In the past 10 years the Moscow motor show has had its ups and downs. An unpredictable market and high costs have led to fragmented support, particularly from established, international car makers.
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The 2006 show, held in the new, modern Krocus Expo Centre, has come of age along with Russia as a car buying nation.
Bright, modern stands display the latest, and future, models while key global executives and designers arrived in town to show off their wares and explain their strategies.
Russia is no longer a ‘what if’ market. It’s a question of how much and can we keep up?
Tomoaki Nishitani, president of Toyota Russia, said he is struggling to keep up with demand. Sales have risen from 8,000 a year in 2002 to 64,000 last year – a figure which the company is already closing in on this year with four months still to go.
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By GlobalData“The Russian economy is finding its feet,” said Nishitani. “It is expanding rapidly. Once it was the number two economy in the world and it is now fighting to get back there.”
It’s a similar story around the show. Over at Nissan, which launched its luxury brand Infiniti in Moscow, sales are also burgeoning.
Brian Carolin, senior vice president sales and marketing for Nissan Europe, said sales were set to push through the 70,000 barrier this year, already making Russia the company’s second largest market in Europe – and next year he predicts it will take the number one spot from the UK.
Gennady Baranov, sales manager at Porsche Russia, is currently looking at growth of 230%. “Since we introduced Cayenne, sales have gone crazy,” he said.
It’s not all great news, however. No matter how good the market is there are always winners and losers. In Russia’s case the losers are the domestic manufacturers.
In a new car market of some 1.5m vehicles this year, sales of non-domestic vehicles now account for 56% as an increasingly demanding and affluent public look for better quality and perceived status.
Russia’s own carmakers, such as AvtoVaz and AvtoGaz are way behind the curve in terms of design, manufacturing and quality. They have long held a price advantage but it looks as if it can only get worse for them. AvtoVaz – which makes Ladas – is in the midst of scaling back expansion plans but is pressing ahead with a new transmission plant in Togliatte.
The relationship with GM has often been rocky, but is now reported to be back on track. The Chevrolet Niva SUV and Viva sedans are produced as part of the partnership and production is set to increase from 46,000 to 75,000 units a year.
To keep up with demand for new cars, more foreign manufacturers are investing in factories in the country. That means that local makers will no longer hold an import tax advantage.
Renault and Ford are among those already there while General Motors, Nissan and Toyota are currently setting up manufacturing operations.
GM’s Shushary plant in St Petersburg is expected to begin producing vehicles in late 2008, initially around 25,000 Chevrolet Captiva compact SUV, followed by a new generation compact vehicle.
Close by in the suburb of Kemenka, Nissan plans to produce three vehicles, including an SUV and a sedan from 2009. Toyota’s plant in St Petersburg will start producing its first 20,000 Camry models next year, eventually increasing output to 200,000 cars a year.
Ford already assembles Focus in the city and is considering adding the Land Rover Freelander to its lines to meet demand for the SUV market. Ford sales are set to double this year to 120,000 units – half of which have to be imported. Ford now wants to increase local production from 60,000 cars this year to 70,000 next year.
And there could be more. Even Mazda is struggling to keep up with demand. Boss Daniel Morris was in Moscow to announce record sales in Russia as well as escalating global demand.
“We are pretty close to production capacity and we are talking about how we might increase that,” he said.
While Mazda already utilises spare Ford capacity in Valencia, Spain, Kansas, USA and Rayong, Thailand, it may not be enough in the future. “Nothing is decided,” added Morris. “But we are having the conversations – Russia is becoming a very big market.”
While this sounds like automotive eutopia, there are issues.
In St Petersburg there is a shortage of good quality suppliers and skilled workers. There is also limited capacity at the city’s port while there are also considerable bureaucracy problems in getting customs clearance for cars and parts.
Ford is still having problems four years after the start of production in St Petersburg. Cars assembled at its Vsevolozhsk plant were exempt from duties under the condition that by 2007, 50% of parts were sourced in Russia. It doesn’t look like its going to happen.
This has led to disputes with the Economic Development and Trade Ministry which has withdrawn some tax concessions.
GM and Toyota have managed to get deals allowing them to gradually increase local content. Toyota’s Nishitani said: “We will start production using parts from Japan and Western Europe. We will gradually build from there.”
Nissan makes up the fourth car maker in the St Petersburg region so, on the face of it, critical mass is being achieved. The problem is that most domestic parts makers have their factories in clusters in central Russia to service the local automakers.
The St Petersburg government, which has worked so hard to entice foreign investment, now needs to look closer to home to help service their needs.
Tony Lewis – Interchange News Agency
