Russia: On the brink of a breakthrough? - International Trends - The "next big thing" for the auto industry - Brief Article

Automotive Industries,  Feb, 2002  by Alex James,  Andrea Wielgat

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After so long of Russia being "the next big thing" for the auto industry, is it finally about to happen?

Henrik Nenzen, president of Ford Motor Co.'s Russia operations, thinks so. And the market -- about 1.2 million cars this year -- doesn't have to grow for it to work.

But foreign automakers have less than a 10 percent share of the market.

"There can be no other car market in the world which has more than a 90 percent domestic share. What we have to do is persuade people to buy our cars rather than Volgas and Ladas," asserts Nenzen.

The problem is the cost. A new Russian-built car sells for around $5,000 while a Turkish-built Renault Clio Symbol sells for $8,500 and the Ford Focus sells for $13,000. Automakers are tackling that problem by renewing plans to set up production facilities within Russian borders.

In August 1998, when the ruble crashed from seven to the dollar to 25 (you can now get about 28 to 30 rubles for each dollar), Ford, General Motors Corp., Renault SA and Fiat SpA had just lined up major announcements for the auto show.

This year, all but Fiat have reaffirmed their plans.

So who is doing what with whom?

GM, Ford and Renault have adopted different approaches. All three could be right -- or not. Each admits that old-style Soviet Union bureaucracy and the huge amount of paperwork involved in the smallest issue is a nightmare.

At GM, David Herman, the former Opel chief, is guiding the delicate joint venture with AvtoVAZ, maker of the Lada and Russia's biggest car producer. September 23, 2002, is the date when production of the Niva 4x4 will start under the terms of the JV, which was finalized in July last year.

Ford meanwhile, is adopting a go-it-alone approach with its factory in St. Petersburg.

This plant was originally scheduled to open in early 2001. It will now start CKD production of the Focus in April 2002, with an assembly capacity of 25,000 a year.

"Ford is specifically looking for local suppliers and working with them to improve quality," says Nenzen. "The ability to produce good components is there and Ford is working with suppliers in Russia to improve quality levels to bring them into line with the best in Europe."

Renault has a joint venture with the Moscow city government called Avtoframos.

The French automaker has been given land and buildings that once belonged to the Moskvich car plant in return for installing modern assembly facilities. It also will build a paint shop which both can use.

Renault plans to start producing the Clio Symbol, a sedan version of its popular super-mini, for 2003 and the Dacia "$5,000 world car" for 2004 or 2005, at the plant.

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