Foreign Automakers See Potential in Russian Market

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 auto financing are lifting sales, which rose by 40 percent in the first half of this year compared with the same period a year ago. G.M., Ford, Volkswagen, Nissan and Renault are all opening new plants, or intend to do so soon.

The new G.M. line in this picturesque town, an old center of the Russian car industry on the Volga River, will manufacture 30,000 Aveo sedans a year. Cars, held up on jacks, move along the assembly line and end up in a brilliantly illuminated inspection room, where every inch is carefully examined; the factory is trying to get defects down to G.M. standards. 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 carmaker 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 for a plant in St. Petersburg last summer, which will make midprice sedans.

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

Over all, Russian 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 fall.

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

Russia’s 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 for 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 Automobile Factory, clearing enough floor space for three foreign manufacturers — G.M., Volkswagen and Mercedes — which collectively now employ about 5,000 people.

“We are only helped by being brutally honest with ourselves,” said Bo Andersson, a former G.M. executive hired in 2009 to manage the transition.

“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, Nissan of Japan and Renault of France.

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.

Article source: http://www.nytimes.com/2012/12/26/business/global/foreign-automakers-see-potential-in-russian-market.html?partner=rss&emc=rss