Automakers flock to Russia in search of growth
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MOSCOW (Reuters) -- Luxury cars to indulge the rich were the stars as the Moscow auto show opened last week, but it is the normal Russian citizen that the world's carmakers are targeting, as they hope to profit from one of Europe's few growing markets.
Volkswagen forecasts 30 percent sales growth in Russia this year and has announced 1 billion euros ($1.3 billion) in new investments before 2018. General Motors will also spend $1 billion over the next five years to ramp up output in Russia, while Renault sees Russia challenging Brazil to become its No. 2 market.
"The situation is very different from Europe and the United States, because you have a lot of people that have very old cars -- or no car -– [who] are entering the market for new cars," Renault's regional head Bruno Ancelin told Reuters. "It is a tank of potential customers that is still full and we have years and years in front of us to address this kind of customer."
Organizers are expecting more than 1 million people to visit the annual show at an exhibition center on Moscow's traffic clogged orbital motorway. The show opened to the public on Friday. The event features 24 world premieres of new models, the first showing in Europe of 21 models and 86 Russian roll-outs.
Sports car fans will get a chance to view a Maserati GranCabrio Sport, with a top speed of 285 km/h and a local sticker price of 210,000 euros ($264,000) in the Russian market. More than 40 Maseratis have been sold in Russia so far this year, a representative said.
Everyday vehicles of interest
But while Russia remains a tempting market for manufacturers of machines for conspicuous indulgence, depressed automotive sales in western Europe and the steady, oil-fueled growth of the Russian economy have made the continent's second-biggest car market an object of interest for those offering more everyday vehicles.
These range from the sub-$10,000 compacts which Renault and Nissan are pushing out under the rejuvenated Soviet-era Lada brand of their Russian unit AvtoVaz, to well-appointed mid-range sedans and passenger vans aimed at the growing middle class.
Fiat, under its own mass-market badge, is looking to the modern, affluent family to pitch its new seven-seater Freemont, on display in Moscow.
"It's a dynamic market and one of the few showing growth," said John Stech, who is head of Fiat's Chrysler unit in Russia and manages sales and distribution of Fiat, Jeep and Chrysler. "There's great potential as incomes develop."
An array of vehicles "fully loaded" with optional extras delivering comfort and convenience, like satellite navigation, seems to overshadow examples of the over-powered status symbols that were once the trademark of Russia auto displays.
Said Chrysler's Stech: "There are many stereotypes of the Russian market: "At one point it was a macho vehicle market -- less so now. ''We have customers who appreciate value but are not looking at showing off - they are more modest."
Bouncing back
New-car sales in Russia grew by 40 percent last year in volume terms to over 2.6 million vehicles, recovering most of the ground lost after they halved in the slump of 2009. In money terms, sales grew by 70 percent last year to nearly $60 billion, estimates consultancy PricewaterhouseCoopers, buoyed by a state-backed scrappage scheme - now phased out - that encouraged drivers to dump their aging Ladas and buy new models.
Sales of foreign brands made in Russia topped one million for the first time in 2011, reflecting President Vladimir Putin's drive to diversify the industrial base of the world's ninth-largest economy away from oil and gas. Growth has slowed this year to 14 percent, but the industry will continue to enjoy support from government incentives to localize production put in before Russia joined the World Trade Organization this month. Stiff import taxes had pushed several big foreign manufacturers to set up production inside Russia.
Although Putin is typically chauffeured around in a bulletproof Mercedes, his industrial policy has sought to promote the development of a domestic auto industry in Russia, a country of 140 million people. Foreign carmakers, while officially welcome, have faced the difficult choice between partnering with struggling local manufacturers like state-controlled AvtoVAZ, or building their own factories from scratch.
Partner or no partner
Volkswagen, Europe's largest carmaker, has opted to go it alone, building out its production base in the Kaluga region to the south of Moscow. It has announced plans to expand its Kaluga operations to meet growing demand and hit a mid-term sales target of half a million vehicles in its most important European growth market.
"There's high demand for luxury cars, especially in regions like Moscow and St. Petersburg [but] if you travel over the countryside it's a bit different," said Michael Macht, VW's management board member for production and logistics.
GM has shifted towards its own production after first partnering with AvtoVAZ to build the budget Chevrolet Niva SUV, designed to cope with the rutted and ice-ravaged roads that constitute most of Russia's national network. Now, GM wants to more than double production of Chevrolet Cruze sedans and Opel Astra hatchbacks to 230,000 vehicles per year at its St. Petersburg plant, whilst adding an Astra sedan and raising Niva output to 120,000 per year from 70,000.
"We will grow organically with the market and intend to grow our market share as well so that the production capacity will be fully utilized," said Tim Lee, GM's vice president of global manufacturing. Lee forecast that total Russian car sales would rise to 4 million by 2016-17, by which time GM hopes to have expanded its 10-percent market share. "With that kind of volume it clearly makes economic sense for us to produce in the country," he said.
Renault, which has a global alliance with Japan's Nissan, is working on a strategic partnership with AvtoVAZ, which is best known for its boxy Lada sedans and only survived the 2009 slump with the help of a state bailout. The French firm and Nissan signed a deal in May to take effective control of AvtoVAZ. Regional manager Ancelin said he expected the deal to be completed by the end of this year. Reviving the Lada brand - still Russia's market leader with nearly 600,000 sales last year - is a top priority. "Many people thought we bought Lada to kill it, but it is exactly the opposite," said Ancelin. "It has value - it is a Russian brand appreciated by customers." The big selling point of the latest Lada Kalina supermini, on show in Moscow, will be the price, which starts at around 300,000 rubles - under $10,000.
Russia expected to pass Germany in sales
Seven-month sales of Russian car and light commercial vehicle sales grew 14 percent year-on-year to, 1.67 million, the Association of European Businesses said earlier this month. Lada retained its No. 1 position through July, despite a 13 percent sales decline. Second-placed Chevrolet increased sales by 19 percent followed by Renault with a 28 percent jump in demand. South Korean carmakers Kia and Hyundai took the fourth and fifth rankings with rises of 23 and 20 percent respectively.
In the first seven months sixth-placed Volkswagen sold 69 percent more cars than the previous year, the AEB said. (See PDF of Russia sales results, below)
Analysts expect Russia to pass Germany as Europe's biggest market some time this decade. Germany's car and LCV sales total for the first seven months of 2012 reached 2.01 million, according to the German auto industry association (VDA).
The AEB expects that 2.85 million vehicles will be sold in Russia this year, which would be an increase of about 8 percent from the previous year.
Automotive New Europe contributed to this report
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