Among the emerging-market
BRICs countries (Brazil, Russia,
India and China), it is now Russia
that has become a hot topic in the automotive
world and most other economic
domains. Most spectators expect very
strong growth of the Russian economy in
the foreseeable future, and this, along
with newly liberated and enriched consumers,
should herald big opportunities in
this massive, hitherto underdeveloped
market. With numerous foreign carmakers
setting up in Russia, the big question
everyone asks CSM is: When will Russia
become a major exporter of vehicles to
the rest of the world?
New-vehicle demand in Russia is positively astonishing, and the race for one of the world's largest vehicle markets is well and truly underway. The most populous country in Europe is quickly living up to the title of vehicle market of the future due to its enormous growth potential. As a result, this paradisiacal marketplace offers global car manufacturers a new opportunity to gain tremendous volumes and reshape or solidify their future position with regards to the global vehicle rankings.
A few years ago, new-car sales volumes
reached 1.5 million units over a one year
period, just under half the levels normally
achieved by Germany, the region's numberone
vehicle market. In 2007, approximately
2.5 million vehicles will be sold in Russia,
representing a 1-million unit incremental
sales volume in just two years. On the
other hand, German vehicle sales are
struggling to maintain volumes steady at
3.5 million units, despite the positive indicators
unleashed by a healthy economy.
By 2013, the Russian market is expected
to position itself directly behind Germany,
within striking distance of claiming the title
as Europe's number-one vehicle market.
Russian consumers would proudly
welcome this important role, which also
heightens the possibility of heavily influencing
future vehicle design both externally
and internally. However, the future car
manufacturers to spearhead the industry
will surely not include many present-day
Russian automakers if the current industry
settings continue to run its course. The
retreat of the three-letter Russian brands
is a deep-rooted trend and a significant
level of financial investment is desperately
needed to halt the snowball effect.
A serious commitment is critical to ensure the renewal of domestic product offering and the resulting technological requirements. Russian consumers are increasingly wealthier and demanding the latest vehicles to fulfill their personal dream of being able to afford a car. Also, the opening of the credit market has lured aspiring buyers towards the means needed to achieve their ends. Foreign carmakers have been very quick to capitalize on this opportunity and will strengthen their position underpinned on significant rising sales levels.
At best, indigenous light-vehicle manufacturers will be able to tread water in the next few years. The majority of growth is expected from foreign brands, either domestically produced in one of the raft of new plants littering the Russian landscape or imported.
By 2013, most of the new-domestic producers will be getting into their stride, but the volumes we forecast for Russian production will still trail somewhat behind sales estimates. Several of these new entrants' plans for the market are rather conservative and cautious in comparison with recent new plants built in, for example, Central Europe. For this reason, it is still too early to talk about Russia becoming a major exporter of vehicles.
Magna International, a global supplier showing a high-profile interest in Russia by co-operating with local automakers VAZ and GAZ, as well as agreeing to build a vehicle assembly plant of its own, is expected to become one of the larger players. However, it is as yet unclear exactly what form the participation of Magna in Russia will take. Firstly, Magna was to build a new plant and help VAZ develop a brand-new model, the C; then the plant was cancelled. Co-operation with GAZ is shrouded in mystery and then the company agreed to build a plant in Russia in time to meet the favourable Decree 166 tariff regulations deadline in 2007, but it is not yet known whose vehicles the plant would build.
Renault and Fiat are two carmakers that have both signed Memoranda of Understanding with VAZ, the largest indigenous car builder. Once again the exact detail of the co-operation is still to be decided, but we expect VAZ to benefit at least from a platform share for the C project on the Renault/Nissan B platform that also houses the Dacia/Renault Logan. Powertrain is another area in which technology-sharing is a possibility. However, we wonder what benefits Renault gains from this partnership with a share of only 25% and the ever-present risk of fast-changing government policy.
On the supplier side, we expect some developments with Western and Asian suppliers setting up facilities in Russia, but we do not foresee this being huge within our forecast horizon of 2013-2014. Principal reasons for hesitation include: a lack of critical-volume mass; worries about government unpredictability and bureaucracy; poor infrastructure and logistics; and the presence of facilities in neighbouring Central Europe, where risk is also lower and existing OEM plants already provide steady work.
There is clearly massive potential for both sales and production of vehicles in Russia, with a huge untapped market that is being swiftly liberated and enriched. However, we feel that if the country does become a large-scale exporter of vehicles to the West and to Asia, it will not be before the end of the next decade at the earliest for the reasons explored above.
Walt Madeira and Andrew Wright may be reached via Email at WaltMadeira@csmauto.com and AndrewWright@csmauto.com.
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