Major auto makers from around the world are tripping over themselves opening up new plants there to manufacture vehicles. General Motors is building a plant there. And, although it won’t be producing anything until November, it already has a staff of workers learning how to drill bolts, spray paint and spot weld metal sheets within an allotted time. Toyota has a completed a plant that is producing Camrys and Ford is thinking about opening a second manufacturing plant in Russia.
It sounds like times are good in the Russian Republic. And there’s more. St. Petersburg has become a hub of activity with major automakers constructing production facilities. Hyundai will start building a plant there in June; Nissan expects to open a plant that cost them $200 million to construct in 2009 and Ford has shelled out $230 million on the construction of a plant for the third time in six years. Suzuki plans to build a plant in St. Petersburg too. And Mitsubishi and PSA Peugeot Citroen of France said they will produce vehicles jointly in Russia. And Chrysler is checking out production possibilities there.
Why all this activity? Well, oil has a lot to do with it. Of course, we all know that oil prices are up. And Russia is a major source of oil. And Russians want cars. It is reported that since 2003, sales have tripled. And many pundits predict that Russia will exceed Germany in sales of vehicles by 2010 making it the largest auto market in Europe with sales of more than 4 million.
To give you an idea as to the potential of the Russian market, there are 800 vehicles per 1,000 inhabitants of the U.S.; there are 190 vehicles for every 1,000 Russians. Clearly, there is a large market of people who don’t have a car yet. And it seems that when Russians buy a car, it is a big car. And that means more profit for the automakers.
General Motors is offering a wide range of products from Hummers to various models of Cadillac, Opel, Saab and Chevrolet. And in 2007, Chevrolet became the top selling foreign brand in Russia. And what was the previous top selling foreign nameplate? Ford. And they could have fallen to number two because of a strike that occurred at a plant last fall.
Although one might think that Chinese automakers would be considered a threat to the American and European companies simply because of proximity, China is not a threat because Russian dealers and auto executives don’t like the Chinese vehicles. It seems that they are turned off by quality and safety problems. But China is improving fast and Chinese automaker, Chery, is competing with a model that is rivaling some Korean designed vehicles for Chevrolet and Renault’s Logan.
The Russian automakers are feeling the heat. Russian companies like AvtoVAZ and GAZ are trying to line up agreements with Chinese and other world automakers for joint projects.
The bottom line is that Russia is an expanding market for now and the future. Foreign brands accounted for 64 percent of the 2.6 million cars and light vehicles sold in Russia in 2007 and that’s 22 percent better than 2003.
Our take? We guess we should consider Russia a magnet for car makers for now and the foreseeable future.