Russia: – an optimistic market for car sales again

VOLKSWAGEN is predicting a 30% growth in the Russian car market by 2018 to become one of the top five global markets with sales of 3.6 million volumes.  A recovery in oil prices has helped boost confidence in Russia following the trauma of the past 12 months since my last visit.  Imported cars must contend with 30% import tariffs.

This optimism is against the background of Russia’s largest car plant being threatened with bankruptcy.  It is operated by Avtovaz in Toylatti, a city with a population of 700,000 to the south of Russia.  It is a legacy of the Soviet era  and employs 102,000 persons making the Lada.  Up to 27,500 workers are threatened with redundancy despite €570 million having been provided in State bailout money.  The decline is a consequence of mismanagement.

Toylatti is a monogorod – a city dependent on single industry and there are as many as 400 such cities of varying population sizes scattered across the country.

Russian car sales halved in 2009 having reached a record 3.2 million in 2008 – when oil was trading at $140 per barrel.

Volkswagen is setting up a new assembly plant about 170 KM to the west of Moscow which will produce 150,000 cars next year and use complete knockdown kits to produce 5 models, including one model specially designed for the Russian market, based on the VW Polo and will sell for €10,000.

Volkswagen is to sponsor the 2014 Winter Olympics at Sochi.  It will provide 3,000 vehicles before and during the event.  The value of the sponsorship is €68 million.

Volkswagen sold 72,000 cars in the first 9 months of 2009 in Russia representing a 6.6% share of the Russian market – up from 3.3% in 2008.

The St Petersburg area has become an important centre for car manufacturing investment in Russia.  Suzuki ($120 million in 2009), Hyundai ($400 million in 2007), Nissan ($200 million in 2006), Ford ($200 million in 2002) and Toyota ($150 million in 2005) have plants there.  Most of these were closed for a period earlier in the year responding to a collapse in demand.

AvtoVAZ is the largest Russian maker of cars. The company features models such as the LADA-ELFI (a miniature city car), the VAZ-1111E (a four-seat electric car), the VAZ-2115 (sedan), and the Niva 2131(an all-wheel drive SUV). As the largest passenger car maker in Russia and Eastern Europe, AvtoVAZ controls around 70% of domestic car production. The company has a $330 million joint venture with General Motors -- GM-AvtoVAZ -- to manufacture the Chevy-Niva SUV and Chevy Viva cars. AvtoVZ and GM each hold a 41.5% share in the venture, while the European Bank for Reconstruction and Development owns the remaining 17%.

AvtoVAZ cars sell under the Lada brand name outside.

Corruption is a factor that creeps into various facets of Russian life and has now emerged in online State tenders  A State university recently sought tenders for a new car and described the measurements as to be 44.27 metres long and 18.09 metres wide.  No car fits these measurements but if the measurements are divided by 10 the precise measurements of a the VW Tiguan. Suppliers would typically not be able to link the measurements with the Tiguan so it is speculated that the university had a particular supplier in mind. 

Cars are a popular item on tender lists.  The Office of the President announced a tender for 90 BMW cars last month and the marque was chosen because it was “considered best efficiency of use and economic advantage.  We are not rich enough to buy cheap things – cheaper cars would break down more often and end up costing more than the BMW’s”.