Hyundai, Kia Working to Stanch Bleeding in Russia

Hyundai Group is girding itself for the long haul in the Russian Federation as its Hyundai and Kia brands both gain market share, bolstering the parent company’s new position as the country’s leading automaker.

“Russia is one of the major and important markets for Hyundai (Group),” a Hyundai spokesman in Seoul tells WardsAuto. “Hyundai posted major 2015 first-quarter market-share growth, taking 10.4% of the market compared to a first-quarter 2014 market share of 6.9%.

“The market share of Hyundai in all of 2014 was 7.2%.”

The Kia brand’s share for first-quarter 2015 was 9.5%, according to WardsAuto data. This gives the two marques a combined share of 19.9% and well-established market leadership. Both brands have been impacted by the Russian market’s contraction, but less so than most competitors.

Some analysts believe Hyundai and Kia are succeeding because they have the right products in the right place, with beneficial synergies and economies accruing from their interconnected affiliated companies with a shared global strategy.

A few industry-watchers also suggest the automakers know how to play the complex game of free enterprise in a land of tight controls, where artificial stimulation of the market by the government is the oil that makes Russia’s auto industry functional. Some say keen brinkmanship is a necessity and deals unique to the market must be cut.

Whatever the complexities, the hemorrhaging market in Russia has resulted in a lineup of new automotive leaders.

Hyundai sold 39,841 vehicles of all types, including imports, in the first quarter, down 3.5% from like-2014. Kia sold 36,030 vehicles, also including imports, a fall of 14.8%.

But the automakers’ combined 75,871 deliveries placed them ahead of even local manufacturer AvtoVAZ, the traditional market leader. AvtoVAZ reported first-quarter sales of 68,554 vehicles, a year-over-year drop of 25.2%.

Close behind was the Renault-Nissan Alliance, with 65,657 total sales in the year’s first three months. Nissan’s 38,321 deliveries were down 20.5% from like-2014, while Renault tumbled 40.7% on 27,416 sales.

Toyota was down 27.1% year-on-year with sales of 28,035 vehicles. General Motors, which is shutting down local production and halting sales of its Opel and Chevrolet volume brands, backslid 71.7% on 18,846 deliveries. Ford was down 70.9% with just 5,060 vehicles sold.

Rio Pulling Its Weight

The Hyundai spokesman downplays the effects of GM’s pullout. “There is no change in our operational strategy,” he says, adding Hyundai and Kia dealerships are not planning to provide service for GM-brand vehicles and no GM dealers have come looking for Hyundai franchises.

Hyundai Motors Mfg. Russia operates a wholly owned, 200,000-vehicle capacity plant near St. Petersburg, where it is headquartered. Kia Motors Russia is headquartered in Moscow, where it operates a complete knocked-down assembly plant.

“The locally produced Rio, manufactured at Hyundai Motor Mfg. Russia (HMMR) in St. Petersburg, has helped Kia weather the current economic downturn,” a Kia spokesman tells WardsAuto. “In fact, 44%, or 104,700 units, of total production at the HMMR plant last year was dedicated to the Kia Rio. The Rio accounted for 48% of all Kia sales in Russia in 2014.”

The St. Petersburg facility produces sedan and hatchback versions of only two models, the Rio and the Hyundai Solaris (Russian-modified Accent). Solaris sales rose 3.1% to 132,000 in 2014, while the 104,700 Rio deliveries represented a 3.9% improvement.

The plant also builds the Solaris and Rio for export to the neighboring Commonwealth of Independent States markets of Kazakhstan, Azerbaijan and Belarus. The 25,700 CIS exports accounted for 11% of the plant’s 2014 output. The largest market was Kazakhstan, taking 80.3%, or 21,900, of the exported units.

Kia currently imports into Russia the Sportage CUV, Venga MPV and Kia Cee’d family from its plant in Zilina, Slovakia. Of the 195,691 Kia vehicles sold in Russia last year, 58,140, or 30%, were imported from the plant. Russia accounted for 18% of Zilina’s 2014 total sales of 323,000 vehicles, and is Kia Slovakia’s leading export market.

While the Hyundai plant in Nosovice, Czech Republic, produced 303,000 vehicles in 2014, a slice of which were exported to Russia, it also produces transmissions supplied to the Zilina plant for installation in Kia vehicles.

The Hyundai spokesman dismisses media speculation that Hyundai and Kia are putting extra marketing efforts into their Russian-made models, and slacking off on vehicles imported from Korea and other countries, to cushion the pain of dismal exchange rates caused by the plunging ruble.

The spokesman does acknowledge price pressure from imported parts, which Hyundai Russia is trying to contain and not pass along to customers. As is custom when Hyundai and Kia locate plants abroad, Hyundai brought its own suppliers to Russia when it set up shop.

“Many parts suppliers like Hyundai Mobis joined in with Hyundai Motor when establishing the Russian plant by setting up their own local plants,” the spokesman says. “About 40% of parts are produced locally.”

The Kia spokesman is upbeat about the automaker’s future in the country: “Russia accounts for around 7% of Kia’s total global sales and has grown to become our third-largest overseas market following China and the U.S. Given that Kia has been one of the country’s leading import brands, Russia is a highly important and strategic market for us.

“While Kia’s business in Russia has been affected by the ongoing economic uncertainty, we have been outperforming the industry,” he says. “Our market share has steadily risen from 7.1% in 2013 to 7.9% in 2014 and to 9.8% in 2015, through February.”

Hyundai is not projecting full-year sales, but it anticipates far outperforming the market, as it  currently is doing. Kia said in a report to analysts in January that it anticipated a 12% year-over-year decline – a good performance in a market that optimistic analysts guardedly predict will contract about 25%.

Part of the reason for that optimism is that Russia’s Industry and Trade Ministry said April 1 it would allocate RR1.5 billion ($29.5 million) to subsidize consumer loans for up to 200,000 passenger vehicles and would spend a total of RR4 billion rubles ($78.6 million) to support the industry in other ways.

Inflation also is abating and Russia’s central bank is bringing the currency under control.

Without the government subsidies and the revival of a scrappage plan under which new-car buyers getting rid of an existing vehicle receive an additional subsidy, analysts believe, the market could shrink up to 50% compared to the contracted 2014 market.