19 April 2014, 05:33

Ukraine sanctions aside, US carmakers eye Russia market to save GM

Ukraine sanctions aside, US carmakers eye Russia market to save GM

Nevermind the Ukraine crisis and Washington's sanctions against Moscow: US automakers say the Russian market is their next big frontier. Russia is simply too large and too important for carmakers to ignore, experts said this week. "The Russian market is going to be larger than Germany," said John Branch, a professor at the University of Michigan Ross School of Business.

Branch said the structure of the Russian auto industry is in flux as the demand for imports increases despite barriers imposed by the US government. But that means that automakers, particularly those with global ambitions, simply can't afford to ignore the market's potential there.

Branch was speaking at a conference at the University of Michigan focusing on the opportunities and hurdles for US carmakers to sell to and in Russia. General Motors is already partly involved.

General Motors has invested in a joint venture with AvtoVaz, which builds the Lada, Russia's most popular automotive brand. The Lada brand sales are mostly concentrated in what Branch said were third- and fourth-tier cities and rural areas.

In major cities such as Moscow and St. Petersburg, consumers are becoming more brand conscious. They like imported cars and have developed a preference for small sport utility vehicles that can navigate the country's roads and streets.

GM-AvtoVaz produces the Chevrolet Niva, a mini-SUV popular within Russsia end exported to neighboring countries.

David Teolis, an economist with General Motors, cautioned that predictions about the growth of the Russian market have to be regarded cautiously.

The expansion of the Russian economy and Russian middle class since 2008 is hindering sales growth.

Daniel Russell, a former American diplomat who serves as president of the US-Russia Business council, said even with the current crisis over the Ukraine, Russia is simply too important a country for US businesses to ignore.

Relations between the two sides could actually benefit from strong commercial ties, he said.

For instance, Russell noted that Moscow is now involved in negotiations aimed at keeping North Korea in check and in nuclear talks with Iran.

"There has been a dramatic jump in the Russian economy in the last 10 years," he said.

And it is doubtful other countries are willing to forgo business with Russia.

The US pressure for sanctions on Moscow over Crimea's decision to join Russia has run into that face. With much close business and financial ties with Russia, Western European countries have been more reticent to ratchet up sanctions, that the US is advocating for.

The Japanese government issued a statement condemning Russian's stance on Crimea. But it then turned around and hosted some 200 Russian business executives the very same day.

"Sanctions don't work," Russell concluded. 

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