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A Truck with a Brand Name

By Sergei Balashov Russia Profile 07/31/2008

Foreign Carmakers Prefer Purchasing the Assets of an Existing Producer to Establishing Their Own Facilities

While Russia has been the hottest market for automobiles over the past decade, trucks have been somewhat under the radar. The country’s largest producer of heavy-duty vehicles Kamaz is making headlines this week due to Daimler’s intention to buy a share of the company. As the world’s leading manufacturer of heavy-duty vehicles, the famous German carmaker, known for its luxurious Mercedes Benz brand, is willing to share its know-how with Russia’s expanding industry.

Having been overshadowed by the news-making passenger car market, the Russian truck-producing industry has been brought into the spotlight, as Daimler announced that it was holding negotiations with the Russian consulting company Troika-Dialog on the subject of purchasing 42 percent of the shares of Russia’s biggest heavy-duty transport producer Kamaz. The company beat out Iveco and Volvo for exclusive negotiating rights.

Back in February, Troika-Dialog sold 25 percent of Russia’s largest carmaker VAZ stock to Renault, which had opened a car manufacturing plant in Moscow three years earlier, following the same strategy as other renowned car brands Peugeot Citroën, Ford and Mitsubishi, who have either built or are currently constructing plants in Russia.

Establishing production facilities and selling the vehicles right on the spot, without having to rely on exports, can considerably cut expenses, making cars very affordable to Russians, known for their affection toward foreign automobile brands. As owning a car has always been considered prestigious, Russians have been on a wild shopping spree for the past few years -- foreign car sales increased by 61 percent last year alone.

Cars worth around $10,000 or cheaper constitute about 80 percent of the overall demand in Russia. This exact segment is expected to be filled with the products coming out of the newly-built facilities. Even though owning a car in cities like Moscow and St. Petersburg has become inconvenient, due to the endless traffic jams and the lack of quality roads that could accommodate all of the traffic, the market is projected to keep growing. Surprisingly enough, the truck market has been expanding just as dramatically, but for completely different reasons.

“Growing prosperity is one thing, but the growth of the construction industry has been the main driver; it expanded by 20 percent last year. The oil and gas industry also needs more transport,” said deputy director of the Autostat research agency Sergei Udalov. “Transportation also keeps growing: last year, road freightage grew two times faster than railway transportation. Roads are being built, which means that this segment will keep growing. We see very good opportunities for heavy duty transport all over. These are the exact strong sides of Kamaz,” added Udalov.

Daimler was faced with two options. The company has been considering building its own plant in Russia just like Volvo, which is expected to open its truck manufacturing plant in 2009, or buying assets. As it turned out, the choices in both cases were very narrow.

“You can’t immediately gain indirect control of a third of the market by building your own plants,” said Konstantin Romanov, an analyst at the Finam investment company. “It wouldn’t make any sense to build a brand new plant that would manufacture about as many trucks as Kamaz.”

“Daimler is very interested in Kamaz,” said Udalov. “It has its own infrastructure, personnel, good management, over 300 dealers and service centers all over Russia, giving Daimler an opportunity to immediately get into the market.”

“Foreign carmakers in general are already sticking to this strategy,” continued Romanov. “They will continue buying available Russian assets, but there’s pretty much nothing left of them.”

Heavy-duty trucks are also in very high demand in Europe. According to the Autostat agency, the UK alone posted a 48 percent sales growth over just six months. Yet Russia remains the prime target for any truck manufacturer. “The European countries are small,” said Udalov. “You can see a 35 percent growth, but when you look at the actual numbers, you’ll see that only 9,000 trucks were sold.”

While sales in all of Europe amount to 320,000, Russian customers buy 130,000 trucks. This segment has shown a growth of 32.5 percent last year, and 38 percent the year before. Kamaz’ share of the market is estimated at roughly 30 percent.

Kamaz will also derive benefits from this deal. “They’ll get the newest technologies, broaden their model range and increase the overall quality of the products they offer their customers,” said Romanov. Kamaz also lacks linehaul trucks, and Daimler is known to be one of the leaders in this segment. “This deal could produce a very good synergetic effect; linehaul trucks could be assembled at Kamaz’s production facilities by Daimler’s technology,” said Udalov. “Kamaz has been heavily investing in R&D, it needs funds and technologies, and Daimler could provide those,” he added.

The change of ownership will also help structure the market as it catches up to that of smaller cars. “The truck market is behind the car market by about five years,” said Udalov. “The car market has grown into a well-structured system with the quality of marketing comparable to what they have in Europe. The market is well understood.”

Udalov opined that the truck market is more like a hot pie at the moment. “The demand is so much higher than the supply that there is simply no need for marketing campaigns of any sort,” he said. “Everything that is produced gets sold right away.” Marketing campaigns, as Udalov believes, would be needed no sooner than in a year. “It’s not too late to enter the market at all, the opportunities are ample, and this is a very shrewd move for both Daimler and Kamaz,” he added.

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