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From Russia with Love

Foreign car makers see growth in the consumer market and a growing domestic supply chain.

GM’s joint venture with AutoVAZ has the capacity to produce 100,000 Chevrolet Niva’s per year.
There is a remarkable air of optimism surrounding foreign car makers in Russia these days. And Western suppliers are being urged to jump on board and join the party.

The likes of Renault, Ford and GM are confident that they have what it takes to crack the volume end of the Russian car market, currently dominated by cheap, locally-produced vehicles which account for around one million sales of the 1.5 million ‘new’ sales each year.

About 500,000 of those ‘new’ sales are in fact second-hand imports from Western Europe and Japan which are included in the figures, for reasons best known to the Russian authorities. Ford has added a second shift to its new $150million plant in St Petersburg to meet a backlog of 8,000 orders for the Focus built up in the six months after the plant opened last summer (2002).

Production is now running at 25,000 cars a year. Plant manager Murray Gilbert believes one day it could be producing 10 times that number, so long as Ford is prepared to make further investment. Current capacity is 37,000 a year.

GM’s joint venture with AvtoVAZ is producing the new Chevrolet Niva 4×4 sport utility. Production started towards the end of last year and capacity is 100,000 Nivas a year, with half destined for export from next year (2004). AvtoVAZ chairman Vladimir Kadannikov, speaking at the Moscow auto show at the end of August, said a decision would be made around about now (Oct) on whether to also move ahead with plans to build the Opel Astra in Togliatti.

Renault will start making the X90 model, being developed in Romania with its Dacia subsidiary, from 2005. Renault’s country director Jean-Michel Jalinier said they expect to be producing 60,000 cars a year from then. One ace up the foreign carmakers’ sleeves is that they have been able to boost the new car market by offering finance terms considerably lower than the 14 per cent charged by Russian banks.

At the auto show, Renault announced an 8 per cent finance package, while Ford is offering 4.9 per cent on the locally-built Focus. GM’s finance arm, GMAC, has only just started looking at the market, but it does sell its base Niva model at (euro) €8,000. Ford of Russia chief Henrik Nenzen said: “Since the economic crash of 1998 we have seen a big recovery in the Russian market. We sold 1,400 cars here in 2000 and this year we will sell 20,000. All the projections forecast big growth for the future.”

GM has seen double-digit growth for the third consecutive year, said GM Russia president Heidi McCormack. “We are seeing a big increase in Vectra sales which is catching up with our traditional best sellers Astra and Corsa, while Saab is doing really well.

“We have also just launched the Meriva compact MPV which is a whole new sector for the Russian market and we are already looking at it as our volume leader. Overall we have seen a 15-20 per cent growth in the import market over the past three years,” said McCormack.

Ford’s St Petersburg factory is the first fully foreign-owned car plant in Russia and under the agreement with the local government Ford has to reach 50 per cent local content by 2007, including labor costs. Currently it is running at 15 per cent local content, the equivalent of about (euro)€500 per car. Local components include carpets, mats, seat foam, wiring and some plastic parts. “We are already looking at local suppliers for some stampings which are currently under trial, plus non-coated steel parts and door trims,” said Gilbert.

Russian suppliers have made much progress in terms of quality and manufacturing methods and Ford is working closely with them on that.

“There is certainly no shortage of good engineers in Russia, and the supply companies are improving all the time.” This means that western suppliers will have to consider moving to Russia to remain competitive if they want to keep their business with automakers there, said Gilbert.

This article was provided exclusively to Automotive Industries by Interchange, a U.K.-based automotive business agency and consultancy servicing media and corporate clients. Anthony Lewis is a partner in Interchange and can be contacted via e-mail at

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