Moscow Auto Show Raises Its Curtain Against Tense Backdrop
August 22, 2008
By Pal Negyesi
MOSCOW - Except for China because of the Olympics, no country has drawn the world's attention more than Russia has of late over its battle with Georgia. The skirmish has triggered oil prices to spike again, drawn the wrath of the Western world and re-ignited threats of a returning Cold War.
Russia already has captured the attention of global automakers, who have been making a mad dash to import their vehicles into the country, forge partnerships with local auto companies and establish manufacturing bases to feed the vehicle-hungry consumers who are generating wealth from the world commodity boom.
Against that tense political backdrop, the Moscow motor show opens, holding its press day Aug. 26, Like China's shows of late, the Moscow show is gaining increased importance on the world stage with automakers holding significant reveals there, opens next week.
The Russian Car Market
Debate rages over whether Russia is Europe's biggest volume market or second biggest.
The accounting firm of PriceWaterhouseCoopers recently published and widely circulated a report claiming 1.65 million vehicles were sold in Russia, surpassing Germany. Others quibble that the Russia includes used cars in its total, so that Germany retains its No. 1 position in sales but with Russia expected to pass it by.
No matter. The Russian market is huge and growing.
Indeed, Edmunds.com's own analysis shows that of all the BRIC countries - Brazil, Russia, India and China -- Russia has showed the most promising growth with sales increasing nearly 29 percent from 2006 to 2007. In fact, that was the highest sales percentage increase of all countries in the world selling more than 1 million vehicles per year. Growth is expected to continue in 2008 and beyond.
In addition, vehicle sales in neighboring Baltic States, albeit smaller volumes than Russia, are hot, according to Edmunds.com's analysis: car sales in Lithuania grew by over 40 percent from 2006 to 2007; Latvia saw a more than 30 percent rise; Estonia's sales rose 20 percent.
With the fall of the Iron Curtain, people in Central and Eastern Europe desperately desired a Western car. Acquiring a new or used car became more important than finding a decent apartment.
The same desire spread to Russia. The boom in commodities, which gave consumers spending power, made it possible to fulfill their dream of car ownership.
The Russian government is eager to satisfy its nation's car hunger. To that end, the government introduced favorable economic measures to entice foreign car manufacturers into setting up local production capacity in 2005. It promised tax breaks for manufacturers who made major components, if OEMs accepted certain localization criteria. These measures prompted global automakers including General Motors, Volkswagen, Hyundai, Nissan and Suzuki to announce serious local investments. Now the Russian government is luring large Tier 1 and Tier 2 suppliers with another set of tax incentives.
Statistics recently released by ASM-Holding, the Russian auto industry association, show that local passenger car production has increased by 19.9 percent in the first half of this year compared to last to 723,800 units. Add to this about 120,000 light-commercial vehicles produced during the same period and Russia emerges as global powerhouse.
For now, Russia doesn't have significant export volume nor does it have initiatives to grow exports as it seeks to satisfy demand within its own borders first.
Russia's Home-Grown Producers
Russia has few indigenous automakers. The two leading ones are AvtoVAZ and GAZ.
AvtoVAZ, a product of Soviet times, produces an updated version of the 1967 Car of the Year, the Fiat 124. This crude, rear-wheel drive sedan is still the single most popular new car in the country. AvtoVAZ produces about 200,000 units a year in its vast Togliatti complex. The Lada "classic" family cars costs just over $5,000, making its main rivals cheap Japanese used cars, which the Russian government tries to ban from entering the country.
Though AvtoVAZ tried to modernize its line-up, the results were never convincing. Even its latest model, the Lada Priora looks outdated.
With Renault-Nissan as its new partner, AvtoVAZ is now working on a range of new models, based on the Logan platform. Word is the first prototypes will be at the Moscow auto show.
GAZ Group, which belongs to the business interests of aluminum oligarch Oleg Deripaska, rules the light commercial markets with its Gazelle/Sobol line-up. They essentially are 1990s Ford Transit knock-offs. GAZ sells about 120,000 of the vans a year. Other GAZ products include the Volga sedans, which is still in use by taxi drivers in Moscow and other cities.
Deripaska, who had been reported to be interested in buying Chrysler through Magna, Jaguar and Land Rover from Ford and now Hummer from GM, poured in millions of dollars into GAZ. His investment included the purchase of LDV, a commercial vehicle producer in the United Kingdom. LDV, once a part of Daewoo group, managed to develop a fairly modern looking van called Maxus, which will now also be produced by GAZ.
A deal with Chrysler saw the old Sebring production line transferred to Nizhny Novgorod,
where it was resurrected as the GAZ Siber. Canadian Magna, a leading Tier 1 supplier in which Deripaska purchased a significant stake last year, also participated in this deal, helping with logistics and parts procurement issues.
GAZ also reportedly is in talks with GM over joint production of a B-segment vehicle.
Russia's third domestic brand, UAZ is slowly disappearing from the map. UAZ today belongs to Sollers Group, which is better known as partner of Fiat and Korea's Ssangyong. In July, Fiat and Sollers opened a new production site in Alabuga, where the Fiat Ducato van is being produced. With a planned volume of 75,000 units a year, the Ducato could pose some competition to GAZ. The Linea sedan will also be produced beginning next year, with a volume of 50,000 units a year. Sollers also assembles a couple thousand Ssangyong models a year.
Detroit Automakers Return to Russia
Ford was the first to return to Russia. History buffs may recall that Ford lent a helping hand in the 1930's to creating a proper automobile factory in Russia. Over the years, the Nizhny Novgorod plant, which first assembled Ford Model A and AA based cars and trucks, morphed into the current GAZ Group.
In 2001, Ford opened its own plant in the city of Vsevolozhsk, near St. Petersburg. The plant currently produces as many Focus compacts as possible and will be adding the popular Mondeo this fall. The company will hike production capacity from the current level of 72,000 units to 125,000 units by 2010.
General Motors was not far behind Ford. With assistance from the European Bank of Reconstruction and Development, it entered into a partnership with AvtoVAZ in 2001. The second-generation Niva off-roader was badged as a Chevrolet and produced by a new joint venture. GM-AvtoVAZ was unveiled two years later. However the partnership was plagued with quality issues. Friction between GM and AvtoVAZ management increased, eventually allowing Nissan-Renault to be victorious in capturing captainship at AvtoVAZ, prompting GM to go it alone.
As Russia is the biggest market for GM in Europe, the company now has a multi-layered plan to conquer all segments with locally produced vehicles:
- Leading Ukrainian carmaker, UkrAvto produces the old Daewoo Lanos, which is being sold as Chevrolet Lanos in Russia, providing a cheap entry-level sedan for the brand
- A new entry-level minicar will be produced beginning around 2010 in Uzbekistan at a former Daewoo facility, which is now GM controlled.
- The current generation Chevrolet Lacetti will be produced by Avtotor, which thus far has
been only a simple assembler of various BMW, Cadillac, Chevrolet and Kia models. However Avtotor will open its dedicated assembly facility this month devoted to the Lacetti
- The forthcoming Chevrolet Cruze, Chevrolet Captiva and a slew of Opel models will be produced by GM's own Russian facility, officially beginning in October this year.
In addition to a Russian manufacturer building the old Sebring, Chrysler is looking to expand its opportunties in the country as well.
Other Foreigners Set Up a Base
Renault overcame some hurdles and now considers Russia a success story. Just a decade ago, the company was fighting Moscow city bureaucrats over the expansion of the former AZLK facility, which used to produce Moskvitch automobiles. Renault, which assembled a few cars using a simple kit assembly method, wanted to develop the property into a full-fledged manufacturing operation. Eventually it received all necessary permissions, and the Avtoframos factory now produces over 60,000 Logans a year and it will increase its capacity to 160,000 units next year.
And just recently Nissan-Renault CEO Carlos Ghosn miraculously leapfrogged General Motors and Fiat in a race to control AvtoVAZ.
French PSA Group cooperates with Mitsubishi in Russia. The Lancer is highly popular in Russia, but the two companies will produce the Outlander and its Peugeot and Citroen branded siblings together. PSA will also add the Peugeot 308 and Citroen C4 family cars to the local mix.
Volkswagen tried to set up shop in Russia many times during the 1990s. Its Skoda brand was always close to a local manufacturing deal, but it was only in 2006 that the German giant finally came to terms with local authorities. A temporary facility is now open, assembling Skoda Octavia, Volkswagen Jetta and Tiguan models, while a permanent production plant is being erected in Kaluga, not far from Moscow. Volkswagen shied away from the popular St. Petersburg area, but countered this by setting up an industrial park for suppliers adjacent to its main plant.
Hyundai Group is also doing well in Russia. Both Hyundai and Kia received contract assembly deals.
Hyundai is using Tagaz in Taganrog, where the previous-generation Accent, Sonata and Elantra models are being assembled along with the Porter mini-truck. The Accent is especially popular: more than 38,000 were between January and July this year - a volume that matches the total sales of Honda during the same period.
Kia models are being assembled by Izh in Izhevsk, but these are not as popular as their Hyundai siblings. Hyundai will also have its own plant in the St. Petersburg area, producing C-segment vehicles from 2010.
A number of Chinese companies are active in Russia, but their production plans have been thwarted by the government, which saw their cars as competitors to home-bred sedans and SUVs.
Moscow Unveilings
Because of the growing importance of the Moscow auto show and the Russian auto market, a number of automakers will debut new models and concepts at this year's show.
Mazda was first out of the chute to announce the world premiere of a concept crossover called the Kazamai. The Kazamai, Mazda says, signals the company's future direction for a compact crossover vehicle. It was chosen for a debut at the Moscow show in deference to the popularity of compact SUVs in Russia, where they make up about 13 percent of new-vehicle sales.
Lexus will launch the LS 460 AWD at the Moscow show. It goes on sale along side the LS 460 and LS 460L this fall in Russia.
Renault said it will formally unveil its redesigned Symbol sedan, a sibling of the Renault Thalia and Nissan Platina, designed primarily for emerging markets. It shares pieces of the Logan.
Another model suitable for the Russian market will be the next-generation Mitsubishi Pajero Sport making its debut at the Moscow show.
Chinese automaker Chery also plans a debut.
Photos by manufacturers
1 - Mazda holds the the world premiere of its Kazamai concept crossover at the Moscow auto show.
2 - The locally made Lada Priora looks outdated compared to its foreign competitors.
3 - An older generation Chrysler Sebring is assembled in Russia.
4 - GM will build the Chevrolet Cruze, its global compact car, in Russia.
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