Restless Ruble Currency crisis mars Moscow show, but automakers say they'llstay

MOSCOW - While visitors to the recent Moscow auto show admired the new Lada Niva, three Volga concept cars, and upscale Jaguars, Ferraris and Maseratis, auto executives exhibited worried faces.

But facial expressions and financial turmoil aside, automakers continue to reaffirm their long-term commitments to Russia.

"Carmakers such as GM/Opel, Fiat and Renault and some of the Korean OEMs are proceeding with their local assembly plans. "Initial volumes may be smaller than previously planned, and investments in localization may take a bit longer, but barring a complete socioeconomic collapse in Russia, vehicle assembly by companies such as GM's Opel, Fiat and Renault will start in the very near future," says Miguel D. Zweig of Zweig International consulting company.

David J. Herman, General Motors Corp. vice president for Russia and the Commonwealth of Independent States (CIS), says his company plans to extend activities at the ELAZ-GM Blazer plant in Tatarstan, Russia. GM also remains in talks about a joint venture with Lada manufacturer AvtoVAZ and continues negotiations with AvtoZAZ-Daewoo about an assembly deal in the Ukraine.

"I can assure you that our company is serious about doing business in this region," says Mr. Herman.

GM and AvtoVAZ are considering the development of a Russian version of an Opel car suited to local conditions.

"Our strategy is to use AvtoVAZ's substantial engineering capacity," says Mr. Herman.

On the eve of the motor show GM held its first international conference of automotive suppliers in Moscow.

"The conference's major goal was to launch a localization program, to encourage GM suppliers to do business in Russia and the CIS and to assist them in establishing direct contacts with prospective partners from this region," says Mr. Herman.

While suppliers continue to closely watch the region during the financial and political crisis, most are unwilling to give up on Russia.

"We still feel the industrial potential of the automotive industry and the customers we deal with are viable customerslong term," says Jerry Hotujac, Haden Inc. senior vice-president for business development. Haden is a turnkey paint-finishing systems manufacturer that supplies some of Russia's largest automakers, including OAO GAZ.

Ford Motor Co. shares some of Haden's and GM's cautious optimism. The automaker continues to talk about manufacturing cars with Russky Dizel near St. Petersburg. Ford hopes to have a financially viable plan by year's end.

"We have developed a number of plans, but no final decision will be made until the economic situation has become clearer," says Kenneth F. Habich, market representation director for Ford in Moscow.

Meanwhile, Nizhegorod Motors, the joint venture between Fiat SpA, OAO GAZ and the European Bank for Reconstruction and Development (EBRD), has confirmed assembly of Siena, Palio Weekend and Marea models will start in October. Annual capacity is targeted at 150,000 units.

"The situation in Russia is difficult now, but we are still convinced that Russia's potential is extremely high," says Roberto Testore, chief executive of Fiat Auto.

There is, however, one big problem: In many cases foreign manufacturers are demanding 100% payment to a Western bank before they'll build and deliver a new car to a Russian customer. If Russian banks halt the transfer of money, delivery will be stopped.

"We simply sit here and wait," says Ann Vakhovskaya, Hyundai Motor Co. Ltd. 's sales manager in Moscow. Before the economic crisis, Hyundai was satisfied with a 5% to 10% advanced payment. The automaker now hopes to sell 3,500 cars this year - the same as 1997, but down from the 5,000 it had earlier expected to sell.

While foreign auto-makers continue to worry, dealers of locally made cars are cashing in on currency problems. During the first days of the crisis Russians bought a lot of hard goods, including cars, so they could exchange their rubles for something of value.

"We now sell 20 to 30 cars a day; in the past we sold five to eight," says Aleksandr Proydin, manager of a Moscow Lada dealer.

Russian consumers always have purchased cars in cash. As long as unemployment does not increase substantially or purchasing power does not disappear, drastically increasing internal interest rates will have limited impact in the market. Russian consumers also prefer to spend their money on durable goods instead of seeing their savings disappear.

"As long as there isn't a complete disruption of economic life in Russia, it is pretty safe to assume that in the medium term vehicle production will not decrease significantly from the current level of 1 million units per year," Mr. Zweig says. - with Andrea Wielgat in Detroit