to become a world-class automobile manufacturer specializing in commercial vehicles. To achieve this objective, Group management has formulated the following key long-term strategic objectives:

1 To gain critical business weight and become a specialized global player on the international market for commercial vehicles. 2 To master internal product development competences to meet best international practices.

The principal tools to achieve the Group’s strategic objectives are:

• renewal of the model range; • bringing in strategic equity partners to GAZ Group with the aim of involving them in the development of the company (products, technology, processes); • implementation of lean manufacturing system at all Group enterprises and restructuring of manufacturing; • consistent and system-wide improvement in the company’s quality and key competencies in the areas of managing human capital, managing investments, engineering and producing competitive products, quality, the production system, environmental management, purchasing, sales, and after-sales servicing; • focus on the creation of long-term stable leadership in the Russian and CIS markets. Gradual expansion on markets outside the CIS as new products, resources and competencies become available. The global financial crisis has had an extremely negative impact on the Russian economy. One of the sectors that have suffered most from the crisis is the automobile industry. Sales of cars and components had already dropped significantly by the second half of 2008. The sharpest drop was in the fourth quarter of 2008. Depending on the segment, sales decreased by 43% to 82%, and for 2008 as a whole from 17% to 58%. Fundamental market factors were the reasons that sales fell so rapidly: increased cost of lending, reduction in disposable income, higher prices for materials and parts. Under conditions of a deep economic contraction, a company’s ability to react quickly to adverse changes in market conditions becomes especially important. GAZ Group has set a number of strategic priorities, the implementation of which should make it possible to come through the crisis with minimal losses, earn as much as possible with existing products and markets, and enter the post-crisis cycle in 3–5 years with new products: • optimizing the assets and management system of GAZ Group; • fundamentally changing investment policy: to minimize investments from equity and invest in new products using project financing mechanisms;

• pursuing partnership projects in areas of activity where GAZ Group does not possess sufficient competencies. In the short term, the Group has planned measures that should ensure that operating activities will not be loss-making from 1 July 2009. These actions are distributed in three main areas: 1 Cost reductions: • reduction in the cost of products; • decrease in working capital; • reduction in purchasing prices; • restructuring of production facilities; • optimization of staffing costs; • deferral of payment of principal and interest on loans (taking loan extensions into account); • discounting and installment payment of accounts receivable. 2 Increase in sales: • incentives for commercial sales; • development of export sales; • increase in sales of spare parts and services; • development of financial instruments (leasing and loan programs); • servicing of state orders and budget-funded procurement. 3 Development of the product portfolio: • design and manufacturing of products with a lower cost of production; • reduction in the number of model configurations; • production of high-margin products; • finding external co-financing of new projects; • investment only in key projects. This crisis management program will allow GAZ Group to recover and renew itself: • to complete 2009 without operating losses; • to establish a positive cash flow for settlements with creditors and reduction of loan portfolio; • to bring new products to market and create a promising product line-up for 2013–2015; • to minimize costs at all production facilities and streamline the management structure.

Organizational structure The Group’s organizational structure encompasses a number of manufacturing and supporting companies. GAZ Group currently includes more than 30 subsidiaries and associates of OAO GAZ*.

Management Company Main functions: - management of the company’s business portfolios MC - corporate development strategy - corporate governance Centralized competencies: - UEC (Unified Engineering Center) – engineering (Management - TZK GAZ (Trade and procurements company) – procurements Company) - Finance and settlements center – centralized treasury Divisions – business development • Light Commercial Vehicles Division • Bus Division Divisions • Truck Division • Construction Equipment Division • Powertrain Division • Passenger Cars Division • Auto Components Division

LEVEL OF MANAGEMENT LEVEL Companies and trading houses Companies – production Trading houses -sales

* here and below, the structure indicates the equity share in the company belonging to OAO GAZ.

Key events of 2008

2008 February

GAZ Group has developed a new purchasing strategy and a policy of relations with components suppliers

Relations with components suppliers are based on long-term contracts, the Group continues the processes of establishing a unified purchasing service, demonopolization of suppliers and attraction of alternative partners ready to meet the certification requirements, to learn from the practice of the world manufacturers and to implement the principles of lean manufacturing and economic transparency; more active actions are taken in conclusion of strategic contracts that guarantee quality and financial stability of all the facilities constituting the technological chain, as well as make the large-scale projects of GAZ Group for renewal of the whole model range competitive and complying with the expectations of the automobile market.

GAZ Group expands its line of engines for the automobile industry

GAZ Group Development Strategy stipulates that the car assembly enterprises of GAZ Group should be supplied with the company’s own engines as much as possible. The Group has begun commercial production of an updated version of the UMZ-4216 gasoline engine. This engine meets the Euro-3 standard and is designed for use in GAZelle models. The first series of GAZelles with UMZ-4216 Euro-3 standard engines was manufactured at Gorky automobile plant and shipped to dealers.

GAZ Group launches the first Russian Euro-4 compliant inline engine, the YaMZ-534

The Yaroslavl engine plant, OAO Autodiesel (YaMZ) has launched YaMZ-534 - the first Russian four-cylinder inline engine that meets the Euro-4 standard. The YaMZ-534 Euro-4 compliant engine is installed in the experimental section of Autodiesel test box for an extended testing period. The YaMZ-530 family of engines was developed in cooperation with one of Europe’s leading engineering firms – AVL List GmbH of Austria. More than three billion roubles have already been invested in the project.

March

Launch of test production of the new Siber passenger car at GAZ automobile plant

The large-scale project with the initiation period of April 2006 when GAZ Group and Chrysler signed an agreement on the purchase of the production assets of the Sterling Heights Plant in Detroit, Michigan has been completed. Construction of a new high-technology production complex was completed by 2008 at the company’s Nizhny Novgorod passenger car production facility. At the beginning of 2008 the full production cycle was in place: body welding and painting, car assembly and full processing for delivery to the client. A total of 44 robotic systems are involved in the body production process, including 294 Japanese Nachi robots and German Kuka robots. An effective quality control system based on the automation of processes at all stages of the car

manufacturing process has been developed and implemented for the production of passenger cars. The manufacturing process is 85% automated.

A new warranty period is set for GAZelle vehicles

From 2008, the warranty period for GAZelles is increased up to two years or 60 thousand km. It results from the work on product quality improvement done by GAZ Group. In 2007, more than 50 quality improvement programs for units and assemblies were implemented.

American heat-treatment line is started at Autodiesel

Autodiesel (YaMZ) has launched a new AFC-Holcroft (USA) heat-treatment line (purchased at 133 million RUB), intended to support greater volume of production of powertrains with Euro-3 specifications. The replacement of the worn-out heat treatment equipment with new modern equipment will allow the company to ensure a stable flow of production, increase product quality, shrink losses from defective products, and reduce energy and labor costs.

First operation of the Euro-4 engine YaMZ-650

At the technical base of the English engineering firm Ricardo UK Limited, GAZ Group performed the first operation of the YaMZ-650 engine in its Euro-4 modification. The operation of the engine was successful, which lays a solid foundation for discussing practical issues on the assembly of prototypes and delivering them to MAZ RUP.

GAZ Group recognized as one of the Russia’s most environmentally friendly organizations

GAZ Group has been awarded the Gold Medal and a certificate for winning the European Quality Gold Medal Contest in the category “Russia’s 100 Top Organizations. Ecology and ecological management”. The awards were presented to GAZ Group for outstanding achievements in environmental protection and supporting ecological security. Over the past several years the enterprises of GAZ Group have performed systematic work to improve ecological conditions.

April

GAZelle is declared the people’s commercial vehicle of Russia

GAZ-330202 GAZelle (insulated van) is declared the winner of the 2008 Russian People’s Commercial Vehicle contest within the framework of the 9th International trade show “ComTrans”.

Magna held an exhibition, “Magna Tech Show”, for GAZ Group employees

More than 300 representatives of the 7 Divisions and 18 facilities of GAZ Group have been introduced to the technologies and products of the 9 subdivisions of Magna. Furthermore in the framework of the exhibition a seminar on personnel development and training was held for the HR employees of the GAZ Group Divisions. “Magna makes such presentations in Europe several times a year, but for our shareholder, partner and customer, GAZ Group, we make it for the first time”, - said Mr. Hubert Hoedl, the Vice-Preident of Magna international Europe. “I am sure, it the starting point for further deepening of our cooperation”, - said Mr. Hubert Hoedl.

The event resulted in the work on possible joint projects in all the business areas of GAZ Group and Magna. The Magna Tech Show exhibition is the starting point of the program for transfer of competencies from Magna to GAZ Group in the sphere of car manufacturing in compliance with the international standards.

Ural – the best Russian truck of the year

The Ural-6563 vehicle produced by the URAL automobile plant of GAZ Group is declared the best Russian truck of the year in the framework of the VIII contest “The Best Commercial Vehicle of the year in Russia” at the “ComTrans-2008” exhibition.

The GAZ Group Trade House is declared the best supplier

The GAZ Group Trade House Russian Machines won the contest “The best supplier of cars and special vehicles in 2007” following the results of the contest in the framework of the IV All-Russian Forum-Exhibition “Goszakaz-2008”. The GAZ Group facilities actively participated in fulfillment of the most important state orders: vehicle fleet renewal for a number of ministries and agencies of the Russian Federation as well as in high priority national projects “Education” and “Healthcare”.

The Construction Equipment Division substantially increases its output in the first quarter

Based on the results of the first quarter, ОАО TVEKS produced 59% more multipurpose wheeled excavators than during the corresponding period of the previous year, while OAO Bryansk Arsenal increased its production of construction equipment by almost 10%. Improvements to the production system, an active innovation policy and the implementation of high-technology equipment allowed OAO TVEKS to maintain an optimal daily rate of the assembly line in the first quarter – 12 excavators, which is half as many as during the same period of the previous year.

May

GAZ Group won the tender for supply of minibus-type GAZelles for children transportation

Based on the decision of the auction committee of the Federal Education Agency, state contracts for supply of 11-seat GAZelle school buses were concluded with GAZ Group. Within a year GAZ Group supplied a batch of the first certified GAZelle school minibuses in Russia under the program “Purchase of buses for education institutions in rural areas” within the framework of the Education national project to 76 Federation entities for 587 million 500 thousand rubles.

GAZ Group Ural trucks took part in the Victory Parade in the Red Square

More than 80 vehicles produced by the GAZ Group URAL automobile plant took part in the weapons and military equipment parade on the 9 May in the Red Square, Moscow, in honour of the 63 anniversary of the Great Patriotic War Victory. The most numerous group of Urals that took part in preparation and conduction of the Victory parade was responsible for transportation of the power- wielding structures personnel to the venue. These were drop side trucks Ural-43206 (4х4) and Ural- 4320 (6х6) that are in series production on the main line of the plant.

June

GAZ Group and Sberbank of Russia conclude a partnership agreement

German Gref, Chairman of the Management Board of Sberbank of Russia, and Sergey Zanozin, Chairman of the Management Board of GAZ Group, in the presence of Valery Shantsev, Nizhny Novgorod oblast governor, signed a partnership agreement which was aimed at developing the companies’ strategic partnership in managing the Group’s cash flows. An important point of the agreement is that Sberbank of Russia will provide investment resources to finance GAZ Group’s international projects.

GAZ Group receives a syndicated loan of USD 215 million

GAZ Group announces the signing of a loan agreement under which the company will be provided with a syndicated loan equal to USD 215 million. The initial authorized leading organizers of the syndicate of financial institutions participating in the agreement were the banks Barclays Capital, Commerzbank Aktiengesellschaft, and Natixis. This agreement is the largest syndicated loan ever given to a Russian car manufacturer. The loan was provided for a term of three years and is unsecured. The interest rate on the loan is LIBOR + 2.5% per annum.

Decisions taken by the Annual General Meeting of Shareholders

Four new directors were elected to the Board of Directors: Karl-Heinz Kalbfell, Siegfried Wolf, Alexey Barantsev and Konstantin Akimov. Erik Eberhardson became the Chairman of the Board of Directors. The meeting adopted a new version of the Charter of OAO GAZ, Regulations On the General Meetings of Shareholders of OAO GAZ, Regulations On the Board of Directors of OAO GAZ, Regulations On the Internal Audit Committee of OAO GAZ, which strengthen the role of the Board of Directors in managing the company and take into account new Russian statutory requirements on the corporate charter documents. The introduction of new representatives of foreign management to the Board of Directors has allowed the Group to use the experience of successful directors of the global car industry and raised the level of corporate governance at GAZ Group.

Director of the Supervisory Board under the Board of Directors of OAO GAZ elected

A new expert body, the Supervisory Board, has been created under the Board of Directors of OAO GAZ. N.A. Pugin, President of OAO GAZ, was elected Chairman of the Supervisory Board. The Supervisory Board works as an expert consultative body of the Board of Directors of OAO GAZ, preparing opinions and proposals on issues that lie within the competence of the Board of Directors. The new expert body formation has helped to raise the quality and degree of consideration given to decisions of the Board of Directors.

July

Series production of Volga Siber is started

On 25 July, the series production of Volga Siber was started. Representatives of federal and regional governmental authorities, power-wielding structures, industry-specific public organizations,

corporate clients, partners, dealers and experts took part in the ceremony of the first finished vehicle production.

Prime-Minister V.V. Putin carried out a test-drive of the new car produced by GAZ Group

Within the framework of his visit, the Russian Federation Prime-Minister Putin viewed the Volga Siber production and personally carried out a test-drive of the new passenger car. Mr. Putin especially emphasized the quality system implemented at all the stages of the car development.

OAO GAZ acquires 80.66% of OAO ZZGT

The Board of Directors of OAO GAZ approves the acquisition of an 80.66% equity share in OAO Zavolzhsk Caterpillar Tractor Plant, thereby completing the process of integrating this enterprise into corporate structure of GAZ Group. OAO ZZGT manufactures caterpillar-track snow- and swamp-going vehicles for the oil-and-gas industry, as well as for electrical-power companies. This asset is a good fit for the Group’s asset structure and operates successfully in the promising segment of construction equipment.

GAZ Group developed a new 40-ton crane

The Urginsky machine-building plant developed the КС-65720-1 crane on basis of the modern Ural- 6563 chassis (8х4). The crane is equipped with 4-section extension-type arm of 28,5 m as well as with a 8,5 m extension bar with fly jib functions. For the convenience of the operator a unique system of joystick control is used. At a later stage other models of road construction and special vehicles will be developed on basis of the Ural-6563 chassis.

August

GAZ Group supplied special vehicles to OJSC Rosneft and Russian Railways

ZAO “Chelyabinsk road construction vehicles” supplied a batch of DZ-98 graders to a subsidiary of OAO Rosneft for large-scale construction works at the Rosneft Vankorsk oilfield facilities and later on for construction of a main pipe Eastern Siberia – Pacific Ocean. “Chelyabinsk road construction vehicles” also shipped 16 V-160 front loaders and 13 heavy graders to Russian Railways. The vehicles are used for construction and maintenance of railways in Russia.

GAZ Group presented Volga Siber cars and new configurations of MAXUS at the “Moscow International Motor Show - 2008”

The Volga Siber cars were presented at the Moscow Motor Show in comfort and lux configurations equipped with a 4-cylinder in-line Chrysler engine (Euro-4) with the displacement of 2,0 and 2,4 L and 141 and 143 hp with manual and automatic gearboxes. GAZ Group also presented two versions of the MAXUS light commercial vehicle: - a combi vehicle with numerous options making it more comfortable for the driver and the passengers; - a vehicle for recreation and travelling.

September

GAZ Group introduces ISO/TS 16949

GAZ Group has begun work to introduce ISO/TS 16949 – an international quality management standard for automobile manufacturers The transition to the quality system adopted by the global automobile industry will allow us to raise the competitiveness of the company’s products on the domestic and foreign markets. GAZ Group currently has an ISO-9001:2000 quality system in place; companies undergo annual certification for this standard.

GAZ Group buses were awarded the “Best Bus of the Year in Russia” title

The REAL buses produced by “Russian Buses Marco” and the LIAZ-5292 low floor hybrid bus produced by Likino Bus Plant were declared the best Russian city buses of the year at the “International Transport Forum – 2008” held in Moscow.

BEGINNING OF THE CRISIS IN THE RUSSIAN AUTOMOTIVE INDUSTRY. IMPLEMENTATION OF THE GAZ GROUP ANTI-CRISIS PROGRAM.

In Quarter 4 of 2008, the impact of the world financial crisis on the automotive industry in Russia and all over the world was the most acute. The situation in the Company was affected by a dramatic drop in the main demand segments, reduced purchase power of the customers, unavailability of credit facilities and reduction of the market capacity by 50–70% in various segments. These factors overturned the positive trend of the first half-year when the growth of the GAZ Group revenue amounted to 20% versus the same period of 2007. GAZ Group was one of the first in this industry to start implementing the anti-crisis program. Since October 2008, the Company had initiated measures on cost reduction, reduction of inventory and finished goods and optimization of technological processes which allowed to balance the production process in compliance with the market demand, to reduce selling costs by one third, to avoid overstocking and to preserve human resources by the end of the year.

October

First Volga Siber passenger cars went into retail sales

GAZ Group has shipped the first batch of 50 Volga Siber passenger cars to the Company certified dealer centers in Saint Petersburg, Stavropol, Orel and Nizhny Novgorod for retail sales. The two configurations of Volga Siber - comfort and lux - are there for sale.

GAZ Group URAL Plant was awarded with the Russian Government Quality Prize

GAZ Group URAL Automotive Plant became the winner of the Russian Government Quality Prize. The main criteria of this prestigious government award are customer oriented and consistent efforts in target achievement, management based on processes and facts awareness, involvement of employees in continuous learning and innovation development, partnership development, public relationships and result orientation.

OAP TVEKS launches a new technology line

The company has successfully completed one of the main projects of the Construction Equipment Division of GAZ Group for 2008 – creation of a full production cycle of new uniform cabins for excavators, cranes and other construction equipment. Total investments in this project were about RUB 114 million.

November

GAZ Group is recognized for the maturity of its corporate governance

The consortium of the ExpertRA Rating Agency and the Russian Institute of Directors, using a jointly developed methodology, researched the quality of corporate governance of OAO GAZ and awarded the company the rating of “mature corporate governance practice”.

The GAZelle brand leads among the automotive brands of Russia

The results of the annual “Best Russian Brands” survey by Interbrand Zintzmeyer&Lux that has been rating Russian brands since 2000, are summarized. In 2008, GAZelle won the first place among the Russian automotive brands. According to the Interbrand assessment the value of this brand amounted to 139 mln US dollars or 3 564 mln rubles in 2008.

GAZ Group begins the production of medical vehicles on the basis of PAZ and LiAZ buses

GAZ Group continues to expand the line of special-purpose buses. GAZ Group has begun the production of medical vehicles on the basis of PAZ and LiAZ buses, jointly with NPO Automedcomplex.

GAZ Group is ranked 14th in the environmental rating of Russia’s 3000 largest companies in 2008

GAZ Group was once again in the top 100 large enterprises in Russia for the 2008 environmental rating, holding the 14th spot and rising nine places from its 2007 rating. From 2005 to 2008 the enterprises of GAZ Group reduced their pollutants by 28%, and the total quantity of solid production wastes by 41%.

December

Mr. Putin, the Russian Federation Prime-Minister, emphasized the necessity for the Governmental to support the project of medium diesel engine produced by GAZ Group

On 2 December 2009, Mr. Putin, the Russian Prime-Minister, visited the GAZ Group Yaroslavl Motor Plant on his business trip to the Yaroslavl Region. Mr. Putin was informed of the status of the launch of the 530 medium diesel engine family – the first Russian Euro-4 engine matching the best world analogues in terms of customer requirements. While discussing the prospects of the new diesel engine implementation Mr. Putin said that “the planned modernization must lead to the growth of labor efficiency which certainly should result in considerable improvements in engine and vehicle manufacturing sectors”.

GAZ Group supplied GAZelle school microbuses under the Education national priority project

By 1 December 2009, GAZ Group had fulfilled the state order for GAZelle microbuses to be supplied under the program “Purchase of buses for educational institutions in rural areas” within the framework of the Education national project. GAZ Group supplied 1 150 GAZelle school microbuses to 76 RF constituent entities for the amount of 587 500 thousand rubles. The GAZelle school bus is the first Russian special microbus designed for children transportation that obtained an official vehicle type approval. The GAZelle school bus was certified for compliance with all the Russian Federation requirements including the children transportation safety requirements established by the GOST R 51160-98 Standard.

Key events of the beginning of 2009

January

GAZ Group signs the agreement to supply Ural trucks for the construction of the Eastern Siberia– Pacific Ocean pipeline

OAO Ural AZ has signed the agreement with Transneft to supply 45 Ural trucks. The Ural off-road trucks will be used in the construction of the Eastern Siberia–Pacific Ocean pipeline. The Ural plant has been supplying trucks for the construction of the Eastern Siberia–Pacific Ocean pipeline for three years now. Over 2007–2008, the Ural plant supplied 340 vehicles to this project.

GAZ Group started equipping light commercial vehicles with in-house manufactured engines which allowed a 10% reduction of the GAZelle selling price

GAZ Group took a decision to equip the GAZelle and Sobol light commercial vehicles from 2009 with engines produced by OJSC UMZ being a part of GAZ Group, to increase the product performance characteristics and to boost the demand under the condition of the market capacity reduction. This allowed a 10% reduction of the GAZelle selling price. The equipment of the GAZ LCV`s with the Ulyanovsk Motor Plant engines contributes to the Company strategy of maximum meeting of the Company demands in terms engines and powertrains with in-house manufactured products. The strategy is focused on ensuring independence of the manufacturer from suppliers of the key element in the product cost management – the platform and powertrain of the vehicle.

February

The RF Government Committee under the direction of Mr. I. Shuvalov declared the GAZ Group anti-crisis strategy “the most promising one out of the analyzed strategies”

GAZ Group is implementing its own anti-crisis strategy that will allow to ensure operational break even at all the production sites from 1 July 2009 and to generate positive cash inflow for payment of debts to the creditors and reduction of the credit portfolio. The main factors of the cost reduction in 2009 include product cost reduction by 20%, restructuring (compression) of production areas (savings amount to 3 bln rub), reduction of working capital by 50%, launch of products with higher profit margin, implementation of training programs for the employees in order to retain work force in the strained labor market. In addition to the anti-crisis program, GAZ Group is working on the

projects for the future. GAZ Group is still active in product development and ready to come out with a profitable proposal for the market in 2009. Price reduction is the decisive factor in the circumstances of the liquidity crisis in the commercial vehicles market. In the second half of 2009 the Group is planning to launch the GAZelle vehicles with an original simplified design without deterioration in terms of the service life and performance characteristics. Considerable cost reduction will be achieved by way of design changes, component price reductions, better utilization of production resources and reserves and optimization of production processes. The GAZelle Plus project is another direction of activities aimed at improving the vehicle performance characteristics and expanding the product range. SOP is planned for 2010. The target is to improve the quality and reliability of the main components and systems, such as rear axle, brake system, steering mechanism, gear box, as well as to improve the fuel economy, to reduce maintenance costs through increased service intervals. This will result in lower cost of ownership and better pricing offer in the segment of new and used foreign LCV`s. The Company has long-term plans related to the development of the GAZelle 3 new generation vehicle.

Federal programs of anticipatory training have been launched to ensure jobs availability in future

GAZ Group has launched the program of advanced training for over 7 thousand of their employees to become part of the state supported retraining program, in order to ensure employment availability in the environment of falling production volumes. The workers will be trained to improve their skills or to get an additional specialization, with guaranteed employment at their current work stations. Based on the Federal program of anticipatory training, GAZ Group has developed a number of additional measures to prevent massive layoffs and to ensure employment for their workers for the period of up to 18 months with the financial support both from the Company and Regional Authorities.

New system of quality management based on Opel quality standards implemented at GAZ LCV facility

The experience gained by GAZ while launching the Volga Siber production in line with international standards of quality has been transferred to the GAZ LCV production facility. After having a chance to work for GM, the GAZ key quality inspectors developed and implemented the quality management system based on Opel quality standards. It comprises a system of production quality assurance of the pressing, wielding, painting and final assembly operations, as well as the finished product audit through the eyes of the customer based on the GCA (Global Customer Audit) GM standard. This method helps to see the quality of the vehicle through the eyes of the most experienced and demanding vehicle owner and ensures significantly improved product quality. The key auditors were trained and certified at the Opel plant in Russelheim (Germany) and at the Magna Steyr plant in Graz (Austria). Thanks to the new quality management system the number of defects on completely built commercial vehicles was reduced by over 1.5 times.

Main lines of business

Light commercial vehicles (LCV) and medium commercial vehicles (MCV)

Market description and GAZ Group’s market position The growth in the market for commercial vehicles in the first half of 2008 was due first and foremost to the growth of the Russian economy. In the pre-crisis period of 2008, when GDP growth reached 8%, the market for commercial equipment was also showing growth. However, growth rates were lower than in the same period of 2007. The reduced rate of growth was due to the significant decrease in the imports of Chinese-manufactured automobiles at the start of 2008, which was related to the introduction of the Euro-3 standard and the tightening of vehicle certification rules in January 2008, which led to a large volume of imports of foreign cars at the end of 2007 and reduced to a minimum the import of Chinese-manufactured vehicles in 2008 (according to the result of first half of 2008 the import of cars was two times less than during the same period of 2007, and five times less than for the second half of 2007). After the financial crisis began (end of September), sales decreased significantly. Average monthly deviation of sales from the sales forecast made 60%. The slight growth of the market in December 2008 was the result of imports made in anticipation of the change in customs legislation from January 2009. In 2008 in total the commercial vehicle market decreased by 7.5%. The Light Commercial Vehicles Division sold a total of 166,004 vehicles to dealers in 2008, of which 141,274 were light commercial vehicles and 24,730 were trucks (GAZ).

LCV For 2008, sales of light-duty trucks to dealers totaled 133,324 (including sales of Maxus vans in the Russian Federation). Structure of the Russian LCV market, 2008

12,8%

GAZ 10,9% Maxus UAZ 6,2% JVs 58,3% New imports Used imports 10,8%

1,0%

Cargo LCVs The market for cargo LCVs can be divided into two segments: dropside LCVs and full-metal vans. The market for cargo LCVs shrank by 11% for 2008 as a whole, including 20% for the market for dropside LCVs. The market for vans rose by 3.8%, mainly to the growth of imports of new vehicles and the release of new Russian-manufactured models. GAZ Group had a 58.3% share of the cargo LCV market, including 79.4% of the market for dropside LCVs and 34.3% of the market for full-metal vans. A total of 82,342 cargo LCVs were shipped to dealers, while GAZ Group sales to end users totaled 67,258 vehicles (including sales of Maxus vans in Russia). A total of 28,033 full-metal vans were shipped to dealers.

Microbuses The microbus market in 2008 was virtually identical to that in 2007 (growth for the year was 0.5%). However, there was some substitution of GAZ and UAZ microbuses for other players: new and used foreign models, as well as buses produced by joint ventures. Sales to end users of new imported microbuses, as well as vehicles of joint ventures, grew by about 77%, while sales of used microbuses rose by 26.1%. A total of 22,949 microbuses were shipped to dealers. The microbus market consists of two segments: commercial and corporate microbuses.

Structure of the Russian microbus market, 2008

27,3%

36,0% GAZ Maxus UAZ

0,4% JVs New imports Used imports 16,3%

11,7% 8,3%

The growth of the corporate bus segment in 2008 was 7.9% (compared to 18.7% in 2007). GAZ Group sales to end users totaled 13,585 (including Russian sales of 201 Maxus vans).

MCV The market for medium trucks in 2008 fell by 13.1%, as compared to growth of 21.5% in 2007. Sales of new foreign models dropped by 32.6%, while sales of used foreign vehicles rose by 22.5%. Shipments of medium trucks to dealers totaled 24,730 (including 5,754 Valdai trucks).

Structure of the MCV market, 2008

11,80% 15,73%

GAZ 3310 GAZ 3309/09 ZIL 16,68% JV s Ne w imp ort s 40,63% Us ed imp ort s

13,33% 1,83%

The products of GAZ Group are used in a wide range of activities. In the structure of LCV consumers in 2008, first place was held by retail and services, second was held by state structures and manufacturing, and third place was shared by construction and other areas. MCV purchasers could be grouped as follows: the maximum share went to retail enterprises, second to state structures, services, and manufacturing, while third place went to construction and other areas of activity.

Structure of LCV consumers in Russia, 2008 Structure of MCV consumers in Russia, 2008

13% 13% 22% 27% Retail Retail Services Services 16% Construction 18% Construction Manufacturing Manufacturing State structures State structures 22% Other consumers 17% Other consumers 15% 16% 12% 9%

Main sales markets Sales of automobiles to end users totaled 161,203 in 2008. The domestic market traditionally accounts for the majority of sales – 129,571 units, which is more than 70% of total sales. The Moscow and Nizhny Novgorod regions remained major sales regions for LCVs and MCVs (accounting for 21.3% and 22.2% of sales, respectively). Sales of vehicles manufactured in the Russian Federation to end users in other CIS countries equaled 30,342 units, while countries further abroad accounted for 1,290 sales (not counting Maxus sales). The main export markets in the CIS were Ukraine (61% share) and Belarus (14%). Sales structure of GAZ LCV and MCV, 2008

19%

CIS 1%

3% Non-CIS foreign countries RF ССС (Trading House) Russia (dealers)

77%

Sales of commercial vehicles under the Maxus brand abroad Sales of GAZ Group commercial vehicles under the Maxus brand outside the Russian Federation in 2008 equaled 7195 units, which is 27% less than sales in 2007. Sales of buses in the extra-small class were 658 units, while sales of dropside trucks and chassis trucks were 1060 units, and van sales equaled 2988 units. Compared to 2007, sales of dropside trucks and chassis trucks rose by 412 units. Revenues from the sales of the main products of the LDV Group in 2008 were equal to approximately RUB 3.5 billion. GAZ Group retains the right to manufacture and sell Maxus vehicles in Russia and the CIS, and may in future consider the feasibility of releasing Maxus vehicles in Russia, depending on market demands.

Model range No significant changes were made to the model range of the Light Commercial Vehicles and Medium Trucks Division. The Group’s line-up in this segment consists of numerous configurations of the base models GAZelle, Sobol, GAZ-3307/09 and Valdai: • GAZ-3302 (GAZelle dropside); • GAZ-2705 (GAZelle full-metal van); • GAZ-3221 (GAZelle microbus); • GAZ-2310 (Sobol dropside); 22

• GAZ-2752 (Sobol full-metal van); • GAZ-2217 (Sobol microbus); • Medium-duty trucks with a GVW of up to 9 tonnes; • GAZ-3307; GAZ-3308; GAZ-3309; • GAZ-3310 (Valdai). At the end of 2008, the product lineup of the Maxus family consisted of the following configurations: • Van, from 2.8 t to 3.5 t – 39 versions; • Crew cab, 3.5 t – 3 versions; • Chassis cab, from 2.8 t to 3.5 t – 9 versions; • Dump truck, 3.5 t – 3 variants; • Drop-side, from 2.8 t to 3.5 t – 9 versions; • Microbus, from 3.2 t to 3.9 t – 12 versions; • Combi, from 3.2 t to 3.9 t – 12 versions.

Main achievements in 2008 About RUB 434 million was invested in the Division in 2008. The bulk of investments were made in the following projects: • Creation of the GAZelle of new generation – RUB 114.1 million. This project is being implemented using the Product Planning Development System (PPDS) with the participation of Magna company. A conceptual model for the product has been developed on the basis of market research conducted jointly with the American company BCG. The product concept and engineering documentation for test units were developed in 2008. • Meeting certification requirements for GAZelle and Sobol vehicles – RUB 46.8 million. Projects are underway to ensure that Euro-4 norms are met (introduction planned for 1 January 2010) and upgrade the existing GAZelle in order to improve its consumer appeal. GAZ Group is continuing to improve the quality of its products and post-sales servicing. Specifically, from the start of 2008 warranties were doubled on the GAZelle family of vehicles. The increase in the length of the warranty was the result of a GAZ Group program to improve the reliability and quality of GAZelles. The Group’s leading positions in the commercial vehicle segment are confirmed by market research. GAZelle took first place among Russian automobile brands in the annual Best Russian Brands survey by Interbrand Zintzmeyer & Lux in 2008. Interbrand estimates that the brand has a value of USD 139 million, or RUB 3.564 billion. In the overall rating of Russian brands, GAZelle took 29th spot, after raw materials, telecommunications, and construction brands, food products and bank brands. The new products developed by GAZ Group reflect a desire to meet strict environmental standards and satisfy our clients’ diverse needs. At a major international commercial transport exhibition in September 2008 the Group presented the prototype of a Maxus light commercial vehicle with an electric motor (with the working name ECV1). The creation of this new electric vehicle is part of the Group’s policy of pursuing environmental transportation solutions.

Main areas of development for 2009 The main goal of the Division in 2009 is to maintain at least 50% market share in the LCV segment in Russia. At the moment, one of the Group’s priority areas of development is to cut the cost of production of our products without reducing their consumer appeal, by using available resources more efficiently. In 2009, our investments in the unified Light Commercial and Passenger Vehicle Division will aim to update the existing GAZelle to give it greater consumer appeal, and to create a completely new light commercial vehicle. In this time of crisis, the development of financial instruments is particularly important. The following proprietary financial instruments are being developed and implemented: 1 Proprietary lending programs with manufacturer subsidies. These programs will be implemented across Russia. Major banks will be involved in joint programs: Sberbank of Russia, VTB-24, Rosselkhozbank, Rusfinance Bank. 2 Proprietary leasing programs with manufacturer subsidies. These programs will be implemented across Russia. Major leasing companies will be involved in joint programs: Element Leasing, Sberbank Mortgage Company, VTB-24 (Leasing System). The program with Element Leasing started at the end of April. Programs with other partner leasing companies started at the end of May. 3 Proprietary lending and leasing programs with regional banks. During 2009 it is planned to identify partner banks in Russia, develop program parameters, and sign contracts. 4 Proprietary lending and leasing programs for CIS countries. During 2009 it is planned to identify partner financial institutions in CIS countries (Ukraine, Kazakhstan), develop program parameters, and sign contracts. 5 Proprietary Trade-In program. The implementation and development of Trade-In services will be mandatory at GAZ automobile centers and will be rolled out in stages over 2009. Work is currently underway to find and recruit professional players on the used car market to act as intermediaries. The Group is organizing the development of training programs for dealer centers and the training itself.

Buses

Market description and GAZ Group’s market position The contraction of the bus market in 2008 was 38% in physical terms, while the financial size of the market shrank by 25%. The Bus Division holds leading positions in the Russian market, and from year to year has shown a stable increase in sales of 12–14% in physical terms and 25–35% in monetary terms. The Bus Division continues to hold the largest share of the Russian market in both physical (68%) and in monetary terms (47%). Structure of the Russian bus market, 2008 Structure of the bus market, large and extra- large class, 2008

2% 23% 6% GAZ Group 4% LiAZ 4% NefAZ MAZ 6% Volzhanin Other Russian 49% Hyundai 9% manufacturers 8% Daewoo Man 68% Imported buses Others 21%

Structure of the bus market, small class, 2008 Structure of the bus market, medium class, 2008

2% 6% 2% 5% 8% 4% PAZ 3% 7% PAZ RA-Marco KAVZ 2% RZGA 44% King Long Bus Bogdan MAZ Yutong Hyundai Others Others

37% 80%

Structure of the bus market, intercity and tourist segment, 2008

15%

Hyundai 33% Kia 14% King Long Bus GolAZ NefAZ Yutong 6% 13% Others

7% 12%

Small class The sharp drop in the volume of the market in the small bus class in 2008 was the result of a decrease in production of the Hyundai County by the RZGA factory and the reduction of imports of Chinese-made buses. Import manufacturers are showing sales drops on the level of 51% in physical terms. Shipments of small buses to dealers in 2008 totaled 12,092 units. Medium class The medium class bus segment in Russia fell by 33% in physical terms against 2007, while the drop in monetary terms was 21%. Sales in the medium class bus segment have shown positive trends for the past several years, at the level of 25–30% per year. The stable growth in the segment was the result of the advanced age of medium-sized buses in Russia and interest in products on the part of both municipal and privately owned transport companies. It should be noted that the 59% contraction of sales of foreign-manufactured buses occurred mainly at the expense of Chinese-manufactured buses: sales of Chinese buses shrank by 75% year-on-year. Shipments of medium-class buses to dealers in 2008 totaled 3,100 units. Despite the reduced sales, the Division remains the segment leader. The Division’s share in this segment increased to 81% in 2008, which is 12% more than the 2007 figure of 69%. Large and extra-large class In terms of market position, municipal buses in the large and extra-large classes occupy a single niche from the point of view of the segment of consumers, decision-making and purchasing mechanisms, financing, and use. The redistribution of demand between buses of the large and extra- large classes is related solely to the formation of a consumer bus fleet fitting the parameters of the route network. The Bus Division takes a flexible approach to setting its production plans, based on the market situation and demand structure. The drop in sales in 2008 occurred mainly in the large- class segment; the extra-large bus segment showed slight growth. For the Division as a whole, sales of large and extra-large buses to dealers in 2008 totaled 2,088 units, including 1,557 units in the large class and 531 units in the extra-large class.

Total sales in the Russian market of city/suburban buses in the large and extra-large classes contracted by 40% compared to 2007. The segment of city/suburban buses in the large and extra- large classes is currently stagnant. Sales of imported buses decreased by 49% compared to 2007 for the following reasons: • decrease in sales of Chinese-made buses (91% drop); • decrease in sales of used buses (56% drop). The Division’s sales to end users in the extra-large class segment in 2008 rose by 47%, while its share of the large bus segment fell by 32%. The Bus Division’s share was 49%, which is 11% higher than the 2007 figure of 38%. Inter-city and tourist buses The long-haul bus segment showed the best results of any market segment: the contraction was only 11% compared to the overall market fall of 38%. The primary trend in the segment was the active replacement of used imported buses with new ones. However, due to fundamental structural changes related to the sharp decrease in the share of used imported buses and the shift in demand to new buses, the financial volume of the market rose by 11% in 2008 year-on-year. Sales of all foreign-manufactured buses contracted by 12% in physical terms in 2008 compared to 2007. However, sales of new imported buses rose by 31%, while sales of used buses fell by 40%. Shipments of buses in the intercity and tourist class to dealers totaled 335 units in 2008, which is 9% higher than the previous year’s figure. The Division’s share in this segment increased by 2% making 14%.

Main sales markets The Russian Federation is the Division’s main sales market. The main foreign sales markets in 2008 were the traditional markets of CIS countries, primarily Ukraine, Turkmenistan and Belorussiya. Alongside with the development of sales in the CIS, the Division plans to actively enter Eastern European markets (Romania, Bulgaria, and others) with modern products that meet Euro-4 and Euro-5 standards, as well as trolleybus products.

Model range

Small class The base of the Bus Division’s Russian-market model range in 2008 in the small class consisted of the PAZ-32053/54, the PAZ-3204, PAZ-3206 AWD and city low-floor buses PAZ-3237. In January 2008 the sales of REAL city bus were initiated. The product is the result of joint work of GAZ Group and the Brazilian company Marcopolo. This segment also included the specialized school buses PAZ-32053-70 и PAZ-3206-70.. Medium class The Division’s sales in the medium class consisted primarily of: • KAVZ-4235 Aurora in its suburban and intercity configurations; • PAZ-4234;

• KAVZ-4239 – medium-class city bus; • KAVZ-4238 Aurora – medium-class intercity bus.

Large and extra-large class The Bus Division’s sales in this segment in 2008 consisted mainly of the LiAZ-5256 and its various configurations, as well as the articulated LiAZ-6212. Also on the market in 2008 there were: • LIAZ-5293 – bus with low level of entry in the area of the front and middle passenger doors; • LIAZ-5292 – low-floor city bus; • LIAZ-5213 – articulated low-floor city bus; • GOLAZ-6228 – city bus with low level of entry in the area of the front and middle passenger doors; • Trolleybuses on the LIAZ bus body bases.

Intercity and tourist buses The Division’s model range of intercity and tourist buses includes: • GolAZ-52911 Cruise – tourist bus based on Scania chassis; • Andare-1000 – tourist bus based on Scania and Hyundai chassis, the product of the Russian Buses Marco joint venture; • GOLAZ-LIAZ-5256 – intercity bus.

Main achievements in 2008

ООО KAVZ started the series production of medium-class low floor KAVZ-4239 bus, meant for city routes of large cities and regional centers with the population of approximately 500 000 people as base passenger transportation vehicle. In August 2008 there started the mass production of the new bus model GOLAZ-6228-10 intended for intercity routes between major cities and megapolises with high passenger traffic. This bus is fully certified in accordance with Russian GOST standards. The first mass-production GOLAZ- 6228-10 buses were shipped in autumn to a transportation company in the Vologda oblast. OOO Likino bus plant of GAZ Group presented the hybrid bus concept on the LIAZ-5292 bus base. GAZ Group’s Likino bus plant reorganized its main assembly line. As a result of the project, the company’s main assembly line was able to start mass produce all models of LIAZ buses, including the large-class low-floor LIAZ-5292 and the extra-large LIAZ-6213, LIAZ-5293 with gas-power engine, and the base modifications LIAZ-6212 and LIAZ-5256. The transition from short-run to mass production of low-floor buses in the large and extra-large classes has allowed the company to satisfy growing market demand for these models. Due to the implementation of modern assembly- line technologies, production efficiency has risen and production costs have been cut. ООО PAZ has introduced the new Eisenmann paint spraying complex. REAL buses produced by Russian Buses Marco and the low-floor hybrid LIAZ-5292 produced by Likino Bus Plant were declared the best Russian-made city buses of the year. This was announced at the ceremony for Best Bus of the Year in Russia at the International Transportation Forum 2008 (MAF-2008) in Moscow.

GAZ Group has developed and begun the production of medical vehicles on the basis of PAZ and LIAZ buses jointly with NPO Automedcomplex. The development of mobile medical complexes on the basis of PAZ and LIAZ buses makes it possible to optimize the system of primary medical care to all population groups and to ensure the full availability of medical examinations to residents of remote and agricultural regions. GAZ Group and NPO Automedcomplex are continuing to expand their line of special-purpose buses: a mobile library has been developed on the basis of the PAZ- 4234. About RUB 379 million was invested in the Bus Division in 2008. The bulk of investments were made in the following projects: • Development of a prototype for certification testing and preparation for the production of low-floor articulated buses LIAZ-6213 (diesel) and 6213 (gas-powered) with Euro-4, Euro-5 powertrains. Certification in Europe – RUB 12.3 million. • Preparations for the production of PAZ-3204 buses – RUB 33.7 million; the project is aimed at the expansion of the model range. Preparation for the production in accordance with Russian legislation for the Euro-3 and Euro-4 ecological classes was initiated. • Development of REAL small bus with W-type engine; production organization – RUB 22.8 million. The project involves the creation and marketing of a small-class bus with a W-type engine configuration (complying with the carriage rules of UNECE No. 36), built by the Marcopolo company (Brazil) on the basis of a Hyundai County (South Korea) chassis. • Preparations for the production and release of PAZ-4230, KAVZ-4238 Aurora and KAVZ- 4253 Aurora buses, taking into account Euro-3 environmental standards and the new GOST R-107 standard – RUB 19.6 million. • Production of prototypes for KAVZ-4239 bus and preparations for production of 500 buses per year – RUB 20.9 million. The project involves the development of a new bus with the aim of winning the market segment of medium-class semi-low-floor city buses. For the project there was developed engineering documentation, the prototype was manufactured, certification was completed and production began.

Main areas of development for 2009 In 2009 investments will be used to complete investment projects already in progress: • “Preparation for the production of PAZ-3204 buses with spring suspension”. Continuation of the project with the aim of introducing a new product to the market according to Russian statutory requirements on Euro-4 environmental standards. • “Preparation for production and restyling of PAZ-3205 buses family”. Under this project there will be restyled the small bus line of PAZ-3203 and PAZ-23053-07 “School bus” (changes to front and rear treatments, improvement of the bus interior), and also preparations for mass production for the introduction of Euro-4 ecological norms. • “Preparations for the production of PAZ-4234-E-4 (Cummins), modernization of the bus drivetrain, restyling”. This project will make it possible to update the drivetrains of the medium-class line of buses PAZ-4234 (use of Cummins diesel engines), and improve its technical and environmental specifications. Preparations will be made for the introduction of Euro-4 norms in 2010. • “Development and reconstruction of the paint shop using modern equipment”. This project will make it possible to improve quality and consumer appeal of the model range of PAZ buses by implementing promising body-painting technologies.

Trucks

Market description and GAZ Group’s market position

The Russian truck market also saw a decrease in sales in 2008. Sales growth relative to 2007 was only achieved in the first eight months of 2008. Sales of trucks in Russia dropped sharply starting from September 2008 due to the economic crisis. The reduction in the volumes of bank lending and leasing programs, together with the economic uncertainty, led to a sharp fall in demand. The current adverse economic situation in Russia affected sales and production due to a change in lending terms, higher interest rates, and other factors. Sales of trucks on the Russian market, 2007-2008

120000 24684 21543

26268 90000 39758 Im port (used) Im port (n ew ) 8604 5522 Other (dom es tic ) 60000 13637 ZIL 12002 MAZ KamAZ Ural 39164 30000 36309

14369 13408 0 2007 2008

Structure of the Russian commercial market for all-wheel drive trucks, 2008

2,1%

Ural 40,7% KamAZ 57,2% KrAZ

The share of Ural vehicles on the Russian commercial market for all-wheel drive automobiles was 57.2%. GAZ Group continued its entry into the new segment of road trucks in 2008, the sales equaled 855 vehicles. The company’s share of the Russian market made about 3%.

Main sales markets The sales markets for the Truck Division are the Russian commercial market, Russian security and defense agencies (Ministry of Defense, Ministry of Internal Affairs, Federal Security Service, and the Ministry of Emergency Situations), other CIS countries, and other foreign countries. Breakdown of sales of the products of the Sales of Ural all-wheel drive vehicles on the Truck Division, 2008 Russian commercial market by consumer segment, 2008

7% 3% 2% 4% 5% Russian commercial market Oil-and-gas industry State structures 20% Industrial construction 25% Forestry Other CIS countries Agriculture Other 64% Foreign, non-CIS 70%

The main consumers on the commercial market are the following economic sectors: • oil-and-gas sector; • forestry products sector; • road agencies, utilities and public services; • agriculture. The main export consumers are the military agencies of foreign countries (Angola, Egypt, Ethiopia, Sudan, Syria, etc.) and CIS countries (Kazakhstan, Turkmenistan). Annual contracts are usually signed with the above mentioned consumers. Export shipments average 1,500 vehicles per year. In 2008 export sales of Ural equaled 1 725 vehicles.

Model range The model range of the Truck Division consists of two vehicle families: • all-wheel drive vehicles with axle configurations 4x4, 6x6 and 8x8, with various wheelbases and a chassis for special equipment with a 10x10 configuration; • non-all-wheel drive vehicles with axle configurations of 6x4 and 8x4. In 2008 the model range was developed in the following areas:

• development of all-wheel drive commercial trucks with a new look; • organization of mass production of road trucks; • non-all-wheel drive trucks in the C-26 segment; • next-generation all-wheel drive commercial trucks.

Main achievements in 2008 In March 2008, OAO AZ Ural set a record for the daily assembly of trucks: daily production rose to 76 vehicles. This is the first time the factory has attained this rate of production in its entire post- Soviet history. The transition to the assembly of 76 vehicles per day was the result of the implementation of a new production system based on the Toyota Production System (TPS) and lean manufacturing, and is aimed at optimizing the assembly process and reducing production costs. In 2008 OAO AZ Ural introduced road dump trucks with increased capacity – the Ural-63685 and Ural-6563 - to the commercial vehicle market. Ural road trucks with increased capacity make it possible to substantially reduce the cost of transporting light-weight cargos (coal, peat, forestry processing wastes, etc.). A new 40-tonne mobile crane on a Ural-6563 chassis was also introduced. About RUB 195 million was invested in the Truck Division in 2008. The bulk of investments – RUB 51.8 million – was made in completing work on the project “Organization of mass production of Ural road vehicles”. In addition, development work was performed to create new products – road trucks in the C-26 segment, and a new generation of all-wheel drive vehicles.

Main areas of development for 2009 Investments in the Truck Division in 2009 will be aimed at completing investment projects already in progress, as well as the project “All-Wheel Drive Commercial Trucks with a New Look”. This project involves bringing a competitive modernized product to market as fast as possible with minimum investment costs, capable of leveling off the inevitable fall in sales during the economic crisis. This project will involve the elaboration of technical solutions that will be used in the production of next-generation all-wheel drive vehicles. During the economic crisis the important areas of development include programs providing additional services to consumers, among which there are: • vehicles sales using Trade-ins; • leasing; • overall repair process of a vehicle; • development of a mechanism for fixed product prices; • increase in spare parts sales.

Construction equipment

Market description and GAZ Group’s market position The development of the Russian construction equipment market in 2008 can be divided into two periods: active growth at the start of the year, and gradual decrease in the second half of the year. The general trends on the market have not changed over the period. As in 2007, there was an increase in imports of construction equipment, and foreign manufacturers considered and implemented projects to create assembly facilities for road construction equipment in Russia. Experts believe that the construction equipment market contracted by more than 20% in 2008. This is due primarily to the financial crisis, which was the reason for the changing economic climate in the country and worldwide, which had a negative effect on the rate of construction work as a whole. As a result, there was a drop in demand for construction equipment: a significant fall was noticeable in December, and by January demand had dropped by 30–40%. Consequently, suppliers’ warehouses began to accumulate a large volume of idle equipment, which had been ordered before the crisis hit, in anticipation of growing demand. The Division’s main products are excavators, graders, and front-end loaders. Excavators are the main product in the construction equipment business, which brought in approximately 45% of total sales revenues in the segment in 2008. GAZ Group has 36% of the market for wheeled excavators. Production in 2008 totaled 1,985 units. Tracked excavators make up only a trivial part of the total number of the excavators produced by the Division, and their market share is only about 2% with 441 units produced. Graders account for more than 28% of the Division’s total sales revenues in the segment. The Division produced 1,074 units of this type of equipment in 2008. Front-end loaders are new to the Construction Equipment Division; they account for 5% of sales revenues, in 2008 the production totaled 310 units. In the graders segment, under the conditions of a crisis of liquidity the Division was able to increase its share of the Russian market by 3% against 2007, holding down a 53% market share. In the other main segments – front-end loaders and excavators – sales fell by 33% against 2007. Share of the Construction Equipment Division in the Russian construction equipment market, 2008

11%

Imports (new) 11% Imports (used)

Construction 14% Equipment Division 64% Other domestic manufacturers

In total, GAZ Group produced 4,439 units of construction equipment in 2008.

Main sales markets The main consumers of the division’s products are: • road construction organizations; • utilities companies; • agencies of the Ministry of Defense; • enterprises that are part of Russian Railroads; • enterprises in the oil-and-gas sector. Sales of the Construction Equipment Division were made through two main sales channels: sales through an independent dealer network and direct sales (government orders, corporate purchasers). The main region of sales is Russia, which accounted for more than 80% of sales. The largest sales channel is the independent dealer network – sales through this network accounted for 84% and have been growing steadily over the past three years. At present the dealer network consists of 53 dealers in Russia, other CIS countries, and also a number of other foreign countries (Afghanistan, Serbia, and Bulgaria). Sales houses in other CIS and foreign countries are located in the capitals of the respective countries. The main targets for export growth in countries outside the CIS are developing countries such as Mongolia, Iran, Romania, Bulgaria, the UAE, and Argentina. The Division considers its main competitors to be global players on the construction equipment market (with budget models) and Chinese manufacturers. The development strategy on the markets outside the CIS consists in ensuring a high level of service for the equipment and improving reliability through the use of imported parts. The goal of GAZ Group’s Construction Equipment Division in the Russian market is to retain and increase market share and its presence in every product segment through a range of measures including pricing policy, improved servicing and better product quality.

Model range The Construction Equipment Division is currently producing the following types of road construction equipment: • Wheeled and tracked excavators in size groups 2, 3 and 4, produced by OAO TVEKS and OOO EZ Kovrovets. • Graders in classes 100, 140, 180 and 250; • Front-end and industrial loaders in size classes 3–7; • Asphalt layers and other equipment.

Main achievements in 2008 In 2008 the Construction Equipment Division simultaneously introduced several innovations in the main construction equipment segments: excavators – EK-20, ET-26i (excavator–loader), ET-26FS, ET-18LC; loaders – B-140, B-175; graders – GS-25.11; asphalt layers – Asf-G-3-08.

In July 2008, in cooperation with leading leasing companies, GAZ Group developed a competitive program for leasing wheeled excavators manufactured by OAO TVEKS. This offering was developed specifically for construction companies, since the construction equipment leasing is an easy and reliable way for companies, that want to acquire new equipment, to renew their construction equipment fleet at minimal initial cost and without significant investments. OAO TVEKS has successfully completed one of the main projects of the Construction Equipment Division for 2008 – creation of a full production cycle of new uniform cabins for excavators, cranes and other construction equipment. The new technological line covers all stages of cabin production: manufacturing of parts, high-precision profiles, welding, high-technology painting of cabins and their final assembly. The flexible production system on the new line makes it possible to improve the efficiency of production and reduce production costs. The facility has the designed capacity to produce 6,000 cabins per year. About RUB 390 million was invested in the Construction Equipment Division in 2008. The bulk of investments were made in the following projects: • “Modernization of mechanical processing, improvement of modular production centers by employing modern, flexible, and high-output equipment, configured in modular production centers” (OAO TVEKS) – RUB 94.765 million (modernization of the mechanical processing machining equipment – improvement of the quality of parts for excavators). • “Creation of the Cabin modular production center with a closed production cycle for 6,000 cabins per year” – RUB 39.928 million (creation of a manufacturing unit for modern uniform cabins for wheeled and tracked excavators). • “Preparations for mass production of ET-26” – RUB 35.402 million (implementation of new high-technology equipment for mechanical processing, welding, and materials cutting, to support the production of ET-26 type excavators with high quality and improved appearance). • “Organization of unified production of hydraulic cylinders at OAO TVEKS” – RUB 24.515 million (creation of production facilities for 140 hydraulic cylinders per day, elimination of the need to develop similar facilities at other Divisional enterprises, improvement of product quality, improvement of consumer appeal of products by improving the serviceability of hydraulic cylinders, setting up the basis for flanged hydraulic cylinders production). • “Organization of production of updated GS-18.05 graders and creation of the GS-25 heavy grader” – RUB 20.974 million (purchase of new equipment).

Main areas of development for 2009 The Division’s main development areas are: • Raising the level of product quality: creation of a quality control system at division enterprises, taking into account the construction of a defect level assessment complex at all main technological stages. • Restructuring of the Division’s production facilities: • OAO TVEKS – optimization of the plant’s production floor; creation of a separate unit to produce metal structures, hydraulic cylinders , and cabins for the Construction Equipment Division’s enterprises and external consumers; • OOO EZ Kovrovets – optimization of the plant’s production floor. Transfer of production of tracked excavators ET-14/16/18/20/26 and construction equipment on their basis to OAO Tver Excavator; • ZAO ChSDM – optimization of the plant’s production floor;

• Development of low-cost products: creation of the DZ-98 grader and EK-12 grader at a low cost, in order to ensure higher volumes of equipment sales. • Reduction in the prime cost of products by 20%: business optimization (purchasing, energy, change in technologies, design changes). In 2009 investments will be directed to completing investment projects already underway: • Creation of the Cabin modular production center (OAO TVEKS); • Creation and development of GS-25 grader production at OAO Bryansk Arsenal.

Passenger cars

Market description and GAZ Group’s market position Individuals make up the majority of purchasers of GAZ Group passenger cars. They account for 70– 75% of the total volume of sales in this segment, while the share of sales to organizations covers the remaining 25–30%. The main consumers of Volga automobiles are people in the 31–50-year age group.

Model range The Division’s model range consists of four models: • the GAZ-31105 gasoline-engine sedan; • the GAZ-310221 gasoline-engine station wagon; • the GAZ-3102 gasoline-engine sedan; • the Volga Siber gasoline-engine sedan. Mass production of the new Volga Siber began in July 2008. The Volga Siber is a modern D-class sedan, developed on the basis of the best Western technologies, assembled using high-quality materials and parts and wholly adjusted to Russian running conditions. The Volga Siber was designed by a famous English design studio, taking all modern trends into account. The car is built on the JR-41 platform; GAZ Group acquired a license to use and develop this platform from the Chrysler Corporation. Thus, the Group: • acquired access to new technologies; • saved time on automobile development; • acquired modern equipment (three thousand machine tools of various uses); • trained employees in TPS principles and ensured the high quality of manufactured vehicles.

Main achievements in 2008 About RUB 1,427 million was invested in the Passenger Car Division in 2008. The bulk of investment, RUB 1.398 billion, was directed to the project “Organization of the Volga Siber production”. In July 2008 a gala ceremony was held for the launch of mass production of the Volga Siber, the ceremony was attended by Russian Prime Minister Vladimir Putin. Official sales of the Volga Siber began in November 2008. The year 2008 saw the completion of a large-scale project on the construction of a new manufacturing complex for passenger vehicles that meets global quality standards. The complex has the capacity to produce about 100,000 vehicles per year. The flexibility of technological processes makes it possible to re-orient production to different vehicle platforms and different classes.

Main areas of development for 2009 GAZ Group’s strategy presupposes the maintenance of its presence at the passenger car market and formation of its long-term goals for the Group’s presence in the segment.

Powertrains

Market description and GAZ Group’s market position The development of the powertrain market is directly related to the development of the markets for automobile, agricultural and construction equipment. The first three quarters of 2008 demonstrated a trend to growth in all segments of the powertrain market. Starting from September 2008, due to economical crisis, there was a significant drop in demand on the automobile and agricultural equipment market in Russia. Shipments of GAZ Group engines to consumers in December 2008 were 5.5 times lower than those as of July 2008. The Powertrain Division works in the following market segments:

• gasoline engines for LCVs; • light diesel engines; • heavy diesel engines; • transmissions; • fuel-delivery systems; • stationary units.

Gasoline engines for LCVs In 2008 UMZ gasoline engines were delivered to the assembly lines of the car makers OAO UAZ and AZ GAZ. In 2008 the Powertrain Division had approximately a 20% share of the gasoline engine market, mainly due to deliveries of UMZ engines to OAO UAZ (part of the Sollers Group). In 2008 GAZ Group management took the decision to supply its light commercial vehicles with the UMZ engines in the amount of up to 100,000 engines per year. The implementation of this plan will make it possible to increase UMZ engines share to 70–75% at the market. Structure of the gasoline engine market for commercial equipment in 2008

0,4% 0,1% 19,8%

GAZ Group (OAO UMZ) OAO ZMZ ZA O AM UR AMO ZIL

79,7%

Light diesel engines Light diesel engines include engines with a displacement of up to 0.9 l/cylinder. The production of commercial vehicles equipped with light diesel engines in Russia and the CIS is still immature. The move over the past few years to diesel engines in light commercial vehicles in Russia follows global trends and has occurred mainly through the import of LCVs produced by leading European and Asian automobile companies. Significant growth is forecast in this market segment in Russia and the rest of the CIS, primarily due to the global trend, which in turn is related to the appearance of high-efficiency and economic diesel engines. In 2008 the Powertrain Division had about a 7% market share in the segment of light diesel engines. A total of 1347 engines were produced.

Structure of the light diesel engine market, 2008

8,2%

GAZ Group 49,0% ZMZ 42,8% Imports

Heavy diesel engines GAZ Group (OAO Autodiesel (YaMZ)) is Russia’s leading manufacturer of diesel engines in the 9– 18 l range and holds more than 50% of the market. With the aim of maintaining leading positions and raising the technological level of products in the heavy diesel engine segment, production of the YaMZ-650 engine continued in 2008 (inline 6- cylinder engine with 311–412 hp) under license from Renault Trucks (France). The designed capacity of production is 20,000 engines per year.

Structure of the heavy diesel engine market, 2008

Fuel-delivery systems The Division’s products compete with fuel systems manufactured by Bosch, AO Motorpal, OAO RAAZ, OAO NZTA and OAO AZTN at the fuel-delivery systems market. Fuel-delivery systems are supplied to the assembly lines of the engine manufacturers – OAO Autodiesel (YaMZ), OAO KAMAZ-Diesel, UP Minsk Motor Plant, OAO TMZ and OAO AMZ.

Structure of the fuel-delivery systems market, 2008

20,9% GAZ Group 0,1% OAO NZTA 44,9% 4,1% OAO RAAZ OAO AZTN Import s

30,0%

Transmissions

In 2008 transmissions were supplied to the assembly lines of equipment manufacturers: • YaMZ transmissions are manufactured by OAO Autodiesel for the company’s diesel engines; • GAZ transmissions are manufactured at OOO Nizhny Novgorod Motors for AZ GAZ automobiles.

Stationary units The Division produces diesel generators, which are used as autonomous power supplies in the following fields: • Social and government sector: Ministry of Defense and Ministry of Emergency Situations, housing and public utilities, municipalities (schools, hospitals, daycares, etc.); • Extracting industry sector: oil and gas, geology, drilling, agriculture and forestry; • Processing sector: construction, food industry, metallurgy; • Consumer and services sector: cottages, new residences, tourism, hotels, banks, telecommunications. The stationary units model range is to be expanded through the manufacturing of units on the basis of gas-powered YaMZ engines.

Model range The Division’s main products are YaMZ brand heavy diesel engines, manufactured by OAO Autodiesel (YaMZ). These engines and powertrains with a displacement of 11–26 l and 150–800 hp are used in MAZ, Ural, KrAZ vehicles, buses, combines, tractors, special and other vehicles. Gasoline engines with 120–150 hp are represented by the products of OAO UMZ (Ulyanovsk) and are intended for light commercial vehicles, GAZelle and UAZ minibuses. Fuel injection systems consist of YaZDA and YaZTA fuel pumps (Yaroslavl) for YaMZ, KAMAZ, MMZ, TMZ and AMZ engines. In addition, GAZ Group manufactures transmission, clutches, and also diesel and gasoline generators with a power of 30–315 kW. In 2008 the Division began mass manufacturing of the following new products: • gasoline engines UMZ-4216 Euro-3, UMZ-4213 Euro-3; • diesel engines YaMZ-656 Euro-3, YaMZ-658 Euro-3, YaMZ-650 Euro-3; • fuel systems YaZDA Euro-3 for YaMZ, KAMAZ and MMZ engines.

Key achievements in 2008

1. In 2008 GAZ Group (OAO Ulyanovsk Motor Plant) began mass manufacturing of the upgraded 123 hp UMZ-4216 gasoline engine. The UMZ-4216 complies with Euro-3 standard and is intended for light commercial vehicles manufactured by GAZ Group. 2. The plant’s commitment to high production standards was recognized by the Administration of Yaroslavl oblast, which awarded OAO Autodiesel (YaMZ) a certificate for winning the regional competition “Best in Quality Control”. 3. The Powertrain Division received RUB 2,358.7 million in investments in 2008. Most of the investments were earmarked for implementation of the following projects: • Development and industrial engineering of the new family of 100-315 hp YaMZ-530 engines. Total investments in 2008 equaled RUB 1,184.4 million. • Development and industrial engineering of 11 liter R-6 engines, under license from Renault Trucks (France). Total investments equaled RUB 372.6 million. • Development and industrial engineering of 230-420 hp YaMZ-656 and YaMZ-658 Euro- 3 emission class engines. Total investments in 2008 equaled RUB 112.0 million.

• Development and start-up of production of 6- and 9-speed transmissions for the powertrain of YaMZ-656/658/650/536 engines. Total investments in 2008 equaled RUB 274.9 million. • Organization of manufacturing for fuel equipment that meets the Euro-3 requirements of UNECE Regulation No. 49 on diesel engines. Total investments in 2008 equaled RUB 123.6 million. • Development and industrial engineering of the Euro-3 emission class UMZ-4216 family of gasoline engines. Total investments in 2008 equaled RUB 4.2 million. • Development and industrial engineering of the Euro-4 emission class UMZ-4216 family of gasoline engines. Total investments in 2008 equaled RUB 3.8 million.

Main areas of development for 2009 Investments in the Powertrain Division in 2009 will be aimed at implementing the following key projects: • Development and production engineering of the new family of 100-315 hp YaMZ-530 engines. This project will cover all of GAZ Group companies’ needs for medium-sized diesel engines, thereby ensuring the Group’s independence from outside powertrain suppliers. • Development and industrial engineering of Euro-4 and Euro-5 emission class 11 liter R-6 engines based on the YaMZ-650 Euro-3 engine. This project will allow to manufacture sufficient volume of heavy Euro-4 and Euro-5 diesel engines to meet the market demand within the timeframes established by the special technical regulations. • Development and industrial engineering of the Euro-3 emission class UMZ-4216 family of gasoline engines. This project is aimed at expanding the manufacturing of OAO UMZ gasoline engines to 100,000 units a year. • Euro-4 emission class UMZ-4216 gasoline engine. This project is being implemented to ensure that the light commercial vehicles of GAZ Group are equipped with competitive gasoline engines that meet Euro-4 emission standards starting from January 2010. The search for strategic partners for industrial engineering of light diesel engines, Common Rail fuel equipment for heavy and medium-sized diesel engines, and transmissions for medium-sized and light diesel engines will also continue in 2009.

Auto components

Market description and GAZ Group’s market position The main market trends of the Auto Components Division in 2008 were: • predominance of supply to GAZ Group companies and through return cooperation over the supply to external customers in overall supply volume; • growth in sales volume of all GAZ Group companies in 1H2008; • significant workload of the preparatory production facilities of OAO GAZ on the manufacture of products for Group companies and internal production lines, as a result of this the sales to outside clients could not be increased; • peak internal production workload of competitors, resulting in a growth in orders at OAO GAZ; • significant growth in the cost of materials in the middle of the year; • development of the new products for OAO RZD; • expanding cooperation with OAO AvtoVAZ on line assembly of the products of the Volga Automobile Plant using OAO GAZ parts; • sharp fall in production at the main production facility of OAO GAZ and Group companies at the end of the year, and a resultant growth in overheads on the products of the Auto Component Division.

Structure of the Auto Components market segment in 2008

Sales under 24,6% production cooperation

42,8% Sales withi n the holding

Sales to outsi de cons umers 32,6%

Main sales markets The key sales markets for the Auto Components Division in Russia and abroad in 2008 were: • supply of products to GAZ Group’s LCV assembly lines; • supply of counterparties of OAO TZK GAZ on the basis of production cooperation; • supply of products to GAZ Group companies; • supply to outside clients such as automobile and tractor plants, OAO RZD, and construction companies.

Model range

The main products of the Auto Components Division in 2008 included: • products for GAZ Group companies (parts, pre-finished components); • products for OAO RZD (foundry and work shop products); • products for automobile and tractor plants (wheel disks, clutches, pre-finished components); • products for construction (road working equipment, clamp forms).

Structure of the castings and forgings market for the auto industry* Market Company name Specialization share KAMAZ-Metallurgy auto parts, drop shop and foundry pre-finished components 11.80% GAZ auto parts, drop shop and foundry pre-finished components 6.83% VKM-Steel foundry pre-finished components (iron and steel) 5.50% drop shop pre-finished components, specialized Chelyabinsk Forge-and-Press Plant 3.00% equipment, wheels Tutaevo Motor Works drop shop and foundry pre-finished components (iron) 1.78% drop shop and foundry pre-finished components, spare Cheboksary Aggregate Works 1.68% parts Promtraktor foundry pre-finished components (iron) 1.10% Mtsensk Foundry foundry pre-finished components 1.00% Minsk Tractor Works tractors, foundry pre-finished components (iron) 0.75% Ruslich auto parts, drop shop and foundry pre-finished components 0.60% Other manufacturers 65.96% * Based on expert estimates at the end of 2008.

Key achievements in 2008 Total investments in the Auto Components Division in 2008 equaled RUB 795 million. A large share of the investments in 2008 was used to implement the following investment projects: • Development of production of ZMZ-405 EURO-3 cylinder blocks at the foundry of OAO GAZ (RUB 96.5 million). Implementation of this project made it possible to start commercial production of 405.1002015 cylinder blocks, and to manufacture various engine blocks with a displacement of up to four liters and a weight of up to 100 kg; • Organization of manufacturing of Chrysler Sebring licensed vehicles (RUB 253 million). Implementation of this project made it possible to organize a temporary warehouse for SKD components at OAO GAZ; • A number of projects to ensure that the products manufactured at Nizhny Novgorod production premises comply with the requirements of the Euro-3 standard. Total investments equaled RUB 10.4 million; • Introduction of new technology for production of differentials (RUB 110 million). Completion of the project to improve the quality of the rear axles of Gazel and Sobol vehicles; • Environmental safety at the Auto Components Division (RUB 17 million). The purpose of this project was to ensure environmental safety at the facilities of the Auto Component Division, and to complete construction of the first stage of the industrial waste deposit site near Igumnovo.

Main areas of development for 2009 Due to the sharp fall in production at GAZ Group companies and the Group’s main production facility, the main focus was placed on increasing sales (by more than twofold) to outside consumers from various industries. This tactic allowed the load on the preparatory production facilities of OAO GAZ to be increased via new sales markets and assimilation of new products, thereby lowering the cost of production for assembly of automobiles. Investments in the Auto Components Division in 2009 will be earmarked for the following projects: 1. Finalization of investment projects; 2. Maintenance of existing production facilities. 3. Implementation of measures to develop sales markets.

Corporate governance

GAZ Group’s corporate governance system

GAZ Group recognizes the importance of effective corporate governance for conducting business successfully, and understands its high level of public and social responsibility. To achieve an understanding among all interested parties, GAZ Group is committed to follow the principles set forth in the Corporate Governance Code, and makes every reasonable effort to observe them in its day-to-day business.

The Group’s main corporate governance principles ensure: • that shareholders are able to exercise their rights related to participation in company’s management; • that all shareholders holding the same type (class) of shares are treated equally; • that the Board of Directors performs strategic management of the Company’s activity, exercises effective control over the activity of the executive bodies, and secures the accountability of the members of the Board of Directors to the shareholders; • effective monitoring of financial and business activity; • that the Company’s executive bodies are able to manage day-to-day operations reasonably and in good faith, and ensure the accountability of the executive bodies to the Board of Directors and shareholders; • timely disclosure of complete and reliable information on the Company, including on its financial position, economic indicators, ownership structure and management, and major corporate events; • active cooperation between the Company and investors, creditors and other interested parties, in order to increase the value of shares and other Company securities and improve the Company’s corporate and other ratings; • compliance with all effective legislation norms and local regulatory acts; • increased role for the Company in the social development of the regions in which subsidiaries and associates work, and increased social responsibility of the management and the Company in general.

Pursuant to OAO GAZ’s Charter, the company’s management bodies include: the general meeting of shareholders, the Board of Directors and the single executive body - the Chief Executive Officer, whose authorities have been transferred to a management company – OOO GAZ Group Management Company.

The General Meeting of Shareholders is the senior management body of OAO GAZ. In 2008 the Company’s annual general meeting of shareholders was held on 27 June. The General Meeting of Shareholders of OAO GAZ: • elected the Board of Directors, which included four new directors: Karl-Heinz Kalbfell, Siegfried Wolf, Alexey Barantsev and Konstantin Akimov. Erik Eberhardson was elected as Chairman of the Board. • new versions of the Charter of OAO GAZ, the Regulations On the General Meeting of Shareholders, the Regulations On the Board of Directors, and the Regulations On the Internal Audit Commission were approved. The new versions of these documents take into

account all legislative changes and make use of effective examples of corporate governance practices, thereby improving the effectiveness of corporate governance.

The new versions of the Charter and regulations strengthen the management function of the Board of Directors of the Company.

Board of Directors

The Board of Directors of OAO GAZ is responsible for overall management of the Company’s operations, including issues of strategic planning and development of the Company and foreign trade activity related to business, with the exception of those issues ascribed to the competence of the Company’s general meeting of shareholders by the Company Charter.

Report on the activity of the Board of Directors in 2008

The Board of Directors of OAO GAZ held 17 meetings in 2008, seven of which were held in person.

The following key issues concerning GAZ Group’s main lines of business were considered at the Board of Directors meetings:

• On implementing GAZ Group restructuring project and the separation of the component business; • On approving GAZ Group’s Code of Ethics; • On acquiring shares in OAO ZZGT; • GAZ Group’s corporate strategy; • Localization of Maxus in Russia; • On approving the Regulations On the Supervisory Board under the Board of Directors of OAO GAZ; • On electing the members of the Supervisory Board under the Board of Directors of OAO GAZ; • On the long-term integrated development strategy of GAZ Group up to 2020 and the corporate strategy of GAZ Group for 2008-2012; • On transferring the authorities of a single executive body of OAO GAZ to a for-profit organization (management company); • On providing charity support; • On forming the Strategy Committee under the Board of Directors of OAO GAZ; • On forming the Audit and Finance Committee under the Board of Directors of OAO GAZ; • On forming the Personnel and Remuneration Committee under the Board of Directors of OAO GAZ; • Taking decisions on the placement of securities of OAO GAZ (series 01-04 bonds); • Crisis management program: objectives up to the end of 2008, and the action plan for their achievement.

The following changes took place in the membership of the Board of Directors of OAO GAZ in 2008. Four new members joined the Board: Karl-Heinz Kalbfell, Siegfried Wolf, Alexey Barantsev and Konstantin Akimov. Erik Eberhardson was elected as Chairman of the Board.

As of 31 December 2007 the Board of Directors included the following members: Peter Sergeevich Zolotarev (Chairman), Dmitry Andreevich Vovk, Alexey Alexeevich Ipatov, Valery Gennadievich Lukin, Nikolay Andreevich Pugin, Elena Viktorovna Syroezhkina, Alexander Valerievich Filatov, Lars Erik Ebbe Eberhardson.

Members of the Board of Directors (as of 31 December 2008)

Lars Erik Ebbe Eberhardson Chairman of the Board of Directors of OAO GAZ

Education: higher

From 2002 to 2005 Mr. Eberhardson was the head of the Representative Office of Volvo Construction Equipment in Russia. In 2005 Mr. Eberhardson joined OOO RusPromAuto Management Company as Deputy CEO for Strategic Development. From June 2006 to 2007 Mr. Eberhardson was the Chairman of GAZ Group Management Board, and from 2007 to 2008 was the Managing Director of the Automotive Business at OAO Russian Machines. Since 2008 Mr. Eberhardson is the Chairman of the Board of Directors of OAO GAZ.

Holds no shares in the company.

Konstantin Vladimirovich Akimov Member of the Board of Directors of OAO GAZ

Education: higher

In 2003-2005 Konstantin Akimov headed the Phosprom Industrial Group, and from 2005 to 2008 headed Polair/Sovitalprodmash (the largest professional refrigeration equipment plant in Europe). Since 2008 Mr. Akimov is Deputy CEO of OOO Basic Element for Production Asset Management.

Holds no shares in the company.

Alexey Georgievich Barantsev Member of the Board of Directors of OAO GAZ

Education: higher

Mr. Barantsev was CEO of OAO GAZ from 2002 to 2005. In 2005 Mr. Barantsev was appointed Director of the Nizhny Novgorod Block of OOO GAZ Group Management Company. In 2006-2007 Mr. Barantsev held the following positions at OOO GAZ Group Management Company: Director of the Auto Components Division, Director of Production and Restructuring of GAZ Group, First Deputy Chairman of the Management Board. In 2007-2008 Mr. Barantsev held the positions of Director for Operational Development and First Deputy Chairman of the Management Board. In 2008 Mr. Barantsev took up the post of First Deputy CEO for Production at OAO Russian Machines. In December 2008 Mr. Barantsev was appointed CEO of ZAO Glavstroy-Management (the management company of the Construction Sector of Basic Element) and Chairman of the Board of Directors of OAO Glavstroy.

Holds no shares in the company.

Dmitry Andreevich Vovk Member of the Board of Directors of OAO GAZ

Education: higher

From 2002 to 2006 Dmitry Andreevich was the Director of the Human Resources Department at OOO Basic Element. From 2006 to 2008 Mr. Vovk was Deputy CEO for Human Resources at OOO Basic Element. Since 2008 Mr. Vovk has headed the Aviation Sector at OOO Basic Element.

Holds no shares in the company.

Siegfried Wolf Member of the Board of Directors of OAO GAZ

Education: higher

From 2002 to 2005 Mr. Wolf was Executive Deputy Chairman of the Board of Directors of Magna International Inc. Starting from April 2005 Siegfried Wolf has headed Magna International Inc. as one of the Co-Chief Executive Officers of the concern.

Holds no shares in the company.

Alexey Alexeevich Ipatov Member of the Board of Directors of OAO GAZ

Education: higher

From 2000 to the present Mr. Ipatov has been the General Director of NAMI (a federal state-owned unitary enterprise).

Holds no shares in the company.

Karl-Heinz Kalbfell Member of the Board of Directors of OAO GAZ

Education: higher

From 1998 to 2004 Mr. Kalbfell held the position of Senior Vice President for Product Strategy and Development at BMW. From 2004 to 2005 Mr. Kalbfell was the Chairman and CEO of Rolls Royce Motorcars Ltd. From January 2005 Mr. Kalbfell began working at Fiat as COO of Alfa Romeo, and from February of the same year also headed Maserati SPA, which merged with Fiat. After leaving Fiat in 2007, Mr. Kalbfell has been working as a product and international project consultant in the automotive industry. Holds no shares in the company.

Valery Gennadievich Lukin Member of the Board of Directors of OAO GAZ

Education: higher

From 2003 to 2006 Mr. Lukin was the CEO of OAO Kamov-Holding. In 2006-2007 Mr. Lukin was the CFO at OAO Russian Machines. Since 2007 Mr. Lukin has held the position of CEO of OAO Russian Machines and has been a member of the Board of Directors of OAO Russian Machines and OOO VPK since 2008.

Holds no shares in the company.

Alexander Valerievich Filatov Member of the Board of Directors of OAO GAZ

Education: higher

From 2003 to 2005 Mr. Filatov was First Vice President of the Cascol Management Company. Since 2005 Mr. Filatov has held the position of Director for Strategic Planning and Development at OAO Russian Machines.

Holds no shares in the company.

Supervisory Board

The Supervisory Board has been operating under the Board of Directors of OAO GAZ as the senior consulting and advisory body since 2008. The Supervisory Board considers the issues within its competence, including the following: • establishing the Company’s long-term strategic goals; • improving the Company’s competitiveness and investment appeal; • developing proposals and facilitating the approval by the Russian state authorities of national strategies and development programs for the domestic machine-building complex, taking into account the strategic interests of the Company and the machine-building complex in general; • assisting in the improvement of the regulatory and legal framework to ensure the smooth development of the domestic machine-building industry, including drafting of relevant initiatives; • developing R&D activity and use of high-end technology by Company enterprises, subsidiaries and associates; • introduction of energy efficient and environmentally friendly technologies, promoting scientific and technical development and re-equipment of production facilities and the Company’s research, laboratory and testing bases, as well as those of subsidiaries and associates; • the Company’s social policy, including social partnership issues and social-economic development of the regions in which the Company has a presence; • the Company’s information policy; • forming a positive image, improving the prestige and attractiveness of the professions that make up the machine-building complex;

• interaction with Russian and foreign public associations, international unions and machine- builders associations.

N.A. Pugin, President of OAO GAZ, was elected the Chairman of the Supervisory Board. The following were elected as members of the Supervisory Board under the Board of Directors of OAO GAZ: 1. Nikolay Andreevich Pugin 2. Valery Pavlinovich Shantsev 3. Sergey Alexeevich Vakhrukov 4. Andrey Vladimirovich Dementiev 5. Andrey Gennadievich Svinarenko 6. Sergey Nikolaevich Katyrin 7. Andrey Alexandrovich Fefelov 8. Nikolay Pavlovich Laverov 9. Viktor Viktorovich Ivanter 10. Lev Lvovich Lyubimov 11. Dmitry Anatolievich Gulin 12. Roman Grigorievich Maev

The Supervisory Board functions as the expert advisory body of the Board of Directors of OAO GAZ. It holds meetings as necessary, but at least once every three months. The creation of the Supervisory Board contributes to the improvement in quality of the decisions of the Board of Directors.

Remuneration

Criteria for determining the remuneration of the Board of Directors

The Regulations “On the Procedure for Remuneration and Compensation of Members of the Board of Directors of OAO GAZ” were approved at the extraordinary general meeting of shareholders of OAO GAZ held on 3 August 2006. These Regulations stipulate that remuneration shall be paid to the members of the Board of Directors on a quarterly basis, based on a calculation of RUB 270,000 a month.

Remuneration paid to the Board of Directors in 2008

A payment was made for 2008 to all members of the Board of Directors for the period from 1 October 2007 to 30 September 2008 in the amount stipulated by the Regulations “On the Procedure for Remuneration and Compensation of Members of the Board of Directors of OAO GAZ”, in the total amount of RUB 27,855,291.98.

Criteria for determining the remuneration of the Management Company

The remuneration to be paid to the Management Company is determined by the Board of Directors of OAO GAZ and fixed in the contract on assignment of the authorities of the single executive body of OAO GAZ to the Management Company.

Remuneration paid to the Management Company in 2008

For the 12 months of 2008 the Management Company - OOO GAZ Group Management Company - which performs the duties of the single executive body, was paid remuneration in the amount of RUB 220,484,124 (including VAT).

Committees of the Board of Directors

Audit and Finance Committee, Personnel and Remuneration Committee, and Strategy Committee were created to assist the Board of Directors and to improve its work efficiency.

Audit and Finance Committee

The Audit and Finance Committee under the Board of Directors was created for preliminary consideration of issues and giving recommendations to the Board of Directors on adopting decisions on audit and internal audit activity, the Company’s financial and management accounting, and monitoring the systems of internal controls and risk management to the extent of the competence of the Board of Directors.

Pursuant to the Regulations “On the Audit and Finance Committee under the Board of Directors of OAO GAZ”, the Committee functions on an ongoing basis. Committee meetings are held if at least half of the Committee members are present and at least once a month.

The Audit and Finance Committee had the following members in 2008: • Andrey Anatolievich Bykov; • Andrey Mikhailovich Elinson; • Alexander Mikhailovich Lukin; • Lars Erik Ebbe Eberhardson.

Personnel and Remuneration Committee

The Personnel and Remuneration Committee under the Board of Directors was created for preliminary consideration of issues and giving recommendations to the Board of Directors on adopting decisions on human resources policy and remuneration to the extent of the competence of the Board of Directors.

Pursuant to the Regulations “On the Personnel and Remuneration Committee under the Board of Directors of OAO GAZ” the Committee functions on an ongoing basis. Committee meetings are held if at least half of the Committee members are present and at least once a month.

The Personnel and Remuneration Committee had the following members in 2008: • Dmitry Vladimirovich Bulavinov; • Dmitry Andreevich Vovk; • Valery Gennadievich Lukin.

Strategy Committee

The Strategy Committee under the Board of Directors was created for preliminary consideration of issues and giving recommendations to the Board of Directors on adopting decisions on the Company’s development strategy, determining the main areas of business development, and increasing the Company shareholders value.

Pursuant to the Regulations On the Strategy Committee under the Board of Directors of OAO GAZ, the Committee functions on an ongoing basis. At that a decision of the Committee can be taken through vote by correspondence (form of inquiries). Committee meetings are held if at least half of the Committee members are present and at least once a month.

The Strategy Committee had the following members in 2008: • Sergey Georgievich Zanozin; • Alexey Alexeevich Ipatov; • Karl-Heinz Kalbfell; • Alexander Valerievich Filatov; • Lars Erik Ebbe Eberhardson.

Executive bodies

The authorities of the Company’s single executive body have been assigned to a management company – Limited-Liability Company GAZ Group Management Company. The decision to assign the authorities was taken at the annual general meeting of shareholders of OAO GAZ. The contract on assignment of the authorities of the single executive body as of 1 October 2008 was approved at a meeting of the Board of Directors of OAO GAZ.

Members of the Management Board of the Management Company: (as of 31 December 2008)

Sergey Georgievich Zanozin Chairman of the Management Board

Education: higher

From 2002 to 2005 Mr. Zanozin was the Director General of OOO RusAvtobusProm. From 2005 to 2007 Mr. Zanozin held the position of Director of the Bus Division at OOO GAZ Group Management Company. Since October 2007 Mr. Zanozin is the Chairman of the Management Board of OOO GAZ Group Management Company.

Share in the charter capital of OAO GAZ: 0.0000050%. Share of ordinary shares in the Company held by Mr. Zanozin: 0.0000054%

Leonid Evgenievich Dolgov Member of the Management Board

Education: higher

From 2004 to 2005 Mr. Dolgov was the Director of the Strategic Marketing Department of OAO RusPromAuto, and from 2005 to 2006 Mr. Dolgov was the Director for Strategic Development and Marketing, Director of the Department for Strategic Analysis and the Business Environment, and Director for Strategic Development and Marketing of the Construction Equipment Division of OOO RusPromAuto Management Company. In 2006 Mr. Dolgov headed the Department of Strategic Analysis and the Business Environment at OOO GAZ Group Management Company. From 2006 to the present Mr. Dolgov is the Director of the Passenger Cars Division of OOO GAZ Group Management Company. Since September 2007 Mr. Dolgov is CEO of ZAO GAZ Automobile Company, and since 2008 is CEO of OOO MAXUS RUS and the General Director of OOO GAZ Group Passenger Cars.

Holds no shares in the company

Enrico Sabinovich Damiano Member of the Management Board

Education: higher

From 2002 to 2005 Mr. Damiano was the Director of the Production Development Department at OOO RusPromAuto. From September 2005 to 2006 Mr. Damiano held the post of Director of the Production Development Department at OOO GAZ Group Management Company. From 2006 to the present Mr. Damiano is the Director of GAZ Group Unified Engineering Center. Since 2007 Mr. Damiano is CEO of OOO UEC, and since 2008 is a member of the Board of Directors of OAO Autodiesel (YaMZ), OAO Ural AZ, OAO SAZ, OAO TVEKS, OAO ZZGT and OAO Pavlovo Bus.

Holds no shares in the company.

Viktor Khristoforovich Korman Member of the Management Board

Education: higher

Since 2003 Mr. Korman is the General Director of OAO Ural AZ. In 2006 Mr. Korman also held the position of Director of the Truck Division at OOO RusPromAuto Management Company, and since 2006 holds the position of Director of the Truck Division at OOO GAZ Group Management Company. Since 2008 Mr. Korman is also a member of the Board of Directors of OAO ZZGT, OAO TVEKS, OAO Bryansk Arsenal, ZAO ChSDM, OAO Ural AZ, OAO SAZ and ZAO CC IFIG BelRusAuto.

Holds no shares in the company

Igor Nikolaevich Kulgan Member of the Management Board

Education: higher

From 2003 to 2005 Mr. Kulgan was the Director of Business Processes and Information Systems Management at OOO RusPromAuto. From 2005 to 2006 Mr. Kulgan worked as the Director of the

Engine Division of OOO GAZ Group Management Company, and from 2006 to the present Mr. Kulgan holds the position of Director of the Powertrain Division of OOO GAZ Group Management Company. Since 2008 Mr. Kulgan is also Managing Director of OOO GAZ Group Powertrain. Mr. Kulgan is Chairman of the Board of Directors of OAO Autodiesel (YaMZ), OAO YaZTA and OAO UMZ, and a member of the Board of Directors of OAO YaZDA, OAO Tutaevo Motor Works and ZAO CC IFIG BelRusAuto.

Holds no shares in the company

Tatiana Alexandrovna Luzhetskaya Member of the Management Board

Education: higher

In 2003-2004 Ms. Luzhetskaya was the Deputy CFO at OOO RusAutoProm Management Company, in 2004-2008 Ms. Luzhetskaya worked as the Director for Finance and Economics of the Bus Division of OOO GAZ Group Management Company. Since 2008 Ms. Luzhetskaya held the position of Acting Deputy Chairman of the Management Board for Finance and Economics and CFO at OOO GAZ Group Management Company.

Holds no shares in the company

Elena Viktorovna Matveeva Member of the Management Board

Education: higher

In 2003-2005 Ms. Matveeva was the Marketing Communications and Branding Director at ZAO YUKOS Refining & Marketing. In 2005 Ms. Matveeva was the Director of Communications and Public Relations of OOO Russian Machines. Since late 2005 Ms. Matveeva is Director of Communications and Public Relations of OAO Russian Machines, and since 2006 is Deputy Chairman of the Management Board and Director of Corporate Policy and Communications at OOO GAZ Group Management Company.

Holds no shares in the company

Nikolay Borisovich Odintsov Member of the Management Board

Education: higher

During the period from 2003 to 2005 Mr. Odintsov held the position of General Director of OOO CTH Russian Buses. In 2005-2008 Mr. Odintsov worked as the Managing Director of OOO CTH Russian Buses of OOO GAZ Group Management Company (formerly OOO RusPromAuto Management Company). From 2008 to the present Mr. Odintsov is Director of the Bus Division of OOO GAZ Group Management Company. Since 2008 Mr. Odintsov is also a member of the Board of Directors of OAO GOLAZ, OAO KAAZ and OAO Pavlovo Bus.

Holds no shares in the company

Mikhail Yurievich Postavnin Member of the Management Board

Education: higher

In 2003-2005 Mr. Postavnin was the Deputy General Director for Development of OOO RusAvtobusProm. Since 2005 Mr. Postavnin was acting Deputy Chairman of the Management Board and Director of Strategic Development of OOO GAZ Group Management Company. Mr. Postavnin is also a member of the Board of Directors of OAO Pavlovo Bus.

Holds no shares in the company

Igor Georgievich Ryzhkov Member of the Management Board

Education: higher

In 2003-2004 Mr. Ryzhkov was the Security Director at OOO RusPromAuto, and in 2004-2005 held the same position at OAO RusPromAuto. Since September 2005 Mr. Ryzhkov is Director for Resource Protection at OOO GAZ Group Management Company.

Holds no shares in the company.

Alexander Ivanovich Simachev Member of the Management Board

Education: higher

In 2004-2008 Mr. Simachev was the Director of the Legal Service at OOO ADV Marketing. Since 2008 Mr. Simachev is Director for Corporate and Legal Issues of OOO GAZ Group Management Group. Mr. Simachev also holds the position of Director of GAZ International Limited since 2008.

Holds no shares in the company

Vadim Nikolaevich Sorokin Member of the Management Board

Education: higher

In 2003-2008 Mr. Sorokin was the General Director of ZAO Instrum-Rand. In 2008 Mr. Sorokin held the position of First Deputy Chairman of the Management Board at OOO GAZ Group Management Company.

Holds no shares in the company

Alexander Mikhailovich Titov Member of the Management Board

Education: higher

In 2003-2005 Mr. Titov was the Director for Development at OAO Russian Machines (formerly OAO RusPromAuto). From 2005 to 2007 Mr. Titov worked as the Director for Development and Restructuring of Production Facilities and Technology at OOO GAZ Group Management Company (formerly OOO RusPromAuto Management Company). From 2007 to 2008 Mr. Titov was the Director of the Auto Components Division of OOO GAZ Group Management Company. Since 2008 Mr. Titov worked as General Director of OOO GAZ Group Auto Components.

Holds no shares in the company.

Yury Evgenievich Ushakov Member of the Management Board

Education: higher

In 2003-2004 Mr. Ushakov was the General Director of ZAO Geokhim, and in 2004 was the Commercial Director of ZAO Minnesko Novosibirsk. From 2004 to 2005 Mr. Ushakov worked as General Director of ZAO MC-Management and from 2005 to 2006 was Deputy CFO at ZAO Geokhim. From 2006 to 2008 Mr. Ushakov was the Managing Director of OOO TZK GAZ as part of OOO GAZ Group Management Company.

Holds no shares in the company.

Vyacheslav Vyacheslavovich Shmatov Member of the Management Board

Education: higher

From 2003 to 2006 Mr. Shmatov held the position of Deputy General Director for Economics and Finance of OAO GAZ, then in 2006 held the position of Deputy Managing Director - Director for Economics and Finance of OAO GAZ. In 2007-2008 Mr. Shmatov was the Deputy Chairman of the Management Board for Finance and Economics - CFO of OOO GAZ Group Management Company. In 2008 Mr. Shmatov was appointed Director of the Light Commercial Vehicles Division of OOO GAZ Group Management Company and Managing Director of OOO GAZ Group Commercial Vehicles. Mr. Shmatov is also Director of GAZ International Limited.

Holds no shares in the company.

System of internal controls

Internal control is a constant process performed at all levels of Group management. Its aim is to reduce the risks taken, ensure that operations and transactions comply with legislative requirements, and provide complete and reliable reports to shareholders and other interested parties. The Audit Commission of OAO GAZ and the Internal Audit Service of OAO GAZ are responsible for assessing the effectiveness of GAZ Group’s system of internal controls. Audit Commission The Audit Commission is a supervisory body that exercises internal control over financial and business operations of OAO GAZ, its management bodies, divisions and services, branches and representative offices. In its activity the Audit Commission is governed by the laws of the Russian Federation, the Charter of OAO GAZ, the Regulations “On the Audit Commission” and other internal Company documents approved by the general meeting of shareholders related to the activity of the Audit Commission. The Audit Commission performs its activity in the form of reviews: one mandatory review (revision) of financial and business operations based on the results for the year, and unscheduled reviews. Based on the results of the review of the Company’s financial and business operations, the Audit Commission drafts an opinion confirming the reliability of the data contained in the Company’s reports and other financial documents and information on any violations discovered. The Audit Commission had the following members in 2008: • Natalia Vladimirovna Vasilieva (Chairperson); • Valery Yurievich Lepekhin; • Irina Viktorovna Smirenina. Internal Audit Service The Internal Audit Service of OOO GAZ Group Management Company was created to help improve the effectiveness of internal control and risk management at OAO GAZ and the subsidiaries of GAZ Group. The Internal Audit Service performs internal audits and other audit-related tasks in Company divisions and GAZ Group companies. In its activity the Internal Audit Service is governed by the principles of independence, objectivity, competence and professionalism, as well as by the standards for internal auditors established by the International Standards for the Professional Practice of Internal Auditing and the Code of Ethics of the Institute of Internal Auditors. The duties of the Internal Audit Service include: • performing audits of the effectiveness of the systems of internal control of the Company and GAZ Group companies, and developing the appropriate recommendations based on the results; • performing audits of the security and effectiveness of the information systems of the Company and GAZ Group companies;

• advising the executive management of the Company and GAZ Group companies during the preparation of action plans (adjustments) based on the results of the audits performed, and monitoring the execution of the action plans; • advising the executive management of the Company and GAZ Group companies on the issues in the competence of the Internal Audit Service. The Internal Audit Service is headed by the Director of the Internal Audit Service, who answers administratively to the Chairman of the Management Board and operationally to the Audit and Finance Committee, in order to ensure the independence and objectivity of the Service. V.Yu. Lepekhin was Director of the Internal Audit Service of OOO GAZ Group Management Company in 2008 (until 27 October 2008).

External auditor In order to ensure the maximum level of objectivity and reliability of financial results OAO GAZ brings in an external auditor to audit and endorse the annual financial statements. The annual general meeting of shareholders of OAO GAZ, held on 27 June 2008, approved OOO Rosexpertiza as OAO GAZ’s auditor. Based on the decision of the annual general meeting of shareholders, audit services contract No. 1859-01/31/08/309/07 as of 18 September 2008 was signed between OAO GAZ and OOO Rosexpertiza. OOO Rosexpertiza did not provide non-audit or other services to GAZ Group over the course of the past year.

Risk management

Systems of risk management and internal controls Risk management and building of an effective system of internal controls are two of the priority areas of corporate governance at the Group. Risks are managed by rules and regulations approved at the level of OOO GAZ Group Management Company that are binding for all the Group’s production divisions. This process covers all of the Company’s activity, and is aimed at identifying and reducing the likelihood and impact of events which could have a negative effect on the Company. These measures provide a reasonable guarantee that the strategic goals of GAZ Group will be met. Under the current highly volatile macroeconomic conditions, the Company is exposed to a multitude of risks. They are the manifestation of processes and factors over which GAZ Group has little or no control. Accordingly, careful monitoring of external opportunities and threats, effective assessment thereof and risk management are still important components of GAZ Group’s strategy for effective planning of the Company’s business activity.

Industry risks The situation in the industries directly related to GAZ Group’s business has become much more complicated in connection with the global economic crisis. This has already resulted in an adjustment of development plans at all Group companies without exception, and has highlighted the need for strategic decisions on restructuring of the Group’s business. The success of crisis management measures depends to a great degree on the care taken to track market changes and to quickly make adjustments. Thus, it must be said that the Company’s financial and business operations are currently significantly impacted by industry risks. The most significant industry risks include: risks related to an overall drop in demand on the market of commercial vehicles in general and in its individual segments; risks related to the fact that car loans and the leasing system are not available to most potential buyers due to high interest rates and tension in the banking sector; risks of further expansion of leading global players and Asian manufacturers on GAZ Group’s key sales markets; and risks of obsolescence of production assets due to the shortage of funds for replacing fixed assets.

Country, regional and legal risks As before, the most significant risks related to the political and economic situation in the country and regions where the Group does business are a strengthening of competition on the part of world automobile manufacturing majors in their regions of presence, a fall in GDP and the related reduction in the overall demand for GAZ Group’s products. Legal risks related to GAZ Group’s business are split into risks of changes in currency regulation, customs control rules and changes to tax legislation. The set of legal risks includes risks associated with a change in court practices on issues related to the company’s business which could have a negative effect on its performance results, as well as the results of ongoing court cases to which the Company is a party. Some of the most important legal risks related to the overall macroeconomic situation are the risks related to an increase in the general level of social tension in the regions of presence of the companies and interests of GAZ Group.

Financial risks Financial risks remain some of the most serious risks for the company, considering the overall uncertainty and the limitations placed on business by the crisis on the capital markets. Financial risks include risks of fluctuations in interest rates and exchange rates, and risks of stock market instability.

Interest rate risk Changes in interest rates on the Russian and international markets due to the credit crisis and a downturn in the liquidity of the banking system could seriously impact the cost of borrowings and the terms for raising additional capital. GAZ Group does business in a capital-intensive industry, so changes in the cost of borrowing could have a negative effect on the Company’s development.

Exchange rate risk The company imports some of its materials and spare parts from European countries, North America and Asia, and exports some of its finished products. Therefore, there is a chance that its profits will suffer from the impact of changes in exchange rates on expected cash flows.

Risks of stock market fluctuations There is the risk that GAZ Group’s shares will increase in value slower than similar shares on other developing markets. The main reasons for this are the methods for their fair valuation and the current liquidity level of the Russian market. There is also the risk of a drop in capital inflow due to the global fall in liquidity, political risks, and the reevaluation of the development prospects of markets, all of which could make it harder to raise cash to finance the Company’s investment projects.

Report on the payment of declared (accrued) dividends on the company’s shares The annual general meeting of shareholders of OAO GAZ was held on 27 June 2008. A decision to pay dividends for 2007 in the following amounts was taken at this meeting: • RUB 73.32 per preferred share in OAO GAZ by 31 December 2008; • RUB 55.20 per ordinary share in OAO GAZ by 31 December 2008. The total amount of dividends on ordinary shares in OAO GAZ equaled RUB 1,022,318,365.80, and on preferred shares – RUB 106,570,620.00. Thus, the total amount of dividends due and payable on all shares in OAO GAZ (ordinary and preferred) equaled RUB 1,128,888,985.80. Declared dividends on the issuer’s shares were not paid in full by the issuer. As at 31 December 2008 dividends in the amount of RUB 450,278,024.28 had not been paid.

Equity capital

Charter and share capital The largest shareholder in OAO GAZ as at 1 April 2009 was OAO Russian Machines, which holds a 61.05% equity share in charter capital. The other 38.95% of charter capital is distributed as follows: • 7.29% of charter capital belongs to a 100% owned subsidiary of OAO GAZ – ZAO GAZ- reserve; • 8.86% of charter capital belongs to another subsidiary of OAO GAZ – OAO Ural AZ; • 22.80% of charter capital belongs to minority shareholders. Of the shares belonging to minority shareholders, 29,771 ordinary shares (0.16% of all ordinary shares) are in the ownership of a constituent subject of the Russian Federation and held by the Ministry of State Property and Land Resources of Nizhny Novgorod oblast.

Structure of equity capital of OAO GAZ

OAO Russian Machines

22,64% OA O A Z Ura l

0,16% ZAO GAZ-reserve

7,29% 61,05% Ministr y of State Property and 8,86% Land Resour ces of N.Novgorod oblast Other minority shareholder s

Stock market During 2008 the principal trend on stock markets in Russia and worldwide was a rapid fall in the share price of the majority of issuers as the result of the real estate crisis and a deepening global financial crisis. Thus, despite the upswing in the value of both ordinary and preferred shares in OAO GAZ in Q1 2008, by year end the price of the Company’s shares had fallen considerably.

OAO GAZ ordinary share price performance, USD, RTS

OAO GAZ preferred share price performance, USD, RTS

Source: RTS data.

Bond market A bond issue of OOO GAZ-finance worth RUB 5 billion was placed on 14 February 2006. In accordance with the issue documents, an offer with a deadline of 12 February 2009 was announced. Due to the unfavorable situation which has taken shape on financial markets over the past few months and the limited possibilities to attract bank loans, OOO GAZ-finance could not fulfill its obligations under the offer and turned to investors with a proposal on restructuring. GAZ Group and ZAO Raiffeisenbank, which is acting as the organizer and consultant on the restructuring, reached an agreement with the owners of 80% of the bonds of OOO GAZ-finance worth a total of RUB 3.94 billion. Based on the signed agreements, the Issuer performed a proportional buyout of 10% of bonds from investors who had agreed to the restructuring terms. The basic terms of the restructuring are: 1) The Issuer performs a proportional buyout of 10% of bonds from investors who had signed the deal on restructuring. The remaining bonds of OAO GAZ will be bought back from investors according to the following schedule: 15% of the issue in December 2009, 10% in March 2010, 20% in both June and September 2010, and 25% in December 2010, according to the procedure stipulated by the offer announced by OAO GAZ. 2) The coupon yield for the 7th through 10th coupon periods has been established at 18% per annum. 3) The Group has assumed additional responsibilities/restrictions on taking out new loans, issue of loans to third parties, provision of guarantees, etc.

Sustainable development GAZ Group is a conscientious employer and an active participant in the country’s socio-economic life. By consistently integrating sustainable development principles into its operations, GAZ Group is creating a foundation for long-term development and stable industry standing. Sustainable development is an integral part of the Group’s strategy. The Group’s main resource, which it is committed to retaining and expanding, is its highly qualified employees. As a responsible employer, GAZ Group strives to guarantee its employees equal and safe working conditions, and assumes additional responsibility for the well-being and comfort of its employees. GAZ Group maintains an active dialogue with its local communities, and is open for cooperation, partnership and interaction. Unquestionably, the operations of a major automobile manufacturing holding have a serious impact not only on the country’s economy, but on the environment as well. For this reason, the Group’s priorities include building cars that meet today’s growing environmental requirements, to reduce their negative environmental impact. Thus, the Group is working actively to develop production of a new generation diesel engine which reduces hazardous emissions 2,5 times, and PM emissions 18 times. The Group also actively participates in the development of the areas of its presence, and the implementation of significant economic and social programs. GAZ Group is striving to ensure the high quality of its products for consumers in today’s changing economic conditions. This is one of its unchanging strategic priorities.

Quality control

GAZ Group is constantly working to incorporate new technologies into production and to upgrade and improve its product line, but the quality and reliability of the manufactured products remain an unconditional priority and one of the main elements of the Group’s strategy. Despite the difficult economic situation, GAZ Group companies took a number of measures in 2008 to improve product quality: the mandatory shutdown of production in case of deviations from operating procedures, reevaluation of operating procedures, and performance of inspections of operating procedures for manufacture of products. The successes achieved by Group companies in improving quality in 2008 were rated highly by the local authorities. For example, in 2008 OAO Autodiesel (YaMZ) won the regional competition “Best in Quality Assurance” (for Yaroslavl oblast). The enterprise continued the work on implementing GAZ Group production system, the key instruments of which last year were: optimization of flows, creation of working groups to resolve quality issues, work standardization (balancing of workloads of operators) and TPM (independent servicing of equipment and organization of flows), creation of testing areas, advanced training of personnel. GAZ Group performs targeted work to improve the quality and reliability of products. A Quality Control Program was adopted for the period 2008-2011, which envisages systematic work by GAZ Group companies to implement the requirements of international automotive quality standard ISO/TS 16949:2002. In autumn 2008 OAO Autodiesel (YaMZ) became one of the sites for GAZ Group’s pilot project for implementation of a new quality control system. The program for 2009

envisages the implementation of elements of the standard at OOO GAZ Automobile Plant, OOO PAZ, and OAO Autodiesel (YaMZ). The implementation of the quality control system started with the development of quality control services at the level of companies and divisions, which will make it possible not only to improve supervision over the meeting of quality control requirements at the companies, but also to introduce more detailed work with end consumers of products and dealers. Supply quality assurance services (SQA) were created within OOO TZK GAZ and the divisions of GAZ Group. In addition, supply quality conferences were held at the Trade and procurements company and several GAZ Group companies. New corporate procedures within the quality control system were also developed and implemented in 2008: the 8D problem solving method, “Standard requirements on GAZ Group suppliers”, “Certification of a supplier to GAZ Group companies”.

The following corporate projects were started under this program in 2008: • Elimination of key problems during the warranty period; • Customer satisfaction audit (CSA); • Improving feedback from consumers.

The quality assessment of the manufactured products is performed based on a balanced system of indicators, including a trial implementation at GAZ Group companies in 2008 of progressive IPTV (incidents per 1,000 vehicles) quality indicators. Plans in 2009 include the implementation of IPTV indicators at all GAZ Group companies. The starting point for ensuring the required product quality level is the high level of qualifications of Group employees. With this in mind, the Group has developed and is implementing a training program for employees of the companies, divisions and the management company. Six new training programs were developed in 2008 under the Quality Control System, and 996 employees (including the top managers of GAZ Group) underwent training through these programs. In addition, four in- house trainers were trained. The Group works constantly with key groups of interested parties, to study consumer requirements, comments and wishes. Quarterly conferences on quality were held for this purpose in 2008 at the level of OAO GAZ. Service companies were also given a quality assessment survey of GAZ automobiles based on the method for calculating the consumer satisfaction index developed by OOO GAZ Group Commercial Automobiles. GAZ Group places strict demands on the quality of products of suppliers. The Group has developed certification requirements for suppliers, which stipulate certification of companies for compliance with ISO 9001 international quality management system requirements, and plans to include certification with international automotive standards ISO/TS 16949 in future. The Group’s plans to call for all suppliers to undergo ISO/TS 16949 certification procedures by 2010, to guarantee the high quality of products.

Average quality assessment of GAZelle and Sobol automobiles during 2008

4,0 3,5 3,2 2,9 3,1 3,0 3,2 2,4 3,0

2,0

1,0

0,0 body appearance quality of interior quality of assembly quality of main quality of main quality of quality of automobile assemblies components construction of the production manufactured in automobile technology house

Environmental protection

Environmental protection and mitigation of environmental impact are the basis for the Group’s sustainable development and an object of close attention and investment. This is due to the fact that both the production activity of a major automobile manufacturer and its end product have a significant impact on the ecological balance and global climate changes. This places additional responsibility on GAZ Group for preserving the environment in the regions of presence of its companies for future generations. In 2008 the Group’s environmental protection activity in its regions of presence was rated favorably by independent experts – ANO Independent Environmental Rating Agency and the International Social-Ecological Union. GAZ Group took 14th place out of the 3,000 largest companies in Russia in the environmental rating, climbing nine places compared with the previous year. GAZ Group maintained its leading positions in 2008 in the regional environmental ratings of various industries, having been recognized as one of the three leading companies in this regard. The companies were rated based on the level of transparency of their environmental reporting, overall use of water and land, total waste water discharge, atmospheric emissions and waste, level of annual environmental costs per employee, and rates of reduction of harmful environmental impact in 2007. GAZ Group is constantly working to implement innovative environmentally friendly technologies, use production wastes as secondary material resources, reduce environmental risks and implement environmental management systems at its companies. From 2005 to 2008 GAZ Group companies reduced the amount of their pollutants by 28%, and the amount of solid waste from production by 41%.

Changes in GAZ Group’s expenses on Distribution of GAZ Group’s expenses on environmental protection measures, RUB environmental protection measures by expense million item, 2008

500,0

400,0 473,0 Protection of bodies of water 35% 300,0 40% Protection against air pollution 200,0

Treatment of production 100,0 and consumer w astes 117,7

0,0 25% 2007 2008

The total costs of GAZ Group on environmental protection measures and measures to reduce its environmental impact in 2008 equaled RUB 117.7 million. Most of the funds (40%) were spent on protection and cleanup of bodies of water. When organizing its environmental protection activity, GAZ Group is governed by the norms, requirements and standards developed in the Russian Federation and those in effect on the international level. The Group follows lean manufacturing rules, pursuant to which resource- and energy-saving measures are implemented and regular scientific research is performed. Thanks to these measures, the Group was able to cut its energy use in 2008 from 970.7 MW h to 857.8 MW h, or by 13%. Changes in energy use by GAZ Group, MW h

1 000,0

960,0 970,7 920,0

880,0

840,0 857,8

800,0 2007 2008

Owing to their large-scale environmental protection projects, Group companies managed to avoid accidents at their environmental protection assets in 2008 and to reduce the amount of waste water by 24.97%, the amount of pollutants issued with waste water by 28.68%, and wastes produced by 7.01%. The amount of environmental payments increased by 5.6%, from RUB 44.8 to 47.3 million. The Group works together with state environmental protection agencies and public organizations. OAO Autodiesel (YaMZ) participated in the Municipal Special-Purpose Program “Reducing the Human Impact on the Environment in 2005-2008 and during the Period up to 2010”.

Atmosphere

Modern fuel-efficient engines make it possible for people to remain mobile while reducing the negative impact on the environment. The installation of modern pollution control equipment, repair of existing pollution equipment, and laboratory testing and inspection of emissions of pollutants into the atmosphere in 2008 made it possible for Group companies to reduce atmospheric emissions from 13.8 to 11.7 thousand tonnes. The total costs on air protection measures equaled RUB 29.8 million. Atmospheric emissions by GAZ Group, ‘000 t/year

14,0

13,8 13,0

12,0

11,7 11,0

10,0 2007 2008

In 2008 GAZ Group companies performed large-scale investment projects to reduce emissions of pollutants into the atmosphere. At OOO PAZ the spray painting production facilities were reconstructed and upgraded with a modern paint line that releases 103.48 t/year less into the atmosphere and saves RUB 23.19 thousand. The liquidation of boiler room No. 1 at OOO EZ Kovrovets enabled the Group to reduce overall atmospheric emissions by 10.511 t/year. The effect of transfer of stems from heated tools to cold solidifying mixtures (Cold-Box-Amin) in the grey iron foundry shop of OAO Autodiesel (YaMZ) equaled 3.91 t/year less emissions of solid waste and 6.96 t/year less emissions of gaseous pollutants. The PBIV-30 gas purifying unit at foundry No. 7 of OAO GAZ reduced emissions by 0.759 t/year alongside with the significant economical effect.

Water bodies

GAZ Group’s environmental policy stipulates economical and rational water use. The Group takes a number of measures to minimize water consumption by Group companies without affecting production needs: treatment facilities are being upgraded, recirculated water systems are being introduced, and cutting edge equipment is being bought. A total of RUB 46.8 million was spent on water protective measures in 2008, including RUB 45.1 million on upgrading of treatment facilities.

As a result, the environmental impact on surface bodies of water was eased through a reduction in the amount of waste water discharged by nearly 25%, and a reduction of the concentration of pollutants in waste water by nearly 29%. Waste water discharge by GAZ Group, Pollutants discharged with waste water by GAZ ‘000 m3 Group, ‘000 t/year

60,0 16,0 14,0 50,0 51,3 12,0 13,9 40,0 10,0 38,5 30,0 8,0 9,9 6,0 20,0 4,0 10,0 2,0

0,0 0,0 2007 2008 2007 2008

In 2008 Group companies performed a number of projects and work to reduce the amount of waste water discharge in future. At OAO Pavlovo Bus and OOO PAZ the return flow from the Parkerizing line and the thermal workshop were rerouted to the recirculated water supply system of MGC, eliminating the discharge of return flow into the sewer system or into the biological treatment facilities. The aeration system at the biological treatment facilities was also upgraded. OAO Autodiesel (YaMZ) reconstructed the offsite production waste water runoff treatment facilities. At OAO UMZ a local recirculated water supply system from HFC was assembled and the local recirculated water system of the compressor station was reconstructed. This made it possible to reduce water consumption, water discharge, and discharge of pollutants, which in turn led to savings of RUB 1.9 million. The installation of a system to return 100% of waste water runoff to the system of recirculated water supply at OAO ZZGT resulted in total annual savings from the time of installation of around RUB 1.4 million. By installing modern waste water sanitation technologies and new treatment facilities, and by switching them from an uninterrupted to a periodic work cycle, OAO GAZ reduced water consumption and water discharge by 112 m3/day in 2008. The ecological effect from the measures taken by OAO GAZ equaled 4.3718 t/year, and the economic effect equaled RUB 752.39 thousand. Work with production wastes

The reduction of production wastes is also an important element of GAZ Group’s environmental policy. The use of state-of-the-art technology in the production process, construction of production waste disposal sites, and upgrading and reconstruction of production facilities made it possible to reduce the amount of wastes produced by 7% in 2008.

Production and utilization of wastes by GAZ Group, ‘000 t/year

800,0 700,0 600,0 500,0

400,0 690,9 300,0 644,4 200,0 466,3 455 ,6 100,0 0,0 2007 2008

Utilization of w astes by the GAZ Group, '000 t/year Produc tion of w astes by the GAZ Group, '000 t/year

The Group invested RUB 41 million in measures to reduce the negative environmental impact of treatment and utilization of production wastes in 2008.

Employees The main goal of GAZ Group’s human resources policy is to ensure equality and access of employees to professional training and advancement, to guarantee safe and comfortable working conditions, and to recruit and retain highly qualified personnel. The employees of GAZ Group are an unquestionable asset, the main component of its successful operations on the market. The Group takes a serious approach to planning of professional workforce requirements. Even in difficult economic times, Group management tries to provide employees with retraining opportunities and/or to move them to outsourcing arrangements.

Number of GAZ Group employees (persons)

120 000

118 000 118 387 116 000

114 000

112 000 112 314 110 000 110 000 108 000

106 000

104 000 2006 2007 2008

GAZ Group’s wage expenses, RUB billion

25 24,5 20 21,1 20,0 15

0 2006 2007 2008

GAZ Group employees by segment in 2008, %

Auto Components

6% Light Commercial Vehicles 20% 13% Pow er tr ain

Passenger Cars 11% 11% Construction Equipment

8% Bus

4% 27% Truck

Service Companies

GAZ Group employees by category in 2008 %

Managers 0,6% 0,1% 0,2% 9,5% Technicians

15,0% Officials

39,4% Production personnel

0,4% Auxiliary personnel

Non-production personnel

External replacement personnel Employees working under civil 34,8% law contracts

GAZ Group is one of the largest employers in the Russian Federation. More than 112,000 people worked at Group companies in 2008. All companies have a collective bargaining agreement, concluded between the Group and employees to ensure compliance with the norms of the Labor Code of the Russian Federation, the Law of the Russian Federation “On Trade Unions, Their Rights and Operating Guarantees” and other regulatory acts for a term of one to three years and approved at a company conference. The collective bargaining agreements include the main workforce issues – ensuring the economic rights and interests of employees, implementation of the human resources policy, occupational and environmental safety, provision of concessions and guarantees to company employees, intragroup workforce development, social security for pensioners. In 2008 the collective bargaining agreements covered 110,000 employees and their family members. Wages The Group’s system of material incentives for employees is intended not only to retain key specialists and promote their professional development, but also to resolve the strategic tasks facing the Group. GAZ Group guarantees its employees competitive wages. The wages of each Group employee are determined by his/her qualifications, the level of difficulty of his/her work and working conditions, the amount and quality of labor input, the personal contribution of the employee and the overall results of the company’s production and economic activity. Wage expenses increased by 16% in 2008, from RUB 21.1 billion to 24.5 billion. Training and development Initial training of employees, professional development and vocational training are important areas of GAZ Group’s human resources work. More than RUB 60 million were spent on employee training programs in 2008. Training programs gave 60,557 Group employees the opportunity to improve their qualifications.

Number of GAZ Group employees that GAZ Group employee training costs, RUB ‘000 underwent training

70 000 70 000

60 000 60 000 60 557 60 992 50 000 50 000

40 000 40 000

30 000 32 639 30 000

20 000 20 000 24 024

10 000 10 000

0 0 2007 2008 2007 2008

Training costs per GAZ Group employee, RUB/year

1 200

1 000 1 007 800 736 600

400

200

0 2007 2008

The Group’s ability to provide employees the chance to retrain for other jobs is especially important in the current economic conditions. An advance training program is being implemented at all GAZ Group companies. This program will enable the companies to maintain their human resources potential in conditions of falling production, to improve the level of qualifications of employees, and to provide employees for hard-to-fill occupations using in-house human resources. Employees involved in the advance professional training programs are guaranteed to retain their jobs, are given the chance to receive a second highly sought after profession and improve their qualifications. More than 7,000 GAZ Group employees will take part in the state retraining program in 2009 to ensure employment despite the fall in production. Social guarantees GAZ Group provides its employees with an expanded social package, which includes non-state pension coverage programs, health care services, and home financing. The Group pays close attention to the social security of pensioners and veterans. They are given targeted material assistance, holiday events, meetings and excursions are organized and financed, cosmetic repairs are performed in the apartments of pensioners and veterans, discounted travel vouchers to sanatoria, vacation hotels and resorts are issued.

The Group has set up a corporate-wide additional pension insurance program as a long-term incentive instrument. During 2008 the amount of monthly contributions under additional pension insurance programs equaled RUB 48.5 million at OAO GAZ, and RUB 5.4 million at OAO ZZGT. Mandatory medical insurance is stipulated for all Group employees, contracts are concluded with medical and preventative treatment institutions for outpatient care, preliminary and regular medical examinations, and vaccination against epidemic illnesses. Sanatorium and health resort treatment is organized for employees under the collective bargaining agreements, and the employment contracts with employees of controlled companies stipulate voluntary medical insurance through the OSAO Ingosstrakh insurance company. Medical stations that provide first aid and seasonal physical therapy to employees working in harmful or hazardous working conditions operate at the companies. Payments for Voluntary Medical Insurance equaled RUB 22.2 million in 2008. The Group provides supplemental social benefits to employees in the form of subsidies for food, home financing, and payments related to difficult personal circumstances. The total payments for 2008 equaled RUB 266.6 million. A mortgage program was implemented at the companies of the Bus Division: OOO Likino Bus; OOO LiAZ (except for senior management, non-production personnel and replacement workers); OAO Pavlovo Bus; OOO PAZ (RUB 5.7 million); the Powertrain Division: OAO Autodiesel (YaMZ) (RUB 20 million); and the Truck Division (RUB 15 million).

Cooperation with the state authorities GAZ Group builds its relations with the federal and regional state authorities and local government authorities based on the principles of social responsibility, in accordance with existing legislative and regulatory acts. GAZ Group, which has companies in 10 Russian regions, places high priority on interaction and cooperation with the administrations of the constituent subjects of the Russian Federation, to improve the social climate in its regions of presence. The administrations of the constituent subjects of the Russian Federation and municipalities, security services, and state educational and health care institutions are key consumer groups of GAZ Group’s automobiles. The companies’ products satisfy socially important public needs which ensure the normal functioning of the infrastructure of the country’s population centers, the health and lives of people, and the level of socio-economic development of the regions. GAZ Group places special emphasis on participating in developing state programs to promote the country’s automotive industry. Another important form of cooperation with the country’s top executives and the representatives of the state executive authorities is the organization of visits by officials to GAZ Group companies to look at the products being manufactured. It should be noted that these measures are also a good source of feedback for the representatives of the state executive authorities. During their visits to the companies and expositions they can study in detail the technical and consumer specifications of the vehicles manufactured under government contract, discuss the industry’s problems and development prospects, and get acquainted with the working conditions and lives of company employees.

The Supervisory Board under the Board of Directors of OAO GAZ was created in 2008 for constructive cooperation with the state executive authorities, R&D institutions, and industry and professional organizations on improving the legislative framework, developing high-end technology, and social policy in the automobile manufacturing industry. GAZ Group’s social responsibility in interactions with the state executive authorities is exercised in the form of public-private partnership. Participation in the priority national Education and Health Care projects has become an important component of the realization of public-private partnership for the company. GAZ Group companies have performed critical work to improve the quality of the vehicles manufactured and to bring them into complete compliance with safety requirements, which has allowed our companies to win tenders on the supply of medical and school buses for state health care and educational institutions. In 2008 GAZ Group continued its work to supply vehicles for implementation of the priority national Education and Health Care projects. With the worsening of the global economic crisis, which has manifested itself in a sharp decline in the amount of production and job cuts, GAZ Group took part in a federal program aimed at relieving tension on the job market in the constituent subjects of the Federation. The companies perform measures under the federal advanced training program to allow them to ensure employment of personnel despite the fall in production, and to improve the qualifications and competitive advantages of employees on the job market. Training in 55 professions is provided at the Corporate University of GAZ Group for the companies of OOO GAZ Automobile Plant.

Social responsibility to society GAZ Group believes that cooperation with public institutions, support of public initiatives and direct involvement in the work of non-governmental organizations are essential conditions for conducting socially responsible business. In addition to representatives of the state executive authorities, the Supervisory Board of OAO GAZ, created in 2008 at the initiative of company management, also includes experts from the scientific community and members of public organizations and trade unions. GAZ Group is an associate member of public organizations that represent the interests of the manufacturing sector, industry and entrepreneurship: The Russian Union of Industrialists and Entrepreneurs (RUIE), the Association of Russian Motor Vehicle Manufacturers (OAR), the Russian Engineering Union (SMR), the Chamber of Trade and Industry (TPP), the Nizhny Novgorod Association of Industrialists and Entrepreneurs (NAPP), the Association of Automotive Engineers (AAI), etc. Company representatives are members of the management bodies of the aforementioned organizations, actively participate in their work, contribute directly to the development of their lines of business and preparation of key documents and decisions. The Group takes an active part in the resolution of socio-economic problems in the regions of presence of its companies. The Company supports the Avtozavod sports club Torpedo, its highly professional sportsmen and the hockey “Torpedo-Nizhny Novgorod” team. Historically the team is addressed with the reference to the plant, however nowadays it is the symbol of sports victory for the whole region.

GAZ Group implements its own programs for sports development maintaining facilities of the Torpedo Sports Club comprising such complex facilities as the Konovalenko Sports Palace, the Sports Center with a swimming pool, the Hand Games Stadium, a skiing lodge and others. The annual schedule of sport events includes competitions in various Olympic Winter and Summer sports, 24 hour skiing marathon and relay races for the prizes established by the Avtozavodets corporate newspaper, the international GAZ Half-Marathon. The Torpedo Ice-Hockey Team, financially supported by GAZ Group, is a member of the Russian Premier Ice Hockey League. Spectacular matches of the favorite team are popular both with the GAZ employees and Nizhny Novgorod citizens. The Youth Sport School trains young hokey players instilling in them the love for the big sport.

GAZ Group provides significant support to the non-commercial foundation “Voluntary Cause” under the project “School PC” designed to create all the conditions required for the Russian Federation teachers and pupils to master the IT and use them in the purposes of learning. Besides computer hardware and licensed software, this project gives teachers an opportunity to study specially designed software programs.

Currently the project is running in three regions: the Krasnodar Region, the Sverdlovsk Region and the Avtozavodsky District of Nizhny Novgorod. Totally, the project involves 10 cities, 199 schools, 1 687 teachers and 38 025 pupils. The total number of supplied PC`s amounts to 1 687 for teachers and 41 875 for pupils.

At the moment the construction of Saint Nikolas Church was renewed in the Avtozavodsky District thanks to the support from the Voluntary Cause and GAZ Group. This church is not only an object of architecture, it is also an embodiment of orthodox and cultural traditions of spiritual and ethic development of the new generation.

GAZ Group is actively participating in solution of social and economical problems encountered by the regions where GAZ Group enterprises are presented. The employees of Ural Automobile Plant collected charitable contributions to provide material aid to those affected by the humanitarian catastrophe in South Ossetia. The Ural plant continued financing the construction of the Cathedral of the Baptism of Christ in central Miass. OAO AZ Ural Plant allocated funds to buy furniture for the children’s ward of municipal hospital No. 4, for corporate assistance to the Miass branch of Southern Urals State University and to build a playground in Miass. OAO AZ Ural sponsors the Torpedo football club (third division, Ural-Western Siberia zone). OOO GAZ Group Powertrain finances the Yaroslavich volleyball club, a member of the Premier League of Russian volleyball. In June 2008, in honor of Children’s Day, the Passenger Cars Division presented the Nizhny Novgorod Krasnobakovsky orphanage with a GAZ-31105 Volga automobile. In July 2009, GAZ Group presented the Saint Petersburg Mariinsky Theatre with 5 buses of various GAZ brands – GOLAZ, REAL, CAVZ. As part of Children’s Day, the directors of all GAZ Group companies also visited corporate- sponsored child care centers and handed out gifts - sports equipment and school supplies.

Material assistance was also given to the Council of Veterans of the Automobile Plant Region of Nizhny Novgorod for the New Year’s holidays, and gifts (food baskets, flowers, souvenirs) were presented for the Victory Day.

Contact information

OAO GAZ Address: Prospekt Lenina 88, Nizhny Novgorod 603004 Telephone: (831) 299-09-90 Fax: (831) 299-09-99

Information on the Management Company Limited-Liability Company GAZ Group Management Company Address: Prospekt Lenina 88, Nizhny Novgorod 603004 Telephone: (831) 299-09-90 Fax: (831) 299-09-99

Major transactions and interested-party transactions

Major transactions approved by the Board of Directors of OAO GAZ in 2008

The Company did not conclude transactions, the obligations under which equaled 10 percent or more of the carrying value of the issuer’s assets in 2008.

Interested-party transactions approved by the Board of Directors of OAO GAZ in 2008

The Company concluded more than 220 interested-party transactions in 2008 with subsidiaries of GAZ Group. The transactions were not approved by the company’s management bodies, since all of the transactions were concluded as part of the normal business activity of OAO GAZ. All the transactions were concluded on market terms, and the minimum income from the transactions exceeded the income that would have been made by depositing the money in the Company’s bank accounts. If these transactions are challenged and deemed invalid, the parties will return to their original state (prior to the conclusion of the transactions) without economic losses. The economic benefit from the performance of the transactions is apparent, and states the evidence that neither the interests of shareholders nor those of the parties to the transactions were infringed.

Information on transactions that were approved by the authorized body: Transaction date: 1 October 2008. Subject and other material terms of the transaction: assignment of the authorities of the single executive body to the management company. Parties to the transaction: the management company – OOO GAZ Group Management Company, and the party transferring the duties of the single executive body - Open Joint-Stock Company GAZ. Full and abbreviated name of the legal entity or full name of the individual recognized by Russian law as an interested party to the transaction: OAO Russian Machines. Ground(s) for this party being recognized as an interested party to the transaction: Open Joint-Stock Company Russian Machines (OAO Russian Machines) owns an equity share of 20 percent or more in the charter capital of OAO GAZ; OOO GAZ Group Management Company is an affiliate of Open Joint-Stock Company Russian Machines (OAO Russian Machines) (part of the same group of companies). Amount of the transaction (in monetary terms and as a percentage of the carrying value of the issuer’s assets as at the end of the last complete reporting period preceding the date of the transaction): RUB 661 452 372 (six hundred sixty one million four hundred fifty two thousand three hundred seventy two) rubles that makes 1,34 % of the carrying value of the company’s assets as at 30 September 2008. Effective term of the agreement: 1 October 2008 to 30 September 2011. Obligations under the transaction: currently being fulfilled.

Management body of the issuer that approved the transaction: The transaction was approved by decision of the Board of Directors of OAO GAZ on 30 September 2008 (unnumbered Minutes). Other information on the transaction, indicated at the discretion of the issuer: The decision on the assignment of authorities was adopted by the annual general meeting of shareholders of Open Joint- Stock Company GAZ on 27 June 2008.

Appendix

Consolidated financial statements for 2008

To shareholders of OAO “GAZ”

AUDIT REPORT

of independent auditing company OOO “ROSEXPERTIZA” on consolidated financial (accounting) statements of Open Joint Stock Company “GAZ” for 2008

Auditors:

• Name: Limited Liability Company “ROSEXPERTIZA” • Legal address: Mashi Poryvayevoy st. 11, 107078 Moscow, Russian Federation • Mailing address: Tikhvinsky per. 7, str. 3, 127055 Moscow, Russian Federation • Telephone (495) 721-38-83 fax (495) 721-38-94 • E-mail: [email protected] Internet: www.rosexpertiza,ru • License for performing auditing activity No. E000977, issued by the Ministry of Finance of the Russian Federation on 25 June 2002, valid until 25 June 2012 • Certificate of state registration of OOO “ROSEXPERTIZA” No. 183142, issued by Moscow Registration Chamber on 23 September 1993 • Certificate of making on 27 September 2002 of an entry in the Unified State Register of Legal Entities on the legal entity, registered prior to 1 July 2002, under main state number 1027739273946. • Settlement account No. 40702810900000013033 with OJSC AKB “ROSBANK” Moscow, correspondent account No. 30101810000000000256, BIK 044525256, INN 7708000473, KPP 770801001, OKPO 29926698, OKVED 74.12.2. • Branch of OOO “Rosexpertiza”, performing the audit: • Legal address: Tukhachevskogo st. 22, St. Petersburg, 195067 • Mailing address: Bolshaya Moskovskaya st. 8/2, St. Petersburg, 191002 • Telephone: (812) 335-95-90, 572-38-11, 572-38-12, fax 335-95-91, 572-38-15 • E-mail: [email protected] • Contract for performing audit: No. 1859-01/6 dated 18.09.08

Participants in the audit:

Ivanova Nadezhda Fedorovna, Audit Director; Demidova Tatiana Albertovna, Senior Manager; Naimushin Yuri Alekseyevich, Lead Expert.

Audited entity:

• Name: Open Joint Stock Company “GAZ” • Legal address: Lenina ave. 88, Nizhny Novgorod 603004 • Mailing address: Lenina ave. 88, Nizhny Novgorod 603004 • Telephone: (8312) 90-95-97, 90-82-10 • Certificate of state registration of a legal entity with making an entry in the Unified State Register of Legal Entities under No. 1025202265571

We audited the attached consolidated financial (accounting) statements of OAO “GAZ” for the period from 01 January till 31 December 2008 inclusive. The consolidated financial (accounting) statements consists of: - accounting balance sheet; - profit and loss statement; - notes.

The above statements were prepared by the executive body of OAO “GAZ” based on Federal Law of 21.11.96 No. 129-FZ "On Accounting", "Regulation on accounting and accounting reporting in the Russian Federation", as approved by the Order of the Ministry of Finance of the Russian Federation dated 29.07.98 No. 34n, "Accounting Regulation "Accounting Reporting of Organization" PBU 4/99, as approved by the Order of the Ministry of Finance of the Russian Federation dated 06.07.99 No. 43n, Order of the Ministry of Finance of the Russian Federation dated 22.07.03 No. 67n "On forms of accounting reporting of organizations".

Preparation of the above statements is the responsibility of the executive body of OAO “GAZ”. Our responsibility is to express an opinion on the fairness in all material respects of the above statements and the conformity of the accounting procedure with the laws of the Russian Federation, based on the audit performed.

We conducted the audit in accordance with Federal Law of 07.08.01 No. 119-FZ "On Auditing Activity", Federal Law of 30.12.08 No. 307-FZ "On Auditing Activity", Federal Rules (standards) of auditing (Decree of the Government of the Russian Federation of 23.09.02 No. 696 as amended by the Decrees of the Government of the Russian Federation of 04.07.03 No. 405, of 07.10.04 No. 532, of 16.04.05 No. 228, of 25.08.06 No. 523, of 22.07.08 No. 557, of 19.11.08 No.863), as well as internal company standards.

The audit was planned and conducted so as to obtain reasonable assurance that the consolidated financial (accounting) statements contain no material misstatements. The audit was conducted on a selective basis and included examining on a test basis evidence supporting the amounts and disclosures in the consolidated financial (accounting) statements of information on the financial and economic activity, assessment of compliance with the principles and rules of accounting used in preparation of the consolidated financial (accounting) statements, consideration of the main estimates, obtained by the management of the audited entity, as well as evaluation of the consolidated financial (accounting) statements presentation. We believe that the performed audit provides sufficient ground for us to express our opinion on the fairness of the consolidated financial (accounting) statements and conformity of the accounting procedure with the laws of the Russian Federation.

In our opinion, the consolidated financial (accounting) statements of OAO “GAZ”, consisting of the accounting balance sheet, profit and loss statement and the notes, present fairly, in all material respects, the financial standing as at 31 December 2008 and the results of financial and economic activity over the period from 01 January till 31 December 2008 inclusive in accordance with the requirements of the laws of the Russian Federation as regards the preparation of consolidated financial (accounting) statements.

30 April 2009

Director of the Branch of OOO “Rosexpertiza” in St. Petersburg Pustoshny V.B. (POA No. 8 of 11.01.09)

Audit Leader Ivanova N.F., auditor's qualification Certificate No. 042996, valid from 19.04.02 in perpetuity

Consolidated Balance Sheet as at 31 December 2008 Codes Form № 1 under OKUD 0710001 Date (Y,M,D) 2008 12 31 Organization OAO 'GAZ' under ОКPО 05744892 Taxpayer's identification number INN 5200000046 Type of activity production of automobiles under OKDP 34.10 Legal organization/ownership form: ОJSC 47 16 under ОКОPF/ОКFS Unit of measurement: million Rubles under ОКЕI 385 Address: Lenina ave, 88, Nizhny Novgorod, 603004

Date of approval 14 April 2009 Date of mailing

At beginning of At end of Assets Line reporting reporting code year period 1 23 4 I. NON-CURRENT ASSETS Intangible assets 110 22 359,5 20 654,3 including: - Goodwill 113 22 063,1 20 318,7 Fixed assets 120 23 673,4 23 306,5 Construction in progress 130 6 194,4 8 553,3 Investment property 135 127,6 523,3 Long-term financial investments 140 11 104,7 707,5 including: - Investment in associates 144 159,5 21,0 Deferred tax assets 145 334,9 2 020,0 Patents 147 16,4 13,0 Other non-current assets 150 1 129,6 1 660,7 TOTAL for section I 190 64 940,5 57 438,6 II. CURRENT ASSETS Inventories 210 17 549,1 23 608,1 including: raw materials, commodities and other similar valuables 211 4 796,4 7 412,2 Livestock 212 - 0,2 Work in progress 213 2 867,3 3 033,8 finished products and goods for resale 214 8 002,3 11 407,2 goods shipped 215 301,6 132,9 expenses of future periods 216 1 581,5 1 620,2 other inventories and costs 217 - 1,5 Value-Added Tax on acquired assets 220 1 896,6 1 776,4 Accounts receivable (payments on which expected more than 12 months after reporting date) 230 344,8 222,0 Accounts receivable (payments on which expected less than 12 months after reporting date) 240 17 445,8 21 323,2 Short-term financial investments 250 6 931,8 9 336,2 Cash 260 1 571,6 1 737,7 Other current assets 270 170,5 855,6 TOTAL for section II 1 290 45 910,2 58 859,2 GRAND TOTAL (total of lines 190 + 290) 1 300 110 850,7 116 297,8

At beginning of At end of Liabilities Line reporting reporting code year period 1 23 4 III. CAPITAL AND RESERVES Share capital 410 20,0 20,0 Treasury shares 411 - (7 318,3) Additional capital 420 43 446,2 44 363,4 Reserve capital 430 51,8 219,4 Social sphere fund 440 - - Ear-marked financing and receipts 450 - - Retained earnings 470 13 605,0 2 909,0 Change in capital of an associate 480 - - TOTAL for section III 1 490 57 123,0 40 193,5 Goodwill 491 1 806,9 2 879,1 Minority interest 492 3 532,9 3 382,5 IV. LONG-TERM LIABILITIES Loans and borrowings 510 8 611,9 9 167,5 Deferred tax liability 515 1 600,9 985,6 Other long-term liabilities 520 176,2 980,8 TOTAL for section IV 1 590 10 389,0 11 133,9 V. SHORT-TERM LIABILITIES Loans and borrowings 610 17 638,8 34 297,4 Accounts payable 620 19 324,5 22 599,0 Dividends payable 630 133,7 389,0 Income of future periods 640 47,8 47,8 Provisions 650 850,5 1 375,5 Other short-term liabilities 660 3,6 0,1 TOTAL for section V 1 690 37 998,9 58 708,8 GRAND TOTAL (total of lines 490 + 491 + 492 + 1 700 110 850,7 116 297,8

Statement of assets on off-balance accounts

At beginning of At end of Name of item Line reporting reporting code year* period 1 2 3 4 Leased fixed assets (001) 910 29 745,1 29 281,5 Written-off fixed assets valued under RUR 10 K 915 70,1 87,3 Goods and materials accepted for custody (002) 920 1 592,1 1 914,4 Materials accepted for processing 921 7,5 14,2 Write-off of debt of insolvent debtors (007) 940 887,2 743,4 Security of liabilities and payments received (008) 950 488,1 306,1 Security of liabilities and payments granted (009) 960 26 918,7 43 552,7 Depreciation of fixed assets 970 11,4 12,3 Intangible assets received for use 980 - 77,5 Fixtures and fittings 990 0,8 11,8 Limited issue forms 991 4,0 4,2 Fixed assets leased out 993 66,4 73,7 Depreciation of land improvement facilities 995 4,5 3,3 Tangible assets in operation 996 650,2 956,2 Goods and materials transferred to custody 997 79,7 121,9 Goods and materials meeting the criteria for booking as fixed assets 999 7,7 38,2 *Balances as at 31.12.2007 were adjusted

Deputy Managing Director - Director of Economics and Finance А.А.Mozgovaya of OAO 'GAZ'

Director of Accounting Directorate OOO 'GAZ Group Consulting Center' Т.М.Chernova

Consolidated Profit and Loss Statement for 2008 Codes Form No.2 under OKUD 0710002 Date (Y,M,D) 2008 12 31 Organization OAO 'GAZ ' under OKPO 05744892 Taxpayer's identification number INN 5200000046 Type of activity production of automobiles under OKDP 34.10 Legal organization/ownership form: OJSC under OKOPF/OKFS 47 16 Unit of measurement: million Rubles under OKEI 385 Address: Lenina ave, 88, Nizhny Novgorod, 603004

Date of approval 14 April 2009 Date of mailing

Name of item Code For the reporting For similar period period in the

of TOTAL previous year line 1 23 4 Income and expenses from ordinary activities

Revenue (net) from sale of products, work, services 10 146 231,4 157 516,4 Cost of sold products, work, services 20 (124 793,5) (128 722,8) Gross profit 29 21 437,9 28 793,6 Selling expenses 30 (6 940,7) (6 432,1) Administrative expenses 40 (9 480,4) (8 592,5) Profit (loss) from sales 50 5 016,8 13 769,0 Other income and expenses Interest receivable 60 622,7 221,7 Interest payable 70 (3 422,1) (1 633,5) Income from participation in other organizations 80 - - Other income 90 20 945,0 12 117,9 Other expenses 100 (31 706,5) (14 597,5) Share of profit (loss) of associates 131 (8,6) 19,9 Profit (loss) before tax 140 (8 552,7) 9 897,5 Deferred tax assets 141 1 677,7 98,0 Deferred tax liabilities 142 642,2 (936,1) Current profit tax 150 (1 712,6) (3 942,3) Compulsory payments to budget 151 (210,9) (543,4) Write-off of deferred tax liabilities 152 17,1 35,9 Write-off of deferred tax assets 153 (31,8) (6,5) Minority interest 165 (20,5) (517,4) Net profit (loss) of reporting period 190 (8 191,5) 4 085,7 Permanent tax liabilities (assets) 200 2 326,3 411,5

Deputy Managing Director - Director of Economics and Finance А.А.Mozgovaya of OAO 'GAZ'

Director of Accounting Directorate OOO 'GAZ Group Consulting Center' Т.М.Chernova