Blog: Dave LeggettRussia's car industry at a crossroads

Dave Leggett | 6 October 2003

Ford can justifiably be pleased that initial sales of its locally assembled Focus in Russia are going well. The fact that there is a consumer finance structure in place is an important part of the story. Competitive credit has enabled the growing import presence. Before Ford launched production of the Focus last summer near St. Petersburg, less than 10% of its customers used credit to finance purchases, a figure that has now grown to 25%. Russian consumers also want better products than those available from local producers and they are increasingly prepared to pay more for that. And Toyota is now knocking on the Russian door too.

As the local market starts to fragment with new players taking more share, there are some uncomfortable questions for local giant AvtoVAZ. The big question facing the Russian car industry and market is how it may restructure and modernise in the future. AvtoVAZ has made it clear that it is looking for a strategic partner to help it to modernise and become more competitive. GM has a JV with AvtoVAZ (Chevy Niva) and could conceivably step up its involvement in the future, but GM's management is likely to be wary. If AvtoVAZ does not modernise, it may seek greater government financial help and protection from competition. But how do you change a plant like Togliatti and an ingrained company culture like that which exists at AvtoVAZ? Answer: with great difficulty. Who'd want to partner with that can of worms if there's an easier alternative strategy for breaking into Russia? Russia's car industry is at a crossroads.


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