Russia appears to have put the economic crisis of 1998 behind it, people are buying cars again and there was a feeling of excitement at the Moscow auto show.
The show opened in late August and attracted more than 700,000 visitors in six days. Nearly all the major automakers returned after many importers boycotted last year's event, blaming poor sales in Russia and the high cost of exhibiting.
The talk once more was of investment in Russia by Western manufacturers.
In 1998, General Motors, Ford, Renault and Fiat were among the automakers announcing grand plans at Moscow. But within days of their announcements, the ruble plunged from seven to the dollar to around 25.
That slowed the investment plans. This year all but Fiat reaffirmed their commitment. Western automakers are upbeat about the Russian car market this year and expect it to return to its pre-1998 high of 1.2 million vehicles.
Importers are grabbing a larger share of Russian sales. They expect to reach 80,000 vehicles this year, up from 46,000 last year. The importer of Opel, Saab and Chevrolet sold 661 units in the first seven months of this year.
"This is more than twice our total sales for the whole of last year," said Heidi McCormack, general director of General Motors CIS (Commonwealth of Independent States). "On average, sales grew more than six times compared with last year. This is a great success."
Volkswagen doubled sales to 3,102 during the first six months. Mercedes-Benz was up 61 percent in the same period to 1,707 vehicles.
Tax cut expectedThe Russian government is expected to cut taxes next year. Personal income tax may be reduced to a flat rate of 13 percent from a sliding scale of between 12 percent and 30 percent, and the tax on imported vehicles could fall from 30 percent to 25 percent.
Hyundai announced that it plans to import 70,000 small cars over the next five years for final assembly in Russia, and Toyota established its first sales unit in Russia.
GM Russia President David Herman confirmed that GM had transferred the first $40 million to its joint venture with AutoVAZ, which will build the Chevy Niva sport-utility.
But more than 90 percent of vehicles sold in Russia are built domestically and cost less than $4,400. There is still some way to go to before non-Russian automakers can compete with that.
"We are not expecting massive growth over the next few years," said Ford of Russia chief Henrik Nenzen. "What we have to do is get a larger slice of the market."
Ford plans to do this through its fully owned plant in St. Petersburg, which is due to begin production of the Focus next spring.
"Individual consumers and fleets are starting to look at whole-life costs as well as just the purchase price," Nenzen said.
New initiatives by the Russian government appear to be aimed at keeping importers in check. Tariffs on small-engine car imports have just risen, and Russian President Vladimir Putin has called on domestic automakers to improve quality.
Imports fill upper segmentsWith inexpensive Russian-built cars filling the bottom end of the market, Russian import sales patterns are unconventional.
Volkswagen's best-selling model is the Passat, the No. 4 import in the first six months with 1,388 sales. VW's small Polo and Lupo don't even make the Russian sales charts.
Mercedes-Benz, BMW and Volvo say they never felt the effects of the 1998 crisis. "Our sales never faltered during that time," said Gerhard Hilgert, president of DaimlerChrysler Automotive Russia. "The luxury end of the market was unaffected."
The best-selling Mercedes-Benz in Russia is the S class, which outsells such models as the VW Golf and Opel Astra.
Volvo also reported strong sales. The flagship S80 is its top-selling model.
"We are already seeing a lot of interest in the new Cross Country," said Bengt Karlsson, Volvo general director in Russia. "Customers with money have continued to buy in the executive and luxury segments. It is smaller family vehicles that can't compete with the prices of the domestic makers."
The Ukrainian-built Daewoo Nexia remains Russia's top import, selling 4,332 models in the first six months. But that's down from almost 16,000 units two years ago, reflecting the Korean manufacturer's problems at home. Catching up fast are the Skoda Octavia and Fabia, followed by the Renault Clio Symbol, another sedan.
Russia is a sedan market, said Volks- wagen spokesman Andrew Gordasevich.
"This is because most buyers believe you can always smell gasoline in a hatchback, which you could in Russian-built cars with poor insulation," he said. "Russians like to show off their wealth, which explains why the Passat is our best seller. We have great hopes for the D1 here."