Car Market Beckons to Swedes
- By Alec Luhn
- Apr. 26 2011 00:00
Swedish carmakers say they've been in Russia longer than any other foreign auto companies — and with the Russian market for cars and trucks experiencing fast growth once more, they want to make their stay even longer.
"We're seeing Volvo taking an increasing share in a growing market," David Thomas, president of Volvo Car Russia, said in a telephone interview.
In light of an anticipated auto boom in Russia, carmakers Saab and Volvo and truck producers Scania and Volvo Trucks are looking to expand sales and service here. They'll draw on a history dating back as far as 1910, when Scania exported its first truck to St. Petersburg. The Swedish firms, however, could face stiff competition from German companies. Another major challenge will be finding Russian dealers and parts suppliers that can match their reputation for reliability.
Still, all four Swedish companies have plans to expand service centers and sales in Russia. What's more, the truck makers have opened Russian assembly plants and plan to hire more people in Russia.
"We see very strong development ahead of us in Russia," said Tommy Kohle, senior vice president of corporate communications at Volvo Trucks.
The statistics for the Russian car market suggest a heating-up of demand and interest. Volvo Car Russia, for example, sold 10,600 units in 2010 and increased sales in the first quarter of 2011 by 74 percent versus the first quarter of 2010.
Its success is reflected in the overall numbers. Russia's car market roared back with a 77†percent increase in sales in the first two months of 2011, the Association of European Businesses said in a recent report. (That comes on the back of a 49†percent plunge in sales in 2009, however, and there was much ground to regain.)
There's no market of this size that delivered 70 percent growth in the first quarter or shrank 50 percent during the crisis, said the head of Volvo Car Russia.
The truck market posted even bigger growth, with new sales of heavy trucks growing 154 percent among non-Russian producers. Other indicators point to rising demand: Boston Consulting Group predicted earlier this year that Russia would go from the 10th-largest car market to the sixth-largest by 2020. Meanwhile, development of the construction, mining and timber industries bodes well for truck makers.
The figures, however, are just the latest chapter in foreign car history. Volvo contends that it opened the first foreign service center in Russia — in fact, in the Soviet Union — when it started a workshop in the basement of the British Embassy in Moscow in 1974. Saab soon followed with its own basement service garage in the capital.
Volvo (which separated in 1999 from Volvo Group, the owner of Volvo Trucks) has come a long way. In 2007, for example, it sold about 21,000 cars. Saab's sales were far more modest, peaking at about 1,300 cars in 2008, according to analytical group Avtostat. Then the financial crisis reached Russia in late 2008, and sales plummeted.
The expected resurge in sales is fanning hopes at both Saab and Volvo that they can regain ground lost in the past two years, especially since the premium car segment has recovered from the crisis more quickly than the overall car market, according to analysts.
Volvo wants to move 15,000 units in 2011, or about 40 percent more than last year. In addition, Thomas wants Volvo's balance sheets to be in the black after losses in 2009 and 2010.
Asked whether the company will be profitable in 2011, Thomas replied, "If we look at volume growth [in sales] and stable currency growth, then, I think, yes."
What About Saab?
Saab, on the other hand, is hoping to relaunch its brand after going missing from the market. The company ceased active sales after General Motors sold it to Dutch luxury carmaker Spyker Cars in February 2010. For that full year, it was only selling its remaining stock, Saab management said. Now it wants to expand its dealer network, from 15 dealers to 25 by 2013.
In March, Saab said Moscow's Armand Import, part of the Chicago-based Armand Group, will take over marketing, sales and distribution from GM CIS. Saab plans to restart sales in Russia this summer.
"Russia is important because we can sell quite a lot of volume," said Kjell Hallberg, Saab's business development manager for Eastern Europe.
But Saab's financial woes have made company observers speculate about its survival. Production stopped in the first half of April when the company was unable to pay its suppliers, which led Spyker to seek additional financing, including an investment from Russian businessman Vladimir Antonov. Though Antonov said he was prepared to invest 50 million euros ($72 million) or more in Saab, Swedish authorities put the brakes on the financial help, saying they must first approve his investment.
Hallberg said Antonov would be welcome as an investor and that possible changes in Saab's ownership or financing wouldn't affect the brand's re-entry into Russia.
"The recent changes haven't been affecting plans for Russia," the Saab manager said, noting that the necessary funds for marketing, education and dealer-network development here have been allocated in the company budget. Moreover, the investment pales in comparison with research and development costs, which are the company's main expenditure, he said.
Hallberg also said that, once sales restart this summer, Saab will sell in 2011 and 2012 a total of about 1,500 cars. Eventually the Russian market will account for 3 percent to 4 percent of Saab's total sales, he estimated.
"The U.S., Great Britain and Sweden have been our biggest markets, with about 20 percent each for total volume. But we see in the future these [sales] will be more spread out," he said.
An analyst cautioned, however, that Saab probably won't achieve big growth in its eastern neighbor anytime soon.
The carmaker was part of fighter-jet maker Saab AB before it was bought out by GM and became Saab Automobile in 1990. Its image has suffered since the change, said Sergei Udalov, assistant director of Avtostat.
"Saab for now and the near future will be a niche car," Udalov predicted. "It doesn't make sense to hope for large sales. Some of their reputation remains, but they lost a lot in terms of image when the company went to GM."
"The challenge is to get back to the clients since we have been one year without any kind of activity," Hallberg admitted. "Brand value has been lost. We need to relaunch the brand again in Russia."
To do so, Saab will focus on expanding its dealer and service center networks, as well as marketing its newest products. The carmaker will offer the same product line in Russia as in Western Europe — though adjustments will be made for Russians' preferences for sport utility vehicles, automatic transmissions and gas cars rather than diesel ones, Hallberg said. And in marketing the cars, Saab will lean on its reputation for safety.
Volvo enjoys a better reputation for safety, Udalov said. But in the past few years, other carmakers have increased the safety of their cars — as well as the marketing of impressive crash-test results, he noted.
Meanwhile, Volvo and Saab's main competitors in the premium segment — all of them German companies — are expanding. Mercedes-Benz sales reached about 5,400 cars in 2010 and grew 86 percent in the first quarter of 2011, while Audi sales reached about 4,400 and grew 11 percent and those of BMW models reached 5,000 cars and grew 10 percent, Udalov said.
|2010||In the peak year|
|Volvo Cars||10 600||21 000 (2007)|
|Volvo Trucks||1987||5700 (2007)|
For now, there's room for expansion. While most European countries have 400 to 500 cars per 1,000 people, Russia has merely 44 cars per 1,000 people, Udalov said. That means significant growth potential.
Nonetheless, he cautioned that many Russians can't afford cars. And there are no guarantees of success, as both Udalov and Thomas noted the volatile nature of the Russian car market.
"There's no other market of this size that delivered 70 percent growth in the first quarter, but there's also no other market that shrank 50 percent during the crisis," Thomas said.
In the market for heavy transport, Swedish companies are neck-and-neck with one another.
With more than 2,100 new heavy trucks sold in 2010, Scania is the second-largest seller of new commercial trucks in Russia among foreign makers, behind German company MAN, which sold more than 3,200 new trucks last year. But Volvo isn't far behind, coming in at fourth place with sales of about 1,900 trucks in 2010. It also enjoys the patronage of high-profile customers such as Coca-Cola, LUKoil and Rosneft.
"Volvo and Scania are leading companies on the Russian [heavy truck] market," Udalov said. He noted that Scania had more sales growth in the first quarter of 2011, with a 125 percent increase versus 65 percent for Volvo.
Scania and Volvo are well-known brands, and both have reputations as high-quality automobiles. Both have invested significantly in the Russian market — in particular, by building assembly plants here.
"In 2010, Russia was the seventh-biggest global market for Scania, and I expect that [figure] to increase in 2011 to at least the top five," Martin Lundstedt, Scania's executive vice president and head of franchise and factory sales, said in an interview.
"The current factory is a very strong statement that we believe in Russia," he said.
In 2010, Scania opened its plant — a 10 million euro investment — outside St. Petersburg. In Kaluga, Volvo Trucks opened its assembly plant in 2009 at a cost of 100 million euros.
Dealers, Suppliers and Parts
Scania and Volvo Trucks are using similar strategies in Russia: increasing new truck sales and opening service centers.
Scania's Lundstedt said his company is "investing heavily in" its sales and service network. Currently, Scania has 39 dealerships and service centers.
Volvo will invest in its workshops and collaborate with private investors to launch service centers, Kohle said. Right now the company has 45 sales offices, 41 service centers and three truck centers in Russia.
Having a wide-flung service network is a major selling point for commercial trucking companies, whose fleets are battered by long miles and cratered highways.
Most of Scania's and Volvo's Russian workshops are operated by independent dealers, both companies said. "It's a very good way of working, because locals know customers, they know the needs in the region, and in many ways [they] can do the work better than ourselves," said Hans Tardell, managing director of Scania Russia.
But there will be speed bumps on the road to car market success — including the sourcing of parts for local manufacturing.
Main components are shipped from Sweden, while others are bought here. "We're working to develop our supplier network, and that is the decisive factor [in] how we can develop," Lundstedt said.
The Swedes face stiff competition from other truck companies, such as MAN, which announced in April that it will open a production factory in St. Petersburg.
Volvo Trucks and Scania each is predicting that its share of the truck market will widen as Russians develop a preference for better technology and brand-new trucks.