Frederic Hamain, ALD Automotive Russia: Things in Russia are looking up a bit
After more than two years of crisis, it seems Russia still has not hit bottom. New vehicle registrations dropped 36% in 2015 and are forecast to fall by at least another 10% both this year and the next. But there is modest growth on the lease and fleet management market, says Frédéric Hamain, ALD Automotive man in Moscow. The challenge is to find potential clients and convert them to leasing.
Granted, Russia's corporate fleet market is relatively small. Of the 2 million corporate vehicles, only about 400,000 are not linked to state enterprises. Of that potential, only 10% are effectively managed by multinational lessors like ALD, which after 12 years in Russia has captured up to 47% of the market of operational lease controlled the Top Five leasing companies.
Russia is a difficult market, why does ALD Automotive keep up its presence here?
“Russia is not the only difficult market in the world. And because it is a market with 150 million consumers, it remains a focal point for foreign investment. So there is a lot of potential, and that is why Russia remains a strategic market for us”.
What is the state of the Russian economy right now?
“Crises in Russia often last for one or two years, after which the market rebounds quite quickly. But this crisis is atypical. There is no light at the end of the tunnel yet. Sixty percent of companies in Russia think 2017 will be as hard as this year, but will go through”.
What needs to happen for this to change?
“The sanctions are having a catastrophic effect – although some industrial and agricultural sectors are reviving, to compensate for the loss of foreign trade. One day, the sanctions will surely be lifted. And that will help the economy. But the price of oil and gas is paramount. Adding $10 to the price of a barrel of oil would increase Russia's GDP by 2 percentage points. But of course, that is not up to Russia alone”.
So, what are the perspectives for the future?
“Things are looking up a bit. Half a year ago, we had a negative growth prediction for last year, of -1%. A few months ago, the prediction was for 0.4% growth, and a few days ago, +1% growth was forecast for 2017. But we are far from a healthy 3% to 4% growth. Meanwhile, inflation is predicted to hit 6%, 7% next year”.
More and more car manufacturers are shelving model launches in Russia…
“Yes. Nissan, for example, has stopped distributing the Teana in Russia, even though it is a reasonably popular model. Renault, on the other hand, has announced that it will launch the Captur in Russia. So, there are launches, but a lot less than there used to be”.
What about leasing and fleet management?
“The leasing market is very flat. In 2016, it will only have 2% growth. That may seem like a lot, considering the circumstances, but it is very little, considering the very low market penetration of operational leasing of around 10%”.
Where is the growth coming from?
“About 90% of operational leasing in Russia is done by large multinationals. Very few local companies use leasing. While a lot of multinationals are cutting back on their fleets due to the economy, a number of other multinationals are only now considering leasing, as a cheaper alternative to purchasing. This is where we see growth and expect further growth”.
“So that is our task for the coming year – to identify new clients and convert them from purchasing to leasing. We will also reach out to smaller companies, via the Russian banking network of our sister company ROSBANK (groupe Société Générale)”.