Car makers hit the road to Russia
Even as GM is scaling back elsewhere in Europe, the company is increasing production in Russia, a country that is becoming a bright spot for GM and much of the rest of the automotive industry.
Trickle-down oil wealth and the spread of easily accessible car financing are lifting sales, which rose by 40 per cent in the first half of this year compared with the same period a year ago. GM, Ford, Volkswagen, Nissan and Renault are all opening plants, or intend to do so soon.
The new GM line in this picturesque town, an old centre of the Russian car industry on the Volga River, will make 30,000 Aveo sedans a year. Cars move along the assembly line and end up in a brilliantly illuminated inspection room, where every inch is carefully examined; the factory is trying to get defects down to GM standards. If all goes well, production will start in January.
The plant is one of a half dozen that GM runs in Russia, where the Detroit car maker intends to invest $US1 billion over the next five years. The money is a good bet, analysts of the Russian market say, for the same reason that politics here recently got a jolt from street protests. The Russian middle class is rising and becoming a force in commerce and public life.
"I would put Russia in the same breath as China," said Timothy Lee, the head of GM's international division, at a groundbreaking ceremony in the northern summer for a plant in St Petersburg that will make midprice sedans.
Russian car sales are now approaching 3 million vehicles annually, according to the Association of European Businesses, a group that tracks sales here in promoting trade between Russia and the European Union. Russia is projected to surpass Germany, becoming the largest car market in Europe in 2014. In August, Russians bought more cars than Germans did, before sales tapered off in the autumn.
"It makes sense to invest where you have a good growth," said Vladimir Bespalov, an automotive analyst with VTB bank. "This is the trend, and the growth is in the emerging markets."
Frequently Asked Questions about this Article…
The article says the main drivers are trickle-down oil wealth, the spread of easily accessible car financing and a rising Russian middle class. Those factors pushed sales up about 40% in the first half of the year versus the same period a year earlier, according to the coverage.
According to the article, General Motors, Ford, Volkswagen, Nissan and Renault are all opening plants in Russia or plan to do so soon. GM in particular is scaling up, running about half a dozen plants in the country and building new lines.
The Nizhny Novgorod line produced its first test cars recently and, if all goes well, is due to begin production in January. The plant is planned to make about 30,000 Aveo sedans a year and is part of GM’s broader Russian operations.
GM intends to invest US$1 billion in Russia over the next five years. GM executives and market analysts cited the fast-growing market and rising middle class—comparable in importance, in one executive’s words, to China—as reasons the country is a key growth opportunity.
The article reports Russian car sales are approaching 3 million vehicles annually and that Russia was projected to surpass Germany to become the largest car market in Europe in 2014. It also noted that in one month (August) Russians bought more cars than Germans before sales tapered in autumn.
Yes. The article describes GM’s new assembly line using a brightly lit inspection room where every inch is examined and the factory is trying to get defects down to GM standards, indicating efforts to meet the company’s global quality expectations.
The article suggests investors should note that automakers are chasing faster growth in emerging markets like Russia because of rising demand. That can mean potential revenue upside for companies with local exposure, but it also highlights the importance of evaluating company-specific strategies and the political and economic context in Russia.
The coverage explains automakers are opening local plants to capitalize on strong domestic demand driven by higher incomes and easy financing. Building locally lets manufacturers scale to meet rising sales—in GM’s case, producing midprice sedans in a St. Petersburg plant and compact models in Nizhny Novgorod.
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