Logan is Russia's Best-Selling Foreign Passenger Car in 2009; Presents Opportunities and Problems for Renault AvtoVAZ Alliance

It appears highly likely that the Renault Logan will finish the year as Russia's best-selling foreign passenger car after overtaking the Ford Focus in November in its year-to-date sales for the first 11 months of the year. In a depressed market that has seen overall sales volume decline by half throughout the year as the Russian market has become the hardest hit casualty of the global recession, the Logan overhauled the sales lead held by the Focus in November. In the first 11 months of the year the Logan sold 48,726 units in comparison to the 47,941 units sold by the Focus. With the Logan having steadily narrowed the gap to the Focus over the past few months, the sales momentum that Renault's budget car has makes it appear inevitable that the Logan will finish 2009 as the Russian market's best-selling foreign model, after the domestic-produced AvtoVAZ Lada models. In November the Logan sold 5,131 units to the 3,348 units posted by the Focus. In fact, the Logan's sales in November were so strong relative to the rest of the market that the model recorded a top-three position in Russia's overall new car sales, according to the Association of European Businesses (AEB) data. A top-three position in the Russian passenger car sales table is usually the preserve of AvtoVAZ's Lada Priora, Samara, 2105/2107, and Kalina model ranges.

With the Russian passenger car market arguably the worst hit of all the major global passenger car markets, there appears to have been a subtle shift in the dynamics of the market. The overall market declined by exactly half in the first 11 months of the year to 1.33 million units (see Russia: 9 December 2009: Russian Light-Vehicle Sales Continue Slump with 46% Fall in November), and this has undermined the huge market share and volumes growth generated by foreign OEMs manufacturing higher end models in the Russian market, as a result of their higher unit cost. However, at the same time Russian consumers have become less accepting of the poor quality, safety, and performance standards of AvtoVAZ's ageing model line-up. This appears to have created the market conditions for sales of the Logan to outperform the rest of the market by quite some margin. Ford's Russian boss is dismissive of the challenge presented by the Logan and he correctly points out that the Focus and the Logan compete in different market segments. Speaking to Automotive News Europe, Ford of Russia president Nigel Brackenbury said: "The financial crisis has resulted in a shift in the market to the budget brands offering significantly lower levels of ride, handling and comfort and with fewer safety options." He is correct that the Logan is in a lower market segment than the Focus, with the model's basic price starting at 299,000 roubles (US$9,946) in comparison to the figure of 497,100 roubles. However, it appears that the Logan is starting to appeal to Russian consumers for its combination of European quality and dynamic standards at a Lada-challenging price. Although the Logan's overall sales volumes are down by 29% in the first 11 months of the year, down from 69,042 units at the equivalent point last year, this figure massively outperforms the fall in the overall market and has seen the Logan secure a substantial gain in market share. Indeed, in November the Logan generated positive y/y growth of 8%, something unheard of in the Russian market this year.

The Logan has great potential to increase its lead over the Focus next year. Renault will double production at its Moscow plant to 160,000 units in 2010. The expansion will allow Renault to add the Logan's hatchback sibling, the Sandero, to the plant and create enough room to add the Duster low-cost SUV in late 2011 or early 2012.

Outlook and Implications

After a slow start it appears that the Renault Logan is gaining traction and growing its presence in the Russian market. This presents both opportunities and challenges for Renault's strategy in Russia. As has been well documented over the past 12 months, Renault has a 25% stake in Russia's largest passenger car maker AvtoVAZ, and has been charged with the task of supplying the platform and powertrain technology to reinvigorate the Russian OEM's archaic model range. The two companies have announced various plans to collaborate on new models since Renault bought its equity stake in AvtoVAZ, although these sometimes appear not to have been backed up by concrete action. Indeed, there is every indication that the relationship has not run smoothly, something that has been exacerbated by the financial difficulties that AvtoVAZ found itself in as the recession bit hard. The company has been bailed out twice by the Russian government in 2009, with the government agreeing a new 50-billion-rouble financial assistance package in November (see Russia: 30 November 2009: Russian Government and Renault Finalise AvtoVAZ Agreement), although it appears that this package is dependent on Renault fully committing to a new model development plan for AvtoVAZ.

The two companies are working on a Lada-badged version of the Logan, although it remains to be seen how this model will dovetail with Renault's existing presence in the market place with its own version of the Logan. How Renault manages its relation with AvtoVAZ going forward and balances its two presences in the Russian market looks set to become a very difficult challenge for the French OEM. The relative success of the Logan in the Russian market in 2009 means that there is obviously an appetite from Russian car buyers for a budget car design, based on modern vehicle technology and which adheres to modern quality and safety standards. However, a Lada Logan will obviously negatively impact the sales of Renault's own version and the ongoing uncertainty over the future of AvtoVAZ despite November's preliminary agreement between the company's shareholders means that it will be difficult for Renault to commit to much in the way of R&D resources in helping to turn the company around. Balancing its various interests in Russia is likely to be a time-consuming and demanding task for Renault's management group, led by chief executive Carlos Ghosn. However, it is a task they should stick to as a result of the Russian market's ultimate potential once economic recovery is fully under way.