Vasily Boitsov of Severstal-Auto represents the new entrepreneurship which is emergent in Russia. Speaking at the JD Power Outlook Conference in Paris last month he described how his young company has used new money to buy existing car and light truck brands UAZ and Kamaz, along with their production capacity.
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Now Severstal-Auto says it is ready to expand its manufacturing operations in Russia using relatively modern assembly plants to build West European and Asian vehicles under licence.
Severstal has put into place plans to assemble a portfolio of brands and models from Fiat ‘B’ segment saloons through SUVs including Ssangyong 4x4s to panel vans and Isuzu light trucks, suitably specified to meet local market needs and aspirations.
Historically, the rare Russian consumer who under Communism was able to buy any car at all could only afford the locally produced vehicles such as the Lada 110 based on the 1960s Fiat 124. These cars were aggressively low-priced under state planning rules. Even after the collapse of the Soviet Union foreign makers were discouraged for a while due to prevailing low prices. Similarly, commercial vehicles met basic transportation needs. But with the emergence of market forces the consumer is now looking for modern designs with a decent specification, but still at a very low price.
The Severstal formula is to concentrate on the small modern saloon/hatch for city use, and the SUV elsewhere – the latter meeting the requirement for greater interior space, carrying capacity and using suspension systems capable of withstanding use on the poorer rural roads.
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By GlobalDataWith a tiny per-capita car ownership, and the current car market only 1.4m units annually, new car sales in Russia are likely to expand strongly in the long-term (with a mature market as high as five million units a year estimated by JD Power). That leaves plenty of room for every car maker to profit.
Meanwhile the state-owned behemoth that is AvtoVAZ is still building cars although at greatly increased prices and still with the old product. AvtoVAZ’s viability is highly questionable – yet there is a strong feeling that the government will do whatever is necessary to keep this firm in business.
But the action in Russia at the moment is with foreign carmakers making cars locally; firms such as Hyundai with its highly poular Accent are growing fast. While in the longer term there appears to be room for everybody in Russia, recent history shows that Hyundai is likely to take the fight to rivals in order to retain and expand its market share at whatever short-term cost.
Distribution in Russia remains a headache. With retail investment and profitability a major problem, securing new retail outlets capable of doing the job remains problematical. Carmakers such as Hyundai who have the volume to secure large-scale distribution (and thus profitable retailers) are more likely to increase their market share and for the smaller makers
this does not bode well for establishing a long-term conventional retailing system.
But is Severstal likely to succeed in its aims? With continuing entrepreneurialism, further investment and adequate timely action to meet changing market needs, there is a place for this company and its flexible production lines. Perhaps Severstal is an ideal model for car manufacturing and retail in markets where there are no indigenous manufacturers, keeping production rolling by assembling and distributing a selection of complimentary volume car brands under licence.
Time will tell.
Mike Wattam
