Russia’s potential for the car industry is almost as promising as China’s, but recurring problems continue to plague the country.
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Sales projections for 2010 vary wildly, but the numbers being tossed around are impressive – up to 10 million units sold per year, Automotive News Europe (ANE) reported. A little more than one million cars were sold in Russia last year, according to the paper’s market data book. When sales of grey market imports are factored in, the number is more than 1.5 million.
Ford, General Motors and Renault build or plan to start producing cars at plants in the country of 150 million people. Volkswagen has considered building a factory in the country, Toyota has also shown interest and Fiat Auto SpA has signed a deal to import its vehicles into Russian.
Unfortunately, Russia also offers investors a widely fluctuating economy, a tangled web of red tape and an unpredictable political situation. Most troubling is interference from gangsters, past and present government officials, and now, it seems, the central government.
The arrest of Mikhail Khodorkovsky, Russia’s richest man, sent shock waves through the stock markets. This is more bad news for a fledgling car industry, which is still recovering from an economic crisis that began in 1998 and has just started to ease.
Cheap, low-tech, locally produced vehicles, particularly AvtoVAZ’s Lada lineup, dominate sales in Russia. The low-cost cars account for more than 75% of the total, or around 1 million sales. Nearly half of those sales were second-hand imports from western Europe and Japan. Importers account for less than 10% of annual sales, as they primarily provide the high-end European models favoured by the rich.
The estimated average age of cars on Russia’s roads is 8 years.
Everyone gave Russia a look in the mid-1990s, including Ford, GM, Renault, Fiat, VW, Daewoo and Hyundai. Only Ford, GM and Renault have remained.
VW’s current plans do not include a factory in Russia, a company spokesman told ANE, but VW plans to continue importing VWs, Skodas and Audis into the country, where it sold 21,000 units in 2002.
Sources say if VW doesn’t build a plant in Russia it will consider constructing a facility in another of the former Soviet states. Last month Fiat signed a letter of intent with Company Basic Element (CBE) of Russia to have it sell cars and trucks in the market through the AvtoGAZ dealer network. It is Fiat’s third effort to enter the Russian market through a joint-venture partner.
Ford is the only non-Russian company to have a wholly owned facility in the country. The company’s $US150 million St. Petersburg plant produces 25,000 units of the Focus annually.
GM has a joint venture with AvtoVAZ, maker of Lada passenger cars in Togliatti, southeast of the Russian capital, to build the Niva sport-utility – a vehicle that will carry a Chevrolet badge in other markets.
Renault has taken over part of the old Moskvich plant in a joint venture with the city of Moscow to build the X90, an entry-level car for emerging markets. Renault plans work with Romanian carmaker Dacia, which it took over in 1999, to produce 60,000 units per year starting in 2005.
