Lada still rules car market in Russia

MOSCOW, Feb 25 Reuters, in a feature story, reported that the Lada may be the butt of many jokes in the West, but in Russia it's the country's top selling car despite the post-Soviet chance to buy foreign vehicles.

The standard model, known as a Zhiguli in Russia but usually simply as a Lada in the West, epitomises the word boxy.

But in Russia it is known as ``klassika'' and still sells like hot cakes along with other types of Lada, all made by the country's leading car manufacturer AvtoVAZ.

Some would think being able to buy a Western car would mean the end of the post-Soviet car industry, with its reputation for a lack of imagination in design and an absence of quality.

But the head of AvtoVAZ, Vladimir Kadannikov, counters: ``As far as competition is concerned, we do not fear it.''

Kadannikov, 60, a car builder to his bones, who has spent 44 years in the industry, can base his assertion on the fact that AvtoVAZ cars are still the most popular in Russia.

Of the more than one million new cars sold in Russia in 2001, some 70 percent were made by AvtoVAZ, while new foreign cars accounted for less than 10 percent of the market.

The number of second-hand imported foreign cars is a growing threat and amounted to an estimated 300,000 to 600,000 vehicles in 2001.

Kadannikov concedes AvtoVAZ cars are behind the West in quality, but says they offer the best value in Russia.

``Of course, if you compare the level of quality of Western cars and ours, then we lose. But if you compare the level of price and quality then we gain a lot of points,'' he said.

``There are better cars, but there are no cheaper cars, no cars which have such a link of sufficient quality and not such a high price,'' he added.

The popularity of Ladas is closely related to the fact that their average price is $3,000 to $5,000, whereas the cost of a new Western vehicle is more than $10,000. This is in a country where the average wage remains pitifully low at around $150 a month.

Kadannikov said his factory, based on the shores of the Volga in eastern Russia and built as a Soviet showpiece joint venture with Fiat in the 1970s, cannot meet demand, even though it employs more than 200,000 people.

As he aims to launch a new range of cars in the coming years, which will cost $800 million in total and for which he hopes to get some outside investment, either Russian or foreign, Kadannikov said Russia needed a car industry to ensure jobs.

FOREIGN COMPANIES GATHER AT WINGS

Despite Kadannikov's confidence, the presence of foreign car companies has been growing since the end of the Soviet Union and several are now moving from simply importing to manufacturing.

General Motors chose the path of cooperation with local talent by forming a joint venture to build off-road vehicles with AvtoVAZ.

Ford has built its own car plant in northern Russia. Others such as Fiat and Renault have also expressed an interest.

GM's head of Russian operations, David Herman, said the draw for Western firms was the untapped potential of a market where car ownership is well below European and U.S. levels.

He also saw no reason why Russian manufacturers should not one day build cars to the same standards as western firms, citing the case of Czech manufacturer Skoda, owned by Volkswagen .

``If we had said 10 years ago the Czech Republic could build great cars, which they can export, or that Thailand can build cars for Japan, no one would have listened to us,'' he said.

``So if we say about Russia that in the next five to 10 years it will be building cars that it can export then people should look at those examples,'' he added.

INVESTMENT POTENTIAL?

With a growing market and the potential of Western funds and expertise in improving quality, the investment outlook for Russian car stocks would seem good.

But Kim Iskyan, analyst at Renaissance Capital, said the sector was blighted by poor transparency and poor liquidity. Two firms, Russia's second largest car maker GAZ and truck maker Kamaz, are also undergoing restructuring.

``For portfolio investors it is a bit of a minefield...They offer a huge web of complexity and very many unknown liabilities,'' he added. Despite such worries, shares in AvtoVAZ have gained strongly in the last year, going from around $1 to $18 in a little over 12 months.

This has been linked to speculation that a strategic investor might take a stake in it. Kadannikov has said the firm also wants to build up its market capitalisation by buying its own shares, which would be another reason for the gains.

Whatever the outlook for the Russian car market, there is one thing that seems set to remain a constant -- the supply of Lada-related jokes.

As one wit said: ``What do you call a Lada that starts first time? A novelty.''