#Russia

A few days ago, TTAC reported that Vladimir Putin issued an ultimatum to foreign car makers, “invest here or else”. 4 days later, VW announced that they were planning a new assembly line at GAZ, and more capacity at their Kaluga plant in Russia. Coincidence? Probably. But it seems like others are following suit. Pretty bloody quickly.

Days after Vladimir Putin, well, encouraged foreign carmakers to come to Russia, open car factories and better bring the latest technology, or else, Martin Winterkorn announced that Volkswagen is planning a new assembly line at Russia’s GAZ and that they will expand their factory in the Kaluga region in the future. Winterkorn said that after meeting Putin himself and most likely after having received a similar speech as what was previously broadcasted.

Mr. Putin must be reading TTAC. B arely did we report that the Russian market is coming back to life, Vladimir Putin stepped in front of the cameras in Moscow, and announced killer measures to put the Russian auto market back into its place.

In a speech today, Putin announced that import tariffs for new cars will be increased “step by step.” He didn’t mention any numbers or dates, but the buyers of that Mulsanne better hurry. And it’s not that importing cars to Russia is particularly cheap right now. Currently, there is a 30 percent import duty on any new car. Smug Vladimir said that Russia is not part of the WTO, so they can put their import duties as high as they damn please.

The fate of the car industry depends highly on the price of oil. Higher oil prices, lower car sales. Lower oil prices, higher cars sales. Everywhere but Russia.

Russia’s main export is energy. Oil and gas. When oil climbed, the Russians were rolling in money and bought cars like crazy. Then came 2008. Oil crashed. The market crashed. Russian oligarchs went bankrupt. The car market followed. Unit sales of passenger cars dropped 50 percent last year. The annual Moscow Motor Show was cancelled. Automakers were worried about their investments into the Russian market. The Russians tried to protect their industry, raised import tariffs. The market plummeted more. Now, all of this is ancient history.

Nearly every manufacturer out there is making a cheap car for the emerging markets. Renault has the Logan, Toyota has the Etios, Tata has the Nano and Ford has the Figo. The reasoning is pretty clear. In order to grow in these markets, you need to offer something that provides a painless upgrade path from a motorcycle to something with four wheels and a roof over your head. When makers like Renault, Ford and Toyota make an offering of this nature, you get the impression that there will be a certain level of quality in the car. Maybe not up to the level more mature markets are used to, but the standards will be high. That comes with a price. Now what if I told you that a certain car maker who is globally known for producing piles of cheap junk is making their own cheap car for emerging markets? What level of quality do you think that cheap car will have?

Did we say that the Russian market is on the rebound with a vengeance? Nissan agrees. Nissan will raise its Russian auto sales target for fiscal 2010 to 100,000 units, up 120 percent from last fiscal year, COO Toshiyuki Shiga told The Nikkei [sub] today. Nissan’s SUVs are selling so briskly that Nissan has trouble keeping up with the demand.

The BRIC countries, Brazil, Russia, India, and China were long seen as the saviors of the world, especially when it comes to cars: large population, very few cars per head, a strong growth. Then 2008 came around, the oil prices dropped, and Russia nearly imploded. Russia was taken off the BRIC list, leaving a BIC behind. If you take a hard look at it, it’s a C, with a BI as future growth market. Now suddenly, the BRIC is back.

You take some of my rescued state-owned automaker, and I’ll take some of yours. That seems to be the cunning plan cooked up by presidents Putin and Sarkozy, as the two face the prospect of rescuing struggling firms in the midst of a weak European market. And actually, it seems that the idea was really Putin’s. French-owned automaker Renault is “more than happy” with its 25 percent stake in the moribund Russian automaker AvtoVAZ, reports Bloomberg, but Russia is offering to buy 15 percent of the French firm if France in turn takes on more AvtoVAZ equity. Considering that Reanult paid $1b for 25 percent of a firm that has been kept alive only by government intervention, a closer embrace of VAZ does not seem advisable. Nor, frankly, does any form of “Franco-Russian Leyland” sound like a good idea.

Designing a product for local tastes is a tricky affair. Just getting the name right is a hassle. Everyone remember the Toyota MR2? Not the French. They remember the Toyota MR. Why? Because “MR2” in French would have sounded like “Em-Ar-Deux” (“Deux” being French for “two”). And “Em-Ar-Deux” sounded very close to “merde” which is French for…..let’s not go into that. So, if getting the name right is a chore, you must do your car research with care if you want to pander to local needs. I mean, get that wrong and you could end up in deep Em-Ar-Deux. But Volkswagen reckons they’ve found what the Russians want …

To stay alive, Opel wants to scale down. The factory in Antwerp is being closed. With amazing results for Opel’s bottom line: Closing the factory costs GM around €400m ($532m) in termination benefits. GM and the unions reached an agreement on the termination benefits earlier this week, reports Reuters. There are 2,600 workers in Antwerp. Now do the math: $532m divvied up amongst 2600 workers is a little bit over $200,000 per worker. Ouch! Wait, there is more pain …

Have you ever done serious business in Russia? Nyet? If you want to keep your conscience pure, don’t. It’s a “gotta pay to play” country. If you don’t make regular payments, the best that can happen to you is that you are out of business. In more serious cases, you pay with your life – a common currency in that country.

Behind that backdrop, it’s humorous to read that “the Russian Prosecutor-General’s Office has asked the United States to provide information about corruption that reportedly accompanied the sale of Mercedes limousines by Russian law enforcement agencies, Prosecutor-General Yuri Chaika told the Federation Council.” That according to Russia’s news agency ITAR-TASS. (It’s “sale to law enforcement agencies.” Someone with lesser English may have made a payment. See video.)

U.S. District Judge Richard Leon approved a $185m settlement between Daimler, the Department of Justice (DOJ,) and the Securities and Exchange Commission (SEC). The Feds had alleged that Daimler violated the U.S. Foreign Corrupt Practices Act (FCPA) by drowning foreign government officials in money and gifts until they relented and ordered Daimler products. According to Reuters, Daimler’s German and Russian units each agreed to plead guilty to two minor counts of violating U.S. anti-bribery laws. Its China subsidiary will be subject to the two-year deferred prosecution agreement as well. That said, the bad boys from Sindelfingen may go forth and sin no more. Except for one niggling detail …

Quick: Which country will have the world’s toughest DUI laws? You won’t believe it.