Audi sales up in Russia

National Post (Moscow) - Like other countries with rapidly emerging middle classes such as Brazil, India and China, Russia has become one of the fastest-growing new-car markets on the planet.

New-vehicle sales in Russia jumped a whopping 39% in 2011, for a total of 2.6 million units. Sales this year are expected to grow to 2.8 million — or almost as large as the German new-car market.

In addition to sales, automotive production is big business in Russia. In 2011, the former communist Soviet Union was the world's 13th largest producer of cars, building 1,988,036 units, right behind Canada in 12th spot (2,134,893). And about 600,000 Russians are employed in the industry, representing 1% of the workforce.

Plus, more than two decades of capitalism has meant Russian new-car buyers no longer can buy only Russian brand cars. Sure, five out of the top eight best-sellers in Russia last year were Lada models.

But Russian brands hold only three out of the top 10 spots so far in 2012. And, when it comes to luxury cars, instead of the traditional Russian Volgas, buyers now heavily favour Western cars, such as those from Germany's Audi, which saw sales last year rise by 25.6% to more than 23,000 units.

"Russian new-car owners have only had the opportunity to buy the types of luxury cars the rest of the world has been able [to buy] for the past number of years. So, luxury cars are very popular," confirmed Alexander Gavrilov, head of aftermarket sales for Audi in Russia, during an interview with Post Driving at the recent biennial Moscow Motor Show.

Like around the globe, Audi is duking it out with its traditional German rivals from BMW and Mercedes-Benz for luxury car sales supremacy in Russia. And, as in most markets, the race in Russia this year is very close.

"Our overall market share is about 1%. But, you know, up against our major competitors like Mercedes-Benz and BMW, we are really close in sales. The difference is within 50 units sold to date. It's that close," says Gavrilov.

Because of the nature of Russian roads (i.e., not table-top smooth and very few four-lane expressway highways), the luxury market here tends to favour large SUVs and sedans. In Russia, Audi sells its full lineup, from the subcompact A1 to the three-row Q7 SUV. But its Q models are its most popular models.

"Last year, the mid-sized Q5 was our best seller in Russia. This year, it's the new subcompact Q3," says Gavrilov.

With foreign brands fuelling the growth here, the growing number of world debuts from Asian, European and American automakers at this year's Moscow show only highlighted the importance of the Russian market to off-shore automakers.

That said, it was some surprise that Audi decided to make the world debut of its redesigned R8 super sports car here in Russia. The mid-engined two-seater may not be a big seller, but Gavrilov thinks the R8 is important for Audi's image.

"Sales of [sports cars] are not so high. But if you look at the Volkswagen Group's Bentley brand, in Russia, it is selling well. [Audi] plans on selling about 150 R8s a year. This is an image model. People usually buy this as a second or third car."

With the rapid growth of the Russian market, it also makes sense for Western automakers to consider building vehicles locally. (The German automaker announced this week, for the first time ever, that it will start making cars in 2016 for the North American market at an all-new plant in Mexico.) Audi once assembled knocked-down kits in Russia. But the pilot project was cancelled in 2010 as a result of plummeting new-car sales after the global economic crisis.

"Yes, with Audi, we have had experience building locally. And Audi has a history of building in its biggest markets. But we stopped it, because to produce locally, you really need to have the appropriate amount of volume," says Gavrilov.

"But, based on our Russian market sales forecasts for next year, I think we'll be close to 40,000 in 2013," he adds.

And that number seems to have been enough to allow Audi AG Board chairman Rupert Stadler to announce here at the show that Audi will return to building cars in Russia.

The new production lines, with an initial annual capacity of 10,000 cars, will start building A4 and A6 sedans, as well as Q5 and Q7 SUVS, at the existing Volks-wagen Group plant in Kaluga in central Russia by the middle of 2013.