News Column

From Russia, with Love for New Cars

Dec. 26, 2012

Andrew Kramer

automotive

Sleek and glistening, the General Motors sedans creep off the assembly line here. They are as new as cars can get. And so is the assembly line, where the first test cars emerged this month.

Even as G.M. is scaling back elsewhere in Europe, the company is ramping up production in Russia, a country that is becoming a bright spot for G.M. and much of the rest of the automotive industry.

Trickle-down oil wealth and the spread of easily accessible financing are lifting sales, which rose 40 percent in the first half of this year from the period a year earlier. G.M., Ford, Volkswagen, Nissan and Renault are all opening new plants, or intend to do so soon.

The new G.M. assembly line in this picturesque town, an old center of the Russian car industry on the Volga River, will produce 30,000 Aveo sedans a year. Cars coming off the assembly line end up in a brilliantly illuminated inspection room, where every inch is carefully examined. If all goes well, production will start in January.

The site is one of half a dozen facilities that G.M. runs in Russia, where the Detroit automaker intends to invest $1 billion over the next five years. The money is a good bet today, analysts of the Russian market say, for the same reason that politics here recently got a jolt with street protests: the Russian middle class is rising, and becoming a force in both commerce and public life.

"I would put Russia in the same breath as China," Timothy E. Lee, the head of G.M.'s international division, said at a groundbreaking ceremony last summer for a plant in St. Petersburg that will make midprice sedans.

Russians are snatching up foreign-branded cars. The Hyundai Solaris was the best-selling vehicle in Russia last year. Hyundai, Nissan and Renault all did well in the first 11 months of this year, with sales increases ranging from 11 percent to 23 percent.

Over all, Russian car sales are now approaching three million cars annually, according to the Association of European Businesses, a group that tracks sales here as part of its efforts to promote trade between Russia and the European Union.

Russia is projected to surpass Germany and become the largest car market in Europe in 2014. It is already nipping at Germany's lead. In August, Russians bought more cars than Germans did, before sales tapered off in the autumn.

International car companies say the best way to benefit from the growth is through investing heavily in Russian manufacturing, elbowing aside local brands.

The Russian automobile industry survived the financial crisis not through subsidies, though these were handed out, but through a willingness to embrace foreign manufacturers -- even if that hurt homegrown brands like the Lada and the Volga, the model once made in the plant here.

Russians have shown little nostalgia for their own cars.

"I'm glad they're gone," said Nikolai Chernyshov, a 34-year-old lawyer, as his family spilled out of a Ford Focus at a shopping center. He has not shed a tear, he said, for the Lada he once drove.

"No matter what effort we put into making them better, they never got any better," he said.

The Volga, an overpowered slab of steel, was once the vehicle of choice of K.G.B. agents. It even had an ominous nickname, the Black Raven. But the cars often broke down, diminishing their cachet.

Last year, the last Volga rolled out of the Gorky Automotive Factory, clearing enough floor space for three foreign manufacturers -- G.M., Volkswagen and Mercedes -- which collectively employ about 5,000 people.

"It's a shame we lost the Volga," Aleksandr Kazanin, a worker here, said. "But we're still here. We kept our jobs."

Avtovaz, the maker of Russia's other main brand, the Lada, is also charting a future based on a strategy of forming joint ventures with foreign car companies -- in its case, the alliance of Nissan and Renault.

Just this month, the French-Japanese alliance formalized an agreement to buy a controlling stake in Avtovaz from the Russian government, bringing all of the country's car industry under foreign management or ownership for the first time in the post-Soviet period.

Last spring, Avtovaz, located in Togliatti down the Volga River from here, halted the 38-year production run of its Lada Classic, the boxy and much-maligned people's car of the former Eastern Bloc that was originally based on a Fiat design.

The new version of the Lada will be based on the chassis of a Renault Logan, a car already selling briskly.

Nissan has said it will use some factory floor space -- available because of the end of the old Lada production -- to reintroduce its Datsun brand, last seen in the 1980s but being revived as a bargain car for fast-growing developing markets where people are entering the middle class.

G.M. is also investing in the Avtovaz factory, one of the world's largest car plants by acreage. G.M. will spend $200 million to expand a joint venture making a Chevrolet sport utility vehicle called the Niva, which has been a hit here.

Russia is now the world's ninth-largest economy, but the seventh- largest car market, showing the Russians' tendency, after decades of deprivation in the Soviet period, to splurge on cars over other purchases. There are now 250 cars for every 1,000 people in Russia, which places the country about midway between emerging markets in Asia and developed markets in Europe. By comparison, India has 11 cars for every 1,000 people; China, 49; Germany, 515; and the United States, 643.

"It makes sense to invest where you have a good growth," said Vladimir Bespalov, an automotive analyst with VTB bank. "This is the trend, and the growth is in the emerging markets."

The four big auto groups -- Ford, Renault, G.M. and Volkswagen -- have signed agreements with the ministry of economy to each increase local production to 350,000 cars a year, build engine factories, and invest in research and development.

These foreign carmakers are choosing to manufacture in Russia instead of importing vehicles in part because of the country's onerous rules on imported cars. Despite Russia's accession to the World Trade Organization this year, which lowered tariffs, the government has continued to nudge companies to invest in local production by imposing a $700 fee on imported cars, ostensibly for recycling the vehicle when it breaks down.

Russian plants avoid the fee. They promise instead to accept irreparably broken-down cars at the factory for recycling, presumably after being towed back.

Critics call it a fanciful idea, an example of Russian red tape thinly disguising protectionist policies. This is fine by Bo Andersson, a former G.M. executive hired in 2009 to manage the transition at the Gorky Automotive Factory.

"I like Russia because it's difficult," he said. "If it were easy, I would have a lot of competition."


For more coverage on the automotive industry, please see HispanicBusiness' Auto Channel



Source: (C) 2012 International Herald Tribune. via ProQuest Information and Learning Company; All Rights Reserved


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