WASHINGTON (Reuters) - Russian consumers, in the days of the Soviet Union, could spend years on a waiting list to buy a car. Now, Russia is poised to become the biggest auto market in Europe and President Barack Obama wants U.S. parts manufacturers in on the action.
A top U.S. Commerce Department official, beginning on Monday, will lead 13 auto parts and service companies on a trade mission to Moscow, Samara and St. Petersburg in search of new sales. Fender and gasket manufacturers are jointing companies that offer emission reduction and heating induction systems.
Russian car ownership has leapt about 70 percent over the past decade, from 140 cars per 1,000 people in 2001 to 244 cars per 1,000 people in 2010. That compares to about 850 cars for every 1,000 Americans, the Commerce Department said.
“There’s an expectation that Russia will become the world’s sixth largest car market by 2020. It’s currently number ten,” U.S. Commerce Deputy Under Secretary Michelle O‘Neill told Reuters ahead of the trip. “It’s going to be the largest car market in Europe within the next three years.”
U.S. carmakers Ford (F.N) and General Motors (GM.N) have already been pouring investment into Russia along with Toyota (7203.T), Nissan (7201.T), Hyundai (005380.KS), Volkswagen (VOLVb.ST), Volvo (VOLVb.ST) and Renault (RENA.PA).
The trip comes as Obama is facing a tight race with Republican presidential candidate Mitt Romney for votes in the industrial Midwest. Seven of the firms going with O‘Neill are from battleground states of Ohio, Michigan, and Pennsylvania.
With Russia on the verge of joining the World Trade Organization in July, the White House is also trying to persuade a skeptical Congress to repeal a Cold War-era trade measure known as the Jackson-Vanik amendment in order to establish “permanent normal trade relations” (PNTR).
The vote is important because unless Congress takes that step Moscow could deny U.S. exporters the market opening-benefits of Russia’s accession to the WTO, while granting them to U.S. competitors around the world.
Russia’s fast-growing auto market is certainly “a great example of why we need to go ahead with terminating Jackson-Vanik and granting PNTR,” O‘Neill said.
That’s expected to be difficult because of concerns in Congress about Moscow’s record on human rights and its foreign policy, which is often at odds with the United States.
In addition, some lawmakers are unhappy with the automotive terms of Russia’s entry into the WTO, even though Detroit’s Big Three automakers have endorsed the pact.
The Russian government, to encourage more domestic auto production, began a program in 2005 that reduced tariffs on auto parts for companies that produced at least 25,000 cars per year in Russia and used at least 30 percent local content.
Those domestic production requirements were increased last year to 350,000 cars annually and 60 percent local content, triggering a storm of protests from U.S. lawmakers from automotive industry states.
The United States got a commitment from Russia during the WTO accession negotiations to end the program by 2018 and the European Union, already a major auto parts supplier to Russia, got further concessions.
But Representative Sander Levin, a senior Democrat from Michigan, said recently the issue was still a concern.
Companies headed to Russia this week with O‘Neill said it made sense to get into the country now.
As the market continues to grow, there will be more Russians that want to “baby their car,” said Lynne Branigan, vice president for international sales at Warren Distribution, an Omaha-based manufacturer that makes a top-quality line of auto lubricants under the brand MAG1.
“I want to come away from Russia with at least a couple of very good distributors,” Branigan said.
The trip is Warren’s first foray in Russia and Branigan said she hoped it was easier than doing business in China, where customs officials make it “a complete frickin’ nightmare every time we want to ship oil and chemicals over there.”
But Oleg Gostomelsky, vice president of East European business development for Hoosier Gasket Corp. based in Indianapolis, said U.S. companies should expect some difficulties getting their product into Russia.
“Even if you’re told there are six steps, there are probably nine or ten,” said Gostomelsky, whose parents emigrated from the Ukraine when he was a child.
Still, there is strong demand for a higher quality of auto parts than most Russian manufacturers can currently provide, so it’s worth taking the time to learn the system and develop the personal contacts that are key to success, he said.
One reason the Russia market is growing so rapidly is the relatively recent introduction of auto financing, which has made it possible for many more people to buy cars.
“Until about five or six years ago, if you were living in St. Petersburg or Moscow and you wanted to buy a $20,000 car you better bring $20,000” to the dealer in cash, Gostomelsky said.
Reporting By Doug Palmer; editing by Todd Eastham