PSA/Peugeot-Citroen SA and Mitsubishi Motors Corp. expect Russia to rise again following a massive decline in new-car sales brought on by the global economic crisis.
The French-Japanese partners started production this month at their new 470 million euro ($630 million) car assembly plant in Kaluga. PSA and Mitsubishi aim to produce 125,000 compact cars and SUVs a year at the plant by 2012. (See box, bottom)
“(This new plant) illustrates the willingness of PSA to establish a long-term presence in Russia, as well as its confidence in the growth potential of the Russian automobile market,” PSA CEO Philippe Varin said in a statement.
For PSA, Russia is one of three of its so-called priority growth regions. The others are China and Latin America. Russia is Mitsubishi’s top sales market in Europe and “will continue to be a strategically significant market” in the future, Mitsubishi Motors Chairman Takashi Nishioka said in a statement.
“We hope that this operation will be a cornerstone in our efforts to grow our Russian business … and hope that we can contribute to the development of Russia’s automobile industry,” Nishioka added.
Automakers such as Volkswagen AG, Toyota Motor Corp. and Fiat S.p.A. plan to expand quickly in Russia.
Fiat-Chrysler CEO Sergio Marchionne announced last week that he wants to increase Fiat Group and Chrysler Group unit sales to 280,000 in Russia by 2014 from a combined 20,033 last year.
Fiat-Chrysler plans to launch four cars and four SUVs in Russia between 2011 and 2014.
Another French-Japanese partnership that is deeply invested in helping the Russian auto market rebound is Renault-Nissan. Renault spent $1 billion in 2008 to get a 25 percent stake in Lada maker AvtoVAZ, which is Russia’s largest automaker. Renault also will contribute the equivalent of €240 million to AvtoVAZ by transferring technologies, production machinery, equipment and production expertise. In addition, Renault will help AvtoVAZ develop a new entry-level vehicle to replace the Lada Classic while both Renault and Nissan plan to make cars at AvtoVAZ’s underutilized plant in Togliatti.
In February, Renault-Nissan CEO Carlos Ghosn said he believes Russia will become the most important auto market in Europe within the next two years.
Mitsubishi’s Nishioka was quoted in the Russian press as saying: "The market potential is 5 million cars per year, and we expect demand to go back to its former level."
Russia’s rise and fall
Before the crisis hit, Russia seemed on track to pass Germany as early as 2009 as Europe’s largest auto market after sales rose to a record 2,897,459 passenger cars and light commercial vehicles in 2008, according to data from the Association of European Businesses (AEB). But as the global downturn started to bite, people found it difficult to get credit to buy a new car. The result was that new-vehicle sales were nearly halved to 1,465,917 last year.
Russia’s sales have started to recover. Thanks largely to government-funded scrapping incentives, March volumes were down just 7 percent compared with double-digit declines in January and February.
The improvement caused the AEB to raise its forecast for full-year sales to 1.6 million cars and LCVs, up from a previously forecast of 1.5 million.
Of that total, the AEB predicts 1.45 million passenger cars will be sold, which is conservative compared with analyst Morgan Stanley's prediction this month that 1,824,000 cars will be sold in Russia this year.
Plants grow out of the ground
The PSA-Mitsubishi plant opening completes a wave of investment in Russia by global automakers. Since 2007, Nissan Motor Co., General Motors Co., Toyota and VW have invested billions to open factories in Russia.
The PSA-Mitsubishi plant, about 180km southwest of Moscow, is in the same town as VW’s 570 million euro factory, which officially started production last October. At that time, VW CEO Martin Winterkorn said in a statement: “Russia is set to become one of the world’s leading automotive nations.”
Morgan Stanley’s data forecasts sales of about 2.7 million units by 2012. Fiat sees the Russian market rising to 3.1 million vehicle sales by 2014.
The market already is crucial to Mitsubishi. In 2009, Russia remained the Japanese automaker’s No. 1 European market with a sales volume of 41,354 units, a decline of 63 percent from 2008. The Japanese automaker’s sales in Europe fell 17.8 percent to 98,193 units last year.
In 2009, PSA did better than the Russian market as overall sales dropped 30 percent to 42,136 units. PSA benefited from the arrival of the C4, which helped Citroen increase Russia sales 1 percent to 12,388 units last year. Russia sales at sister brand Peugeot declined 38 percent to 29,748 units.