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Roubles are rolling in at Russian dealership

Matt Donnelly runs the biggest dealership chain in what will shortly be the second largest market in Europe.

The Brit joined the Moscow-based Rolf Group of Companies as finance executive five years ago and, with the benefit of absolutely no motor retail experience, was promoted within two years to president and chief executive.

Donnelly moved out to Russia with Pepsi in 1996 with the task of opening a market for the fizzy brown stuff in the Upper Volga region.

What made him choose such a difficult territory? His answer is relaxed and laced with dry humour: “Boredom and 13% tax.”

Today, his company is making a fortune. You know that because when he admits that Rolf is “profitable” he does so with an enormously wide grin. The second clue comes later when he describes margins for the various business streams that are unheard of in mature markets.

At the moment, the Russian market is below two million cars a year, but at the present rate of growth it will soon overtake the UK and nudge Germany.

The growth rate for Rolf has been rapid. In 2000, it was a £40m turnover, single-brand group. Now it sells Mitsubishi, Hyundai, Ford, Mazda, Audi and Mercedes. Two more dealerships – as yet unnamed – are under construction.

The group also distributes cars for Mitsubishi and Hyundai. This is just the sort of business shape that Inchcape will be looking for in Russia, though its target brands would be different.

The scale of the demand is huge. The best dealerships can sell 300 cars a week and the most successful is processing 16,000 cars a year. Because the weather is so harsh, owners have got the habit of servicing cars regularly because a breakdown in the wrong spot can mean freezing to death fast.

Motorists who take a walk to find help often meet a hungry bear rather than a helpful mechanic. Service revenues therefore are unusually good as a proportion of the total.

“We have very peculiar customers,” says Donnelly. “We don’t do horsepower because Russians don’t have horses. We just do engine size. We don’t like diesel because it freezes.

“We don’t do hatchbacks because if you go shopping in the winter and open the hatch to put your shopping aboard, grandma dies. We therefore like sedans with boots.

“We like four doors because we wear a lot of clothes and you can’t get through to the back of a two-door if you are wearing a Russian overcoat.

“For a long period, Russians believed that only Russian cars – the Lada of course – could endure a Russian winter. That has been changing since around 1995, and there is scope for all brands.

Hyundai has been here for a long time and has proved very reliable. Renault and Chevrolet have got growth rates of 200% a year.

“We are very clear that we are in the luxury market. When a car costs £5,000 and that represents 100 months of income, that car to the customer is a luxury.

“So we have luxury premises for all our brands and all sites are single-brand.”

#AM_ART_SPLIT# The distribution business has operating margins in “the low teens”; spares make 20-30%; service hours have a 30% margin; finance and insurance can earn 90%.

Forty per cent of cars are bought on finance. The majority are bought for cash. Cars are imported with suspensions set at the highest level, with fluids on Nordic ratings to deal with the cold, with uprated batteries and with no unwaxed or unpainted metal.

The cars are imported with basic specification because there is import duty of 24%. The deleted equipment is added later. So the infotainment is fitted in the service bays together with the fancy wheels and the leather upholstery, the telephone and the carpets.

The group operates 21 sites each, averaging 20,000 square metres, selling one foreign car in five. It will have 40 dealerships by 2011. There is to be a change from standalone sites to dealer villages and from single-storey to multi-storey because land is getting so expensive.

Other players may be sought to accelerate growth. Rolf is owned by a single individual, Sergei Petrov, who was once in charge of the Red Army aerobatics squadron but became a taxi driver and had no other income as recently as 1991.

“We have a dream,” says Donnelly. “We believe we will be able to develop a business in Russia that will be acknowledged in the West as a proper business.”

Soviet car market is soaring

Russia is expected to be second only to Germany in the size of its car market by 2010. Car sales were only a million in 2003 but sped past 1.5 million last year and are expected to exceed 2.5m within three years.

Like the UK market, Ford and General Motors (under the Chevrolet brand) have the top two places with 11.5% and 11% respectively but then the picture changes. Toyota and Nissan are at fourth and fifth, with the lesser Japanese brands of Mitsubishi and Mazda at seven and 10.

The rest of the slots are filled by the Koreans, with Hyundai in third and Daewoo and Kia at eight and nine. The only European is Renault at six.

The 10 took 80% of the Russian market last year.

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