Renault-Nissan Close In On Russia. Is It Worth It?
In the car world, the BRIC countries have already got their institutional market leaders. That’s how quick these markets are moving. General Motors and Volkswagen have an iron grip on the Chinese market, Suzuki and Hyundai have India in their palms. Fiat is king in Brazil. But Russia is still anybody’s game. Well, Renault and Nissan want to change that.
Bloomberg reports that Renault-Nissan is closing in on taking a majority stake holding in Russia’s AvtoVAZ. The tipping point for going after AvtoVAZ was when Prime Minister Vladimir Putin gave his blessing to the deal.
Is this a gamble which will pay off? The one thing I see working against it is the return on investment. Of the BRIC countries, China’s car market was 13.5 million annually last year. This year, it might be 17m, India is currently at 1.5 million, but with nearly 1.2 billion customers, that figure has the potential to reach China levels. Brazil’s market is currently at 3.2 million and still growing. Russia’s car market? Russia sold less than 1.5m cars last year, but Bloomberg estimates that Russia could reach sales of 4 million. By 2015. Not to mention the rampant corruption which is making running operations in Russia troublesome. Of the BRIC countries, Brazil is 69th on the Corruption Index, China is 78th and India is 87th. Where’s Russia? They’re 154th. 20 places below Zimbabwe. Bonne chance, Carlos. You’re going to need it.
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Once they've GHOSN into Russia, I wish them a LADA luck.... (sorry, couldn't resist)
The corruption issue is a major one, especially when you are dealing with an industry that Putin himself has shown to meddle in. As my Russian friend keeps saying, "no self-respecting Russian does business with another Russian". But I have to admire Ghosn, he has shown himself to someone that is willing to take high-risk investments when the long-term prospects look favorable; such as their gamble on EV. Russia does have the potential to become a major car market, and there is no better way then to partner with a AvtoVaz that has close ties with the government. But Carlos needs to be wary about government meddling, if you think Obama was bad meddling in GM, you wouldn't want to see what Putin can do...
Russian car market is pretty big, but the Bloomberg projection is rubbish. This is how the bubbles are being started. It will never reach 4m. Right now 1.5m cars are sold. To sell significantly more, you need a high growth rate in GDP per capita or high population growth rate, neither of which is happening in Russia. At best, Russian market will be at about 2m five years from now.