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American Car Makers¹ Bet Billions on Russia’s Car Boom

This week, Moscow’s International Motor Show is supplying plenty of glitz. But behind the hoopla, the real excitement is that Russia is on its way to become one of the world’s top five car markets.

With sales jumping in Russia, and slumping² in Europe this year, Russia is projected to displace Germany in 2014 as Europe’s largest car market. That would make Russia the world’s fourth largest car market - after China, the United States and Japan, according to the research group Euromonitor.

Russia finally joined the World Trade Organization last month. Now car companies are racing⁴ to boost production before import tariffs⁵ start dropping.

Each of the American big three automakers - Ford⁶, GM and Chrysler - plans to invest $1 billion in car factories in Russia.

“We were the first ones in here 10 years ago, and we’ve built over 500,000 vehicles here,” says Ted³ Cannis, president of the Ford Sollers joint⁷ venture in Russia. “This is a key, core place in Russia. And we see a huge potential for Ford.”

A few stands away, James Bovenzi, GM’s president for Russia, says GM’s plan is to double its Russia production over the next five years.

“GM values the Russian market,” Bovenzi says. “We see it as one of the big growing markets in the world.”

To generate buzz in Russia, GM invited Henry Kissinger to their plant expansion ceremony last June in St. Petersburg.

With car sales up 14 percent in Russia so far this year, dealers⁸ are struggling to meet demand.

At a brand new Chrysler dealership⁹ on Moscow’s beltway, John Stech, Chrysler Russia CEO, talks about the demand.

“We've brought completely refreshed vehicles, all new vehicles, onto the Russian market,” he said, while visiting the dealership for the first time. “And they really resonate with the Russian customers. For a while we couldn't get enough. Now we have a better supply, and we see this really in the activity in our dealers."

And there is room for growth. There is about one car for every four Russians - about half the average for Western Europe and the United States.

Chris Weafer, strategist for Troika Dialog, says Russian consumers have money in their pockets.

"It is one of the fastest growing consumer markets in the world,” he says. “And that’s coming on the back of very strong disposable income growth - about $8,000 this year, rising to a projected $12,000 in about 4 or 5 years time. So people have more money to spend on consumer goods."

Bernard Sucher, a long-term American investor¹⁰ and sometime Russia critic, comes from Detroit, home of the Big Three American manufacturers. The Motor City native is impressed by what is happening in Russia.

“They`ve done a pretty good job in encouraging global producers and suppliers of addressing Russian markets in terms favorable for foreign players, but at the same time promising<sup>11</sup> that Russia will retain substantial manufacturing capacities itself,” Sucher says. “It`s a good story. It’s a win-win story. And we would like to see more of that.”

Now, with all the new cars hitting the streets, Russia’s challenge is to build parking - and roads.