Oil Spreads Wealth in Russia, and Russians Are Spending It on Foreign Cars
E-Mail This Printer-Friendly Single-Page Reprints Save Article By ANDREW KRAMER and JAMES BROOKE Published: October 13, 2005 Three years ago Hyundai Motor's sales in Russia were as modest as its cars. Who among the new class of superrich would buy a low-profile Hyundai? And who among the poor could afford one?
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Oleg Nishkin for The New York Times Hyundai cars on display at Rolf Vostok, a dealer in Moscow. Oil money has made cars more affordable. With revenues from Russia's oil exports pulsing through the economy, Hyundai's fortunes have changed profoundly.
Its cars are selling well from a new, nationwide dealer network. Hyundai, barely known here a few years ago, sold 8,994 cars in August - a nearly hundredfold increase from the 91 cars the company sold in January of 2002. And it leads a pack of Asian carmakers who are aggressively moving into Russia, believing that the country will be one of the world's big growth markets in decades ahead.
"This market is growing very quickly," said Jean-Francois Tremblay, an automotive analyst with Ernst & Young. "That creates pressure. Top executives feel they need to position themselves properly here or they will need to answer for it."
With oil money fattening the wallets of Russian car buyers, purchases of imported cars rose by 64 percent to 348,459 during the first 8 months of this year. By the end of the year, foreign brands could account for one third of car purchases in Russia, up from 5 percent in 2000.
Overall car sales this year are expected to pass 1.8 million, making Russia one of the three fastest growing major car markets in Europe along with Poland and Turkey, Mr. Tremblay said.
Of the 10 most favored foreign brands, four are Japanese, three are Korean, one is French and two - Ford and Chevrolet - are American. In sales, Hyundai has taken the lead in market share, recording a 115 percent growth through August this year. For 2005, Hyundai may hit the 100,000-car sales mark, a fruitful result, after it started assembling its Accent and Sonata sedans in Russia in 2001.
Jake Jang, an international spokesman for Hyundai, said in Seoul, South Korea, that his company saw Russia as an "exploding market." He added: "It is a market with a great potential, just like China, like India."
In St. Petersburg, the Toyota Motor Corporation is building Japan's first automobile manufacturing plant in Russia. When it opens in December 2007, the $140 million plant will be able to produce 50,000 Camry sedans a year.
Russian sales for Toyota, Japan's largest carmaker and the second most popular brand in Russia, jumped 53 percent during the first eight months of this year. Its 2005 sales seem to be on track to hit 65,000 cars.
Japan's largest manufacturing investment in Russia, the plant rises on a 554-acre lot in a St. Petersburg industrial suburb. Last June, as President Vladimir V. Putin watched during the groundbreaking ceremony, Hiroshi Okuda, Toyota's chairman, said that the company aimed to expand production eventually to 200,000 cars a year, using St. Petersburg as a hub for exports.
American and European carmakers are also moving into Russia. Ford Motor will double output of Focus sedans to 60,000 a year at its $150 million plant, also outside St. Petersburg. Sales are limited now by a six-month waiting list for Focus cars, Henrik Nenzen, president of Ford's Russia subsidiary, said.
Two German makers, Mercedes and Volkswagen, are in talks about opening assembly plants in 2006.
Foreign car companies are betting that incomes here will continue to climb, driven by high world prices for oil, a major Russian export. The average income already rose to $244 in 2004, from $79 a month in 2000, according to the State Statistics Committee. Income is projected to increase 11 percent this year and 12 percent in 2006.
Certainly, vast amounts of oil wealth have accumulated in the accounts of a few wealthy Russians. That is reflected in the automotive market by the gleaming Moscow showrooms for Bentley, Ferrari and Maserati cars. But Hyundai's success shows that some wealth is seeping down and around as well. Hyundai's Accent sells for around $10,000 in Russia.
"If nothing else, the rich will have to be taken care of. We will sell cars to the people who take care of the rich," Vitaly Rustanovich, regional sales manager for Carnet-2000, a Hyundai distributor, said.
Most foreign companies concentrate their efforts on Russia's populated western half, effectively conceding the eastern half to secondhand cars from Japan that are easily recognizable by their right-hand-drive steering wheels. In Russia's east, an estimated 1.5 million right-hand-drive cars are on the road.
12Next Page > Andrew Kramer reported from Moscow for this article and James Brooke from Tokyo andSakhalin Island,Russia.
