The annual Moscow Motor Show takes place every year at the end of August. It is an event that brings a review of the state of the Russian vehicle market and industry. In recent years, economic hard times have overshadowed the event and suggested that realising market potential is some way off. Frank Ebbecke has been attending the event over the years and has sent us a very personal report on the 5th International Moscow Motor Show and the Russian Car Market.
By Frank Ebbecke
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Amazing. It is just 24 months ago that, in those grey, rainy late summer days of 1999, Russia fell into a big hole again; telling the world it could not pay its debts. The economic crisis is not yet fully over, but the atmosphere has changed. In late August, at the 5th International Motor Show, the atmosphere was much warmer in every aspect.
“Car Heavyweights Pull Into Town”, the Moscow Times headlines on the front page, and they are doing so for good reason. President Putin at least has lent a feeling of a little stability.
“The ruble is reasonably stable, inflation is down, there is a growing middle-class, tax and legal restructuring processes are under way”, says Gabriel Fülöpp, 34. He’s a Moscow-based Hungarian-Slovak businessman and partner/manager of the ad agency ‘Ark Thompson’, who has been in Moscow for 13 years. He judges the current situation as more favourable than for some time.
Car importers are happily reporting three-digit percentage sales increases in the first half of this year compared to the same period of 2000. Total import car sales in the period – and there are 33 different marques in the official sales statistics – were almost double 2000’s level, rising from 46,000 to over 80,000 units. This compares with 503,728 Russian-made cars sold over the same period.
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By GlobalDataIt’s no surprise then that over 600 exhibitors from around the world participated (I met a Ferrari manager on the flight from Frankfurt) in the biggest autoshow in one of the biggest developing markets globally – the others being China and India. Although the Russian market may seem to account for a relatively small number of units sold today, there are signs that the light at the end of the tunnel is coming closer. And as a rejoinder to those who are cautious, Mikhail Gorbachev said at the beginning of the turnaround: “He who comes too late, will be punished by life.”
Some 700,000 visitors were expected over 6 days of show, quite impressive compared with the expected 1 million over 10 days at the world’s most frequented motorshow in Frankfurt mid-September.
“It’s Another World”, a welcoming greeting on posters at Moscow’s Sheremetyevo airport, is not all that true anymore – there are a lot of familiar faces: of cars and in the caravans of automotive professionals and buffs travelling the circuit of important motorshows from Detroit to Geneva, from Frankfurt to Tokyo each year. Moscow is one of them.
Globally familiar faces in the Russian crowd
So, let’s get the Russian flavour of the world’s key industry; let’s walk the halls. Other than Aston Martin (probably being polished for the IAA Frankfurt Motor Show) the Ford Motor Company brand family celebrated a happy gathering: Ford with Ka, Focus, Mondeo and the full range of SUV’s (supported successfully by the US-created “No Boundaries” communication concept adapted to Russia). Europe’s best-selling light commercial vehicle Ford Transit is almost a Russian classic already (don’t be confused though – not every Transit is one; the majority you will see on the streets are labelled “Gazelle” and are produced in Russia by AvtoGAZ, a not so reliable copy and therefore a lot of ambulances are the real thing).
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Sergey L. Sinelnicov – Chief of design at Lada |
And the good old Ford Crown Vic’s you see around as police cars? Nobody likes them really, of course not. Who in the world likes to see a police car while driving? But especially not in Moscow where they only cost you money, in cash and dollars, for no real mistake, all the time.
Ford has enjoyed a raise in sales this year – up 230%, to 4,500 units, supported by an attractive joint-venture insurance program and the announcement of nationwide standard service & parts prices. By the year 2005 Ford expects to sell 17,800 units per annum in Russia. Ford Russia – established in 1996 – now employs 50 people, among them 40 Russian professionals. Some 40 dealers and service stations are in place around the whole huge territory of Russia, from the Baltic to the Japanese Seas.
Mazda dealers are reporting stronger sales on the 626 and 323 models, as well as the all-new Tribute SUV. Jaguar was here with the as new X-Type. Land Rover showed a full line-up with a live “Lara Croft”, decorating the Defender. Volvo had a world premiere, the S80 stretched version (Volvo selling 2,500 units overall in the first six months of this year, 50% of them of the S80, but also S60 and the Cross Country selling well).
The Germans are performing well in Russia and there is some history behind the Germans in Russia as we know: Germans injected a lot of fresh blood into the Tsar dynasties, German philosophers taught the Russians the secrets of communism and Germans have pulled Russia into war in the past. Now, the Germans are making money with the Russians. Volkswagen and Audi sales are running at double last year’s level. Mercedes-Benz has achieved 350% growth of sales of its best-selling S-class 500-models in the first half of this year and BMW benefits from local assembly of 3- and 5-series in Kaliningrad.
It’s no real surprise that the Japanese, led by Mitsubishi, Nissan and Toyota, are playing a vital role in the market – mainly because of their almost legendary quality image which plays well in Russia (however, it may be a surprise as the two nations have never formally declared the end of bilateral hostilities in the last war yet and are still arguing over the Kurll islands in the Pacific).
The overall import leader is still Korea’s Daewoo – and guess why? Price. But they are the only ones whose sales are declining (almost by half this year), mainly because of the financial turmoil that the company is struggling with. The current no.2 in the market is Skoda, the Czech automaker tripling their sales from last year’s level. Skoda obviously builds good cars now (with a little help from VW, of course) but it might also help them that they are “old companions” from the eastern side of the “Iron Curtain.”
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The new Lada Niva dfg |
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The new Lada 1117 tru |
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The new Lada 110 |
How the Russians like their “trucks” and big limos, like the Mercedes S-Class, BMW 7-series, Jaguar XJs. The preferred colour for these big sedans is definitely black with blackened-out windows. But this is only for the small number of really rich (in $) “buzinezz”-men, also in black clothing with blond, longhaired and long-legged Russian beauties in their entourage.
The Russian bear fights back
The up and coming “mass” market for cars in Russia is dominated by imported B/C-segment products with low cost of long-term ownership and reliability that is higher than the domestic makes. Russian products are associated with frequent DIY (do it yourself) repairs and traditional “barter” markets are still very much in place – trade two front doors of a Lada Sputnik for a Moskvitch rear axle and then just do-it-yourself. Although a brand-new Lada 110 costs less than half the price of a Ford Focus, it leaves the buyer with very poor production quality and no lasting values. So what should you expect for $6,000? The Russians it seems have started to expect more.
Lada has ambitions
Sergey L. Sinelnicov, 43, has been a designer at AvtoVAZ for twenty years, the last four as head of Lada-design. He is pretty much aware of what might be frightening for them in Russia but he is also quite confident and optimistic. He told me:
“With the Lada sedans and the Lada Niva 4×4 we had quite a lot of success in Western markets like Germany, France, England, Italy and others. At home we will continue to fight for our national market share of far over 65% (all Russian makes enjoy 92% market share still – new and used car sales). We only have been going since 1966 and look where we are today: pick-ups, mini-vans, coupes, roadsters, the all-new Lada Niva and there is more to come.
“The ‘Calina’ (most likely in cooperation with GM) be our entry into the world’s D-class market in 3-4 years time with a price up to $20,000. We plan to build up to 220,000 units per year.
“But first of all, I have to admit, we have to improve significantly our production quality. But this is a touchy thing because it will cost a lot of money which will force us to raise retail prices more and more which again will hurt our very favourable, competitive USP towards imported cars.
“But there is no other way. I am anyway pretty sure [and here he starts smiling in a proud but sympathetic way] Russians will always prefer Russian products.”
In fact, there is a nostalgia wave in many product areas all over the former “Eastern Block” nations. A big-seller in the Russian cigarette market is called “Peter” named after a former Tsar. Indeed, there is every reason for Sergey L. Sinelnicov to be confident. Local producers know the local conditions and terrain very well. They know better than some importers about the dirt tracks and potholes, weather conditions and variable gasoline quality. Asked what other makes he, as a car designer would have loved having designed himself, he spontaneously named VW Golf and the new generation of Peugeots (he has good taste, a man to be watched). Then asked what car – if he had the choice – he would like to own himself, he starts to laugh and I realise that for all the big changes of the last ten years in Russia, some things haven’t changed too much: “I guess, I am not allowed to answer this question – I am working for Lada.”
There is also a brand-new Volga limousine, still a dream car for quite a number of “retro-Russians”. For only $14,000 (the price of a Ford Focus) you get a roomy, plush sedan, body-styled like a crazy mixture of Jaguar XJ and something ancient out of Asia.
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The new Volga sedan |
One step up for more conservative Russians would be the famous Zil, the up to 6330 mm long, V 8/315 hp engined, state limousine with clear references to the so-called ‘US-Pacific’ design from the late fifties. But there were just four units produced in the first sixth months of this year. Whether they sold them all, nobody could answer. I believe this dino will only play a museum role in the future.
Those behind the ASM Holding in St.Petersburg need all the confidence they can muster, although they enjoy the strong support of Vladimir Putin’s “Unity” Party. Local party leader Victor Jurakow invented their “Mishka” concept and they seem well aware of the President’s personal goal to develop the car industry as a locomotive for the Russian economic upswing. They are on the lookout for investors at this year’s motorshow.
So, look the young Russian “Mishka” in the face (Chrysler’s Jeep says “hello”) and see what it promises (you may be surprised). Construction is on a modular system utilising plastic materials and there are multiple bodystyles – a pick-up, a family car, a 4×4 SUV. The vehicles range from 2500 to 3300 mm long and can be powered to your choice by diesel or gasoline engines from 40-55 hp or electrically (5-6 hp) for people with the drive for more mobility but no driver’s license. The whole vehicle is said to cost not more than between $1,800 and $2,500, depending on the chosen derivative. Theoretically, production could start as early as next year, rising to 12,000 units capacity.
Will “Mishka” (like the Russians’ nickname for their wild bears) become the new “Volkswagen” or people’s car – in Russia and elsewhere? We shall see.
A look back into the future
In this giant land, still largely unknown to us Westerners, with 11 time zones, the longest train journey lasts well over a week and the longest domestic flight is up to 9 hours, the biggest car market potential is concentrated in the urban areas of Moscow, St.Petersburg and Yekaterinenburg (just behind the Ural mountains). The passenger car business does not have a long history here – remember, back in the USSR there was no such thing as a car for private use until the 1960s. The small car parc comprised cars owned by the state in various forms. All car production was for public use, the state-owned industries, the military, the party leaders and their favourites, of course.
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You can also choose a 4×4 SUV |
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Ford has a notably long history in Russia. Henry Ford delivered no fewer than 22 of his famous T-Models to the last Tsar. Ford also played a key role in setting up the Russian vehicle manufacturing industry. But that was a long time ago. For Russians, choice has been limited for decades: they had their homemade Lada or their Moskvitch but not a lot else. Choice has only been around for the past decade.
In the hierarchy of wishes for the average Russian, a really good car is, aside from travelling out of the country, top of the list. Russians are no different from other people. But it has so much more meaning here, this nice toy for very personal freedom of movement. Plus: Russians just love to show-off. And Russians don’t believe in saving – “rubles in, rubles out”. There is no cultural tradition of saving – past generations never saved, banks closed down from one day to the next. Banks and bankers have a poor reputation in Russia.
As private ownership of a car has only been possible for just over three decades, it is hardly surprising that the driving style for most Russians is not very refined. I always thought that they built their 6- to 8-lane avenues for military show parades. But in well over 30 visits over the last five years, I often had to realise that they just need a lot of space to make their way quicker than all the other “road warriors” (or is it also the vodka they traditionally love to drink – either for business, friendship or fun or no reason?). In fact, the Russian road ambience can be dangerous to life and limb for the innocent foreigner – even when walking around. Nobody necessarily stops for a pedestrian. Or for that matter, the car in front or for a red traffic light. There are more serious accidents at any time of the day to be witnessed than probably in any other capital.
The Russian car parc is enjoying steady growth, with new cars snapped up by the emerging middle class. Even if you cannot trust every statistic published in Russia, there is certainly a growing middle class and the younger (25-35 years old), urban professional, earns around $2,000 per month. Typically, such a young professional has to spend only 10% for housing – the rest flows onto the cashier desks of restaurants, bars, boutiques, travel agents or – if we are lucky – in the pocket of a car dealer. They don’t want to be treated like “2nd class global citizens” anymore – they know that what is good is more expensive, they know the latest developments and launches in the car market and they are ready to pay for it – if not in that large numbers yet, it will happen and even if it’s lasting a generation. Ford’s local President Henrik Nenzen says: “The Russian consumer has become very similar to the European.”
Russian customers have a lot of car choices today: decent national products for unbeatable prices, nationally produced foreign brands for a more affordable price (but not all Russians trust the quality) and the most desirable imports with a burden of 25% tax.
The government may even raise levels of duty further to protect the national car industry. High tariffs forced GM to halt their imports and enhance their cooperation with AvtoVAZ. It is also the reason that Ford will open a totally new assembly plant near St.Petersburg mid-April next year, ready to assemble up to 25,000 units per year, mainly Ford Focus.
And still there are ‘personal imports’ via agents who make every kind of brand purchase possible in only a couple of days. Nobody really wants to know where they come from, even when the proud owner claims guarantee services at the local authorised dealer. And let’s not forget the lucrative used car market: 1,163,000 cars changed owners last year, 969,000 Russian makes and 194,000 foreign.
Analysts, car importers and the Russian state officials predict that in five years Russia will show annual demand of two million news cars, comprising around 300,000 imports. It is a market and industry facing big challenges, but it is one that the global car industry cannot ignore. Not another world anymore.
So, “nastorovje” or “cheers” on a big future in a big nation – for all of us.
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