Englishman Nigel Brackenbury put together the proposal to build a Ford plant in Russia – but he didn’t stay around to see it open. Now he’s back in charge of a major success story. Mark Bursa reports.
The man who set up Ford’s Russian plant didn’t stay around long enough to see it open – but now he’s back at the helm. Englishman Nigel Brackenbury has spent the past seven years working for Mazda, but now he’s back in St Petersburg, running what has turned out to be a major success story for Ford.
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“It’s refreshing to come back and find it going in the right direction,” he said.
The project had a difficult birth. In August 1998 the Russian economy plunged into a sharp recession – the go-ahead to build the plant was given at the same time that the value of the rouble headed south as the Asian economic crisis spread throughout the developing world.
Brackenbury recalls the scenes just as he was presenting the proposal for the plant to the Ford board. Outside Moscow’s banks, Russian citizens hammered on the locked doors, desperately trying to withdraw their rapidly dwindling savings. In the shops and restaurants along Moscow’s main tourist street, the Arbat, it was no credit cards and strictly cash – preferably dollars.
“August 1998 was the crisis – we were ready to go to the board with the proposal. It was delayed for a few months, but we went with it in 1999, when the banks were still not working, and we weren’t selling any cars,” he said. “The project was approved during a recession. Ford had the foresight to realise the market would come back.”
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By GlobalDataThis move has given Ford a head start on many rivals – other planned market entries from rivals such as General Motors and Fiat were put on hold. Only Renault and Ford went ahead with their plans – and both have benefited massively as a result. “Maybe there was some learning from China, where we’d seen VW and GM get in ahead of us,” Brackenbury said.
The Ford decision was a brave one, Brackenbury said, as its market presence was negligible at the time. “It takes courage to go to the board to invest in a 25,000-unit plant, when we were selling just over 1,000 cars a year. And we weren’t making any profits in Russia as we were mainly selling old stock.
One of the main factors behind Ford’s success in Russia is the early development of a retail network. Brackenbury had worked in dealer development in the UK before taking on his first Russian tour of duty, and the recruitment of dealers started back then. “We got moving early on a dealer network; we looked after the network during the crisis. Since then we’ve built a first-class dealer network,” he said.
Now Ford has 162 outlets in Russia in 93 cities. “Looking at them collectively, it’s one of the best networks we’ve got in the world in terms of facilities and resources. They’re very well-resourced and very forward-thinking,” he said.
Since leaving Russia in 2000, Brackenbury has been back to the plant a couple of times, but not much had changed in 2001 or even 2003. But now the pace has increased noticeably. “It’s the infrastructure – I now see construction everywhere of buildings, roads and other facilities. And retail – back in 1997 you had to go hunting for modern shopping facilities. Now there are very many modern retail facilities – supermarkets and malls like you’d see in the west.”
One prediction – or perhaps hope – that Brackenbury had expressed back in 1999 was that other manufacturers would follow Ford into the St Petersburg area, creating a ‘motor city’ region that would attract suppliers. And that’s what has happened. Currently under construction around Russia’s second city are plants for Nissan, GM, Toyota and Suzuki. And this has in turn attracted suppliers.
All the market entrants are looking for high-grade parts, and they need to source them locally to take advantage of tax and duty benefits. The ability to supply the same component types to a variety of manufacturers makes the investment in a Russian plant more viable. “It makes more sense for the supply base to be there,” said Brackenbury.
One parts maker that has taken this option is body stampings specialist Stadco, which signed a letter of intent in June with the Leningrad regional government to build a dedicated body in white (BIW) stampings and assembly facility – the first such operation to be established in Russia by a European supplier.
Initially this will serve the Ford plant, from January 2009, but Stadco managing director Andrew Morriss believes it will lead to more business: “The location of our 15-hectare site in Vsevolozhsk in the St Petersburg area is convenient for Ford, and the site is also well located to allow us to offer our unique capabilities to other major OEMs that have established themselves in the region including Nissan, GM, Toyota and Suzuki.” Brackenbury’s vision from 1999 is coming true.
The biggest change Brackenbury has seen is the scale of the Ford plant itself. “The market has grown faster than anyone imagined,” he said. Opened in 2002, the Ford plant was originally built to make 25,000 units a year, but it has already trebled that level, and by 2008 it will turn out 100,000 units, having just added the Mondeo to the Focus range already built there. Ford is spending an additional $US100m at the plant, lifting its overall St. Petersburg spend to $330m.
“It was very clear it would need to be expanded from the initial 25,000 – first to 50,000, then to 72,000 and now to 100,000. And we have a second vehicle in Mondeo,” he said.
Ford’s sales in Russia have ballooned from those 1,000 units of old stock back in 1998. Last year, 115,000 Ford were sold in Russia; by the end of September 2007 that level will have been surpassed, with full-year sales expected to be 170,000, of which 70,000 will have been made in St Petersburg and 100,000 imported. Strong imported models are the Fusion B-segment hatchback and the Transit van. “This gives us a ‘four-legged stool’ with locally-made Focus and Mondeo,” Brackenbury said.
Niche segments will grow – the new Kuga crossover will be sold in Russia too, along with the larger S-Max MPV/minivan. And Brackenbury believes there is also a really big opportunity for light commercials. “The Russian market has not been big on imported LCVs but now buyers are looking beyond purchase price – they’re looking at whole-life costs, time off the road, serviceability, repairability – so Transit and Connect are doing well – and we’re keen for that to develop.”
Supplier development continues as part of compliance with Russian Decree 166 – which stipulates local content levels and time frames. “There are penalties to be paid if you don’t get there so it’s important to our business to continue to develop the local supply base as quickly as we can,” he said. Current local content levels are on target – somewhere between 40% and 50%, he added. Not manufacturing engines locally results in a significant amount of imported content, but an engine line is not an immediate priority at St Petersburg.
Brackenbury has noticed a lot of changes in the workforce – both positive and negative. “There are more people with skills in the labour market, but still quite a fluid market – attrition is quite high, as people with skills are sought after so tend to move on rapidly. Retaining employees is a continual challenge, but we’re working on it. The conditions and benefits we offer are among the best.”
Now Ford is starting to send high-potential Russian employees off to Germany or the UK to help them develop and become future leaders in Russia. One high-flyer is already on placement in Germany and two more about to go. Those selected are “good management material and will become the Russian trail blazers”, Brackenbury believes.
Despite its growth, the St Petersburg factory is still a stand-alone operation that is not really linked into European manufacturing network, or other emerging markets plants. It serves a single market – Russia – with no exports.
In the future, Brackenbury believes the Chinese will provide a stiff challenge in Russia, following the example of the Japanese and Koreans in western Europe, only faster. It’s significant that while two Chinese importers were on show at Frankfurt, there were no fewer than eight Chinese car companies at the Moscow show in August.
“The Chinese are going to come even faster. We should overlook or dismiss them at our peril,” Brackenbury said.
Mark Bursa
