Global Economics

They've Driven A Ford Lately


Russians are snapping up its locally made models in record numbers

You would think the world's most successful Ford dealer might be in, say, Detroit or Los Angeles. Think again. Last year, New York Motors, on a commercial strip in southwest Moscow, sold more Fords than any other dealership in the world. All told, salesmen in the crowded showroom moved 10,060 vehicles, helping Ford (F) race past rivals Hyundai, Toyota (TM), and Chevrolet to become the top-selling auto nameplate in Russia. "This record has pleased and amazed everyone," says Andrey Pavlovich, general director of New York Motors. "Last year was a boom year."

The brand's success in Russia stands in striking contrast to Ford Motor Co.'s flagging fortunes elsewhere. The automaker clocked a global loss of $12.7 billion last year, but sales of Ford-branded vehicles in Russia soared 92%, to 115,985 cars and trucks, for some $2 billion in revenues. That's partly due to Russia's thriving economy, which has stoked strong demand for foreign models. Last year, foreign brands outsold domestic nameplates for the first time, topping 1 million—a 65% increase from 2005 and 20 times the level in 2000, according to the Association of European Businesses in Moscow.

Ford, though, has done more than simply ride the market wave. In 1999, Ford made a big bet on Russia, spending $150 million on a plant near St. Petersburg—the country's first foreign-owned auto factory. The facility opened in 2002, and last year production climbed to 62,400 Focus sedans, hatchbacks, and wagons. "When this decision was taken, in '99, it was of course very daring," says Henrik Nenzen, president of Ford Russia. "But Ford saw that this market would come.... And they knew that they needed to enter [it]." Ford's growing network of dealerships is helping boost sales, too. The company now has 150 outlets, some as far away as Vladivostok on the Pacific coast and Murmansk in the far north.

Ford may face a bumpier ride from here on out. Competition is heating up as rivals copy Ford's strategy of local production. Volkswagen (VLKAY), Toyota, Nissan (NSANY), GM (GM), and Fiat (FIA) have all announced plans to build plants in Russia. Worse, Ford workers in St. Petersburg, who earn about $650 per month, walked off the job for one day on Feb. 14 after rejecting an offer of a 14% to 20% pay raise, interest-free loans, and other benefits. Talks were set to continue on Feb. 15.

Still, local production has helped Ford keep prices down. Although about 80% of the parts used in the Focus are imported, the company sells the cars for as little as $13,000, or about $3,000 less than similarly equipped imports, which are subject to a 25% duty. While that's not exactly pocket change in Russia, it's low enough for a growing number of middle-class consumers. Sure, the cheapest Focus is nearly $4,000 more than a Russian-made Lada or low-cost foreign cars such as the Renault Logan and Daewoo Nexia. But Ford says Russians are willing to spend a bit extra for a better car, and often even pony up for premium features. "The latest gadgets, the latest models, the latest technologies—that's what the Russians want," says Nenzen.

Anton Rabotonov, a 28-year-old Moscow economist kicking tires at New York Motors, agrees. After shopping around, he chose a Focus with air conditioning, antilock brakes, and air bags for $18,950. To pay for his new wheels, Rabotonov is taking advantage of another Ford innovation in Russia: consumer credit. Ford offers two- and three-year car loans at interest rates of just 4.9%, or a bit more than half the current inflation rate of 9%. As far as Rabotonov is concerned, it all adds up to a bargain. "I have driven Russian cars," he says. "Of course, a Ford is much more comfortable."

with Anna Smolchenko in Moscow

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