Ukraine sanctions aside, US carmakers eye Russia market

Nevermind the Ukraine crisis and Washington's sanctions againstMoscow: US automakers say the Russian market is their next big frontier.Russia is simply too large and too important for carmakers to ignore, experts saidthis week."The Russian market is going to be larger than Germany," said John Branch, aprofessor at the University of Michigan Ross School of Business.Branch said the structure of the Russian auto industry is in flux as the demand forimports increases despite barriers imposed by the Russian government.But that means that automakers, particularly those with global ambitions, simplycan't afford to ignore the market's potential there, despite its volatile nature.Branch was speaking at a conference at the University of Michigan focusing on theopportunities and hurdles for US carmakers to sell to and in Russia.General Motors is already partly involved. It has invested in a joint venture withAvtoVaz, which builds the Lada, Russia's most popular automotive brand.But the Lada brand is a holdover from the Soviet era and their sales are mostlyconcentrated in what Branch said were third- and fourth-tier cities and rural areas.In major cities such as Moscow and St. Petersburg, consumers are becoming morebrand conscious. They like imported cars and have developed a preference for smallsport utility vehicles that can navigate the country's rugged roads and streets.GM-AvtoVaz produces the Chevrolet Niva, a mini-SUV popular within Russsia endexported to neighboring countries formerly part of the Soviet Union.David Teolis, an economist with General Motors, cautioned that predictions aboutthe growth of the Russian market have to be regarded cautiously.The slow expansion of the Russian economy and Russian middle class since 2008 ishindering sales growth.Russian car sales dropped by 50 percent in 2009 in the wake of global crisis butgrew briskly to reach nearly three million units in 2012.But last year, they dropped by 5.5 percent as the Russian economy hit the brakes,and are expected to fall again this year.The chronic air of crisis that surrounds the country also has hurt Russia's economic development.The cuts to its economic growth forecast, 0.5 percent this year or less according tothe Ministry of Finance even without sanctions pressure, raise questions about thepotential for the automobile sector to quickly expand as China's has."Russia needs to become a normal country," Teolis said.Daniel Russell, a former American diplomat who serves as president of the US-RussiaBusiness council, said even with the current crisis over the Ukraine, Russia is simplytoo important a country for US businesses to ignore.Relations between the two sides could actually benefit from strong commercial ties,he argued.For instance, Russell noted that Moscow is now involved in negotiations aimed atkeeping North Korea in check and in nuclear talks with Iran."There has been a dramatic jump in the Russian economy in the last 10 years," hesaid.And it is doubtful other countries are willing to forgo business with Russia.The US pressure for sanctions on Moscow over its annexation of Crimea has run into that face.With much close business and financial ties with Russia, Western European countrieshave been more reticent to ratchet up sanctions pressure.And the Japanese government issued a statement condemning Russian action inCrimea.But it then turned around and hosted some 200 Russian business executives the verysame day. "Sanctions don't work," Russell said, reminding that Russia survived the threat ofsanctions in 2008 after a brief war with neighboring Georgia.