MOTORSHOW PREVIEW:Moscow's motor show has become a symbol for a radically resurgent Russia, with the world's leading makers launching their latest cars there, writes Michael McAleer, Motoring Editor
RUSSIA IS flexing its muscles again, and not just on the international geopolitical stage. There's a spring in the step of the Russian business world, benefitting from a rapidly growing middle class whose growing numbers whet any corporate appetite.
"There's an exciting business atmosphere here that probably compares with the early days of the California gold rush," says Mazda Europe's president and chief executive James Muir. His enthusiasm is not surprising, considering the Russian market is now the largest new car market in Europe.
The only dark cloud on the horizon is a growing nationalist sentiment that saw its economic ministry threaten to withdraw from World Trade Organisation (WTO) agreements previously reached. They included commitments to reduce excessive import duties on foreign cars. It's hardly the sort of news story to please visiting car executives to this week's Moscow motor show.
Russia is topping many lists these days. Its capital, Moscow, is now the largest city in Europe, with a population of 15 million, while also achieving the less impressive top billing of being the most expensive city in the world, according to Mercer. However, it's the burgeoning middle class that feeds the dramatic growth and potential for foreign business.
The incredible growth in foreign car sales comes despite, rather than because of, the current economic climate. The dramatic turnaround in Russia's economic fortunes in the past 10 years is well documented. Russia's gold and foreign currency reserves stood at just $12 billion (€8.21 billion) in 1998. Now they top $598 billion (€410 billion), far exceeding the US and Germany, and topping the eurozone's reserves.
However, GDP is still modest in comparison to competitors, with per capita GDP of $14,700 (€10,050) compared to $45,800 (€31,300) in the US.
The stellar growth in new car sales is all the more impressive when you consider that inflation is touching 15 per cent, punitive import taxes on foreign new cars start from a minimum of 25 per cent, and petrol prices have doubled in the space of two years, up from 65 US cents (€0.44) per litre in 2006 to $1.27 (€0.87) now.
This year's bi-annual Moscow motor show kicked off yesterday with three halls filled mainly with global brands. Large-scale investment by western brands is understandable when you look at the figures.
With only 200 cars per 1,000 people it falls well behind the EU average of 450 cars per 1,000. Industry analysts predicts Russia's figure to double by 2015, with foreign brands taking the lion's share.
While Russian brands like Lada and Volga still clog the streets, their influence is rapidly dwindling. While it's impossible to make sweeping assumptions about a population of 147 million, one trend is apparent in Moscow at least: the new middle classes are keenly aware of the power of the brand.
From mobile phones to clothes, western brands equate to quality and financial success. In a country where money means power and social standing, such visible symbols of success are important. That's despite - or perhaps because of - the price of even small city cars being twice that of local family cars. New car sales this year are forecast at 3.4 million, up from 1.5 million in 2005. The foreign car brands' share of the market has grown in that time from 39 per cent to 72 per cent. Proud executives of foreign brands seek out journalists to let them know about their three-figure growth in Russia over the past five years.
It's not just about the prestige of the foreign brands that woo the Russians, however. Another advantage is the fact that local counterparts clearly don't match the fit and finish of foreign models.
Brands such as Lada and Volga, relatively hidden in a secondary hall at the show, have new models that look far more in tune with western European tastes. The new Volga Siber, for example, and the Lada C-Cross concept resemble Korean entrants from a few years ago. But on closer inspection the rougher edges of interior trim and exterior finish become apparent. They also have issues with keeping up with EU environmental standards that keeps them from entering western markets.
No doubt if they did, their low price would compensate for the quality gap for some buyers. However, they don't even have the price-conscious market to themselves. The Chinese are here in numbers, with Geely, Brillance and several other brands casting their net on the lower-priced Russian market. They are also attracted by less stringent environmental laws that permit them to sell cars here that would not pass EU standards.
For all the growth in new car sales of European brands, the signs have been evident for several years. Used imports from Germany and Japan earned a strong reputation for reliability, far superior to their rudimentary Russian rivals.
So for once the foreign powers are conquering Russia. Everyone is fighting for a slice of the pie. At present the Japanese brands take top prize with 32.2 per cent, but Europeans are increasingly fighting for space on the roads, with 23.2 per cent.
And space is increasingly becoming an issue, particularly in the big cities. Despite a decent - albeit overcrowded - public transport network, the desire to own and drive your own car has led to 10km journeys taking two or three hours in Moscow.
There's also a notable rise in the number of senior executives eager to get involved. Association with the phenomenal growth is worth spending some years in a Moscow office, working through the often complex administration systems.
The eager pursuit of the Russian buyer is evident from the Moscow show. In size and glitz it rivals the likes of industry stalwarts such as the Geneva motor show, and certainly surpasses the likes of London. Where it does differ from the larger shows is the number of female models draped over cars with outfits that would not look out of place in a lapdancing club, complete with accompanying dance music.
While it might be some way behind our own political correctness, and in straight political terms some have raised question marks about its democratic credentials, when it comes to the love for motoring metal at least, Russia has most certainly arrived.
"There's an exciting business atmosphere here that probably compares with the early days of the California gold rush