Russians Love the Big Iron

Something the U.S. car companies have too much of…

By Brendan Moore

09.10.2007

Up until a short time ago, I regularly used a car service that provided pick-up and drop-off at the airport that employed nothing but expatriate Russian nationals as their drivers. Since a couple of these guys had an interest in cars, and it was always a long drive to the airport, we would frequently talk about cars, and sometimes about their impressions of the car market in Russia.

They’ve been telling me for years about how much Russians love big cars and big SUVs, even though most Russians can’t afford such vehicles after paying the purchase price, the import duties, etc. Specific to American vehicles, they say that American cars and SUVs (and trucks) are well-thought of in Russia. I thought about those conversations today as I was reading a Reuters article about how Russians are increasingly turning away from domestic producers like Zhigulis and Volgas, and embracing foreign cars. According to Reuters, “Russians like their cars big, brash and foreign”. This, by the way, syncs up with what I’ve been hearing from the aforementioned Russians I know.

The article quotes a Russian driving a Land Rover, Yuri Golobayev, thusly: “Why am I driving this Land Rover? Because it’s comfortable,” said Yuri Golobayev, rubbing his hands along the dashboard to show his appreciation, as he idled in traffic near Red Square. “In the communist days, we didn’t have a choice, so my first car was a Moskvich, then a Kopeika,” he said, listing brands that were popular in the Soviet Union. Russians don’t trust their traditional carmakers, he said, if they can afford to buy a foreign make instead. “Yes, foreign cars are more expensive, but people just go to the bank and buy them on credit.”

1993 VAZ (Lada outside of Russia) sedan
To me, this sort of qualitative market data begs the question of why GM and Ford are not producing their big, brash cars and trucks in Russia. They have a considerable presence in Russia and Eastern Europe, so it’s not as if this is unknown territory for them. Indeed, the Ford Focus is one of the most popular cars in Russia, with a long waiting list of potential buyers. Or, if production is impractical, then why not work out a deal for an assembly plant in-country and perhaps get some tax breaks or import tariff relief from the Russian government along the way, considering that it would qualify as domestic product?

GM and Ford are in the unenviable position of having to offer incentives on these types of vehicles in the U.S. in order to make them leave the lots here, and Russia appears to be an attractive market for some of that production excess. Meanwhile, both Ford and GM are laboring mightily to bring over some of their European-produced cars as soon as possible to meet new demand for smaller cars here in the States. If the Russians want Mustangs, F-150 pickup trucks, and Explorer SUVs, then, by all means, Ford should accommodate them. And Ford of Australia could use some foreign sales of its big, brash, RWD Falcon to shore up their general ledger as well. GM is in the same situation; just substitute Chevrolet Tahoe for Ford Explorer and Holden of Australia of Ford of Australia, and you can get the idea pretty quick.

I fully realize this is not as simple as throwing a switch, but, conversely, it is not a scenario that requires GM or Ford to move mountains in order to accomplish. Both companies already make the vehicles in question and both companies already have a considerable manufacturing and retail presence in the region.

Am I missing something here?

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. AT least gas is cheap over there. They can afford to drive a big car because gas is so cheap.

  2. I think that there are not enough Russians able to afford the cars we have here so it wouldn’t make sense to build them there. Although a stripped Ford Explorer is less than a loaded Ford Focus in Europe, so maybe I’m wrong.

  3. Mr. Moore, you could be on to something. Look at this from a story on the the Dow Jones this morning:

    “FRANKFURT (Dow Jones)–General Motors Corp. (GM) Europe Chief Carl-Peter Forster said Tuesday there is a “good chance” the company could sell 300,000 vehicles in Russia next year, representing a 20% increase in sales over expectations for 2007.

    During an interview with reporters at the Frankfurt auto show, Forster said the company expects Russia to eventually be the company’s largest market in Europe, thanks to a growing base of car buyers who can afford a new vehicle.

    Chevrolet is the biggest-selling import brand in Russia, and GM also sells Opel, Cadillac and other vehicles there. While Russia is growing, the volume is relatively small when compared with what the auto maker sells in the U.S. The auto maker typically sells more than 4 million vehicles annually in the U.S.

    Forster said Russia represents a “good pricing environment,” especially for GM’s German Opel brand. He said the company enjoys considerable margins on Opel cars in Russia, before shipping costs are factored in.”

    If GM could sell some of their large vehicles there, then they could reduce the incentives needed to sell those same trucks and cars here. Overall it means better margins for them everywhere.

  4. If the Russians love our big cars then let’s get those cars over there. Especially the SUV’s which we can’t seem to sell enough of anymore now that gas costs more so much.

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