* Datsun targets "up-and-coming" families with on-Do
* Car sales plunge more than 17 percent in June
* Luxury sales hold up, budget cars suffer
* Inflation fears take hold
By Elizabeth Piper
TOGLIATTI, Russia, July 16 To the pounding beat
of house music and a triumphant trip down memory lane, the
launch of Datsun's on-Do family sedan at Russia's largest
automaker on Monday was hailed as a sure success.
Manufactured by Avtovaz for Japan's Nissan, the on-Do, a
1970s icon, is aimed at the growing ranks of "up-and-coming"
Russian families who want to own a foreign car but cannot afford
But the firms' painstaking market research left out one
variable - President Vladimir Putin's decision to annexe
Ukraine's Black Sea region of Crimea, which has knocked an
already weak economy and raised uncertainty among consumers
sensitive to price.
And despite the confidence on show at the sprawling car
plant in Togliatti, named after an Italian communist leader,
some executives said tumbling Russian car sales were troubling.
After plunging more than 17 percent in June compared with a
year earlier, according to figures from a lobby group for
Europe's top carmakers, car sales in Russia look set to post
their worst year since the 2008-2009 global economic crisis.
It is a reversal for a market, which until June figured in
Europe's top three, and where many of the 143 million population
see cars as a symbol of status.
For Vitaly Pavlovsky, executive director of Russia's Rolf
dealership network that sells only foreign brands, it means
trying to find new ways of enticing consumers to commit to
purchases, and possibly offering discounts.
Pavlovsky, who runs Russia's biggest car dealer by revenue,
said sales had been good so far this year, rising 14 percent in
the first six months thanks to healthy demand for luxury brands.
But in June they fell by five percent.
"We of course cannot swim against the market for ever," he
said, forecasting that sales for foreign brands would fall by at
least 10-12 percent if they followed last year's dynamic.
Like the executives at Datsun and Avtovaz, best known for
producing the Lada, he did not predict this year's economic
stagnation, with growth barely above zero and Western sanctions,
and the threat of more, driving capital from the country.
Many Russian consumers have become increasingly worried
about inflation, with state-funded pollster VTsIOM saying 62
percent of Russians see it as the most important problem today.
Central bank officials suggest inflation could reach 6.5
percent by the end of the year, above the official forecast for
6 percent, after it touched 7.6 percent by mid July
year-on-year. With prices rising, some Russians have reined in
SQUEEZED MIDDLE CLASS
Dealerships like Rolf would like to see a renewal of state
support in providing credit to new customers, but for the on-Do,
Datsun is hoping its emphasis on packages to ease each purchase
will increase its popularity among people who are "on the move".
"We are talking about a young family, 35-40 years old ...
People who have owned cars in the past, mostly second hand cars,
and who want to upgrade to a combination of an international -
in this case Japanese DNA-styling - performance and comfort,
within an affordable car made for Russia," said Vincent Cobee,
head of Datsun and Nissan's corporate vice president.
Cobee denies that the Datsun on-Do is being launched at
perhaps the worst moment, when those families are being squeezed
by rising prices and slower income growth.
"The minute you target high growth markets you need to be
ready for volatility," he said, adding that his four launch
markets were India, Indonesia, South Africa and Russia - all
experiencing some kind of economic difficulties.
"First and foremost you don't launch cars for a one-year
period, when you launch and develop a brand especially with
cars, you do it for five, six, seven, eight years," he said,
suggesting long-term growth was safe.
Cobee points to largely untapped markets outside Russia's
two big cities, Moscow and St Petersburg, and a large number of
second-hand cars as proof that the market has more mileage.
According to Russian analytical agency Autostat, the market
for second-hand cars grew 4.1 percent last year to 5,636
vehicles - the main competitor to low-cost cars. The on-Do
starts at 329,000 roubles ($9,600).
It is a view largely shared by Russia's Avtovaz, which
produces vehicles for Renault, Nissan and now Datsun as part of
the Renault-Nissan joint venture which controls the Soviet-era
It also produces the Lada, which the company is trying to
modernise to cast off its Soviet boxy image. The original
Soviet-era Lada drew its inspiration from a 1960s Fiat sedan.
Avtovaz, a pillar of the command economy in Soviet times, is
driving development of Lada models. After Avtovaz reported a
loss last year, its chief executive Bo Andersson says he wants a
return to profit, to restore pride to the brand and get it back
up to a 20 percent market share from just under 16 percent now.
"We can only do it by making new products," said Andersson,
in the job for six months after working at Russian automaker
Gaz. He spends much of his time travelling around Russia's
regions to try to enhance the Lada's image to spur sales.
"For the last eight weeks, I have been visiting a city every
weekend, working with local government, working with local
dealers and working with local media and it helps create a
better image of Lada and helps people to feel a little bit more
proud of Lada."
NO PATRIOTIC SURGE
It is a message that resounds in Russia after Putin took the
country along a more patriotic path following the sanctions
imposed on the country by the United States and the European
Union over Moscow's involvement in the Ukraine crisis.
The asset freezes and visa bans on a limited number of
Russian firms and officials struck at a time when the $2
trillion economy was already sliding towards recession.
On Monday, Prime Minister Dmitry Medvedev moved to limit the
number of imported cars state officials could buy, but analysts
say they had not seen any "patriotic surge" in sales.
"Those purely Russian brands, Lada and UAZ (a producer of
mostly off-road vehicles), occupy less than 20 percent of the
market, so the rest is imports at about 30 percent and 50
percent is the local construction of foreign brands," said
Vladimir Bespalov, an analyst at VTB bank.
"So it is impossible to talk about everyone moving to Ladas
or UAZ for the sake of patriotism."
Sales of Lada fell 19 percent in June, year-on-year, and 15
percent since the beginning of 2014 - but that is just a slight
tumble compared with other brands such as Ford, whose sales
dropped 53 percent year-on-year in June, and 39 percent in 2014,
according to the Association of European Businesses.
Some luxury brands are doing well, with Mercedes, the
erstwhile choice of Russia's political elite, seeing sales
increase in June by 10 percent year-on-year, and 19 percent
since the beginning of the year.
But the few bright spots cannot mask the fact that many
dealerships stand empty - something one Russian businesswoman
is taking advantage of.
"It's not a dealers' market anymore, it's a clients' market,
so dealers have to understand it and just do something
differently," said Marina Glushkova, chief executive of
AutoSpot, an online automotive service catering to Russia.
($1 = 34.4110 Russian Roubles)
(additioanl reporting by Gleb Stolyarov, Maria Kiselyova,
editing by Janet McBride)