ROAD safeguards dealers and clients’ interests on the auto retail market
In this interview, Andrei Petrenko, the president of the Russian Association of Automobile Dealers, highlighted his assessment of the prevailing trends on the Russian auto dealership market.
How would you briefly assess today's Russian and global auto dealership services markets and trends and other processes in this industry?
The car dealership services market is following the changes in the auto production industry, as the globalization process becomes more and more significant with each passing year in the car business. Despite their traditional competition for consumers, carmakers do actively cooperate on issues of auto production. This process is complicated and time-consuming, so corporations prefer to combine forces in researches, development of new technologies and product experimentations. As a result, more and more identical cars are produced each year, as they are created on the same technological platforms and equipped with almost the same gadgets and amenities. This is why in 15 or so years’ time the only difference between cars will be the corporate nametags, as almost all cars will be totally the same.
“One of the key problems in our industry is that toady dealership contracts practically do not protect auto dealers’ investments nor adequately regulate the auto producers’ responsibilities to their partners.”
Besides, this technological evolution has created another problem, not only for auto dealers of different brands and from countries, but also the customers as well. This is because modern cars become less and less repairable. Corporations are being forced to use technologies that help make production, and hence the final price of cars, much cheaper, but at the same time, they also eliminate the possibility of long-time car exploitation. Today, it is impossible to imagine a situation where cars will be exploitation for 15-20 or even 25 years, as it was before, as the lifetime of the majority of new cars does not exceed 7-8 years, or at most 10 years. Therefore, in the future, new cars will not only be almost identical, but also practically disposable as single-time use facilities, designed for a very short period of exploitation.
During the crisis, the government adopted a policy of subsidizing purchase of ‘Made in Russia’ cars. How would you assess the success of this policy?
Actually, this state support saved AvtoVAZ. And at that stage, this policy was extremely necessary, especially in social aspects. The number of employees in AvtoVAZ is over 60,000, and taking into consideration their family members, as well as those, whose business directly depends on AvtoVAZ, this number runs into hundreds of thousands. At the same, the old recycling program also helped in solving environmental problems, as it helped get rid of dilapidated cars. This is a positive result of global importance. Like everywhere, the aim of this program was to stimulate demand, and this objective was attained. The only problem, however, is that this program started a little late in Russia, compared with other countries, where it became a swift response to the financial crisis and the ensuing collapse in demand for car.
The government also introduced the so-called ‘protectionist import duties’ on foreign cars import into the country. How has this protectionism policy impacted dealers’ operations?
The impact has been twofold. It was positive for mature markets. For example, in the European part of Russia, this measure did not only simply bar ‘old car trash’ from Japan, U.S. and EU, but has become a serious step towards the formation of a civilized market for used vehicles in our country. Most of privately imported cars were dilapidated state that did not comply with our environmental regulations and standards. But we should not forget that a priori buying used cars from dealers is much better deal for clients, as dealers will never receive vehicles in bad shape or without a complete set of documents for resale or trade-in programs. They also hold a pre-sale preparation for their used vehicles, and if necessary, repair them. After the introduction of protective duties the market got an opportunity to develop and became more predictable, while prices became normal.
How can you explain the ‘unique Russian phenomenon’ of being the only country among the so-called ‘space super powers’ with an uncompetitive auto industry?
Let's recall our history. The socialistic system promoted exclusively social values, so in the line of this vision public transport was developed. All efforts of the country were directed on the construction of appropriate infrastrusture. The car is an achievement of the system with the other values and priorities. This attribute of a democratic society promotes freedom, allowing travelling without boundaries and restrictions. And now we are reaching it. But in order to change the situation on the car industry, more than a decade will be required. By the way, China is in a similar situation with us.
In the addition to the previous question: how does this «defective condition» of todays' Russian car industry affects the situation on the car dealer services?
It is important to define the term of «Russian car industry». According to the description of the condition of the industry the traditional car industry is obviously meant. But today such well-known
brands as «Nissan», «Skoda», «Renault», «BMW» and others have their own production in our country, so they can also be defined as Russian produsers. And from that point of view talks about the defective condition are at least wrong. In my opinion, the Russian car industry will go towards further integration into the common market. Global automakers will open new factories, and the level of localization of production will increase. Those who started with the "screwdriver" assembly and bolting wheels on already made cars, will eventually move to production of full cycle. Component manufactures will be opened — now there is no such enterprises in Russia, and this is a big problem. What concerns the impact of the car industry condition on the level of car dealing services, here everything depends on the standards and requirements of a particular producer and its Russian representative. The level of «Lada» can not affect the quality of services of the «Audi» dealer network, for example. For the standards of the German brand dealer network are set by the appropriate concern. And there is no direct dependence on the quality of the product — sometimes it happens that the owner of democratic segment receives from it's dealer a better service than someone who has a more prestigious car brand.
In your opinion, what are the most serious problems facing auto dealers in Russia today?
One of these is the fact that dealership contracts do not protect auto sellers' investments or regulate the auto producers’ responsibilities to their partners. This has led to a situation, where prior to selling cars, dealers are obliged to accept lots of drastic conditions, comply with numerous formalities and restrictions, and there is no guarantee, whatsoever, that all such efforts will not be in vain. For instance, most dealership contracts are signed for one year, while auto distributors have the right to terminate such agreements unilaterally and without any explanation or compensation. Besides, there are no conditions on purchase of spare parts in case of a unilateral revoke of a dealership contract. Also, there are no clear and understandable rules for big industry players, such as those with 3,000-3,500 dealership centers, to follow. Currently, ROAD is consulting with car producers, and I think, we shall be able to come to a situation, where our market will become more understandable and predictable, and the cooperation between industry leaders will be more appropriate and logical.
We can not help asking you about your attitude towards so-called ‘black auto dealers’ or fraudulent dealers. How can one fight these elements more effectively?
Today, such phenomena as ‘black auto dealers’ are long gone issues, as a situation, where someone pays for a car and does not get it, is left with the Vlastilinas in 1990s. The auto retail industry is represented not only by authorized dealers, but also by ‘informal ones.’ The latter do not have dealership contracts with car producers, and their business models differ from those of the official dealers.
“The introduction of protectionist duties on imported foreign cars gave our market the opportunity to develop normally and become more predictable, while the prices on the used cars market became normal.”
For example, informal dealers can sell different cars in one saloon, as their main focus is on sales figure, rather than building long-term relationships with clients. They also do not have restrictions imposed on the authorized dealers. But we need to accept that these ‘informal dealers’ have their own client base, which justifies the right of such business format to exist. Therefore, it is necessary to fight them. The most important thing is for services to be offered at a high quality level and without breaking the law. But, the latter is more of a legal, rather than an industrial issue.
ROAD cooperates with both industry and supra-industry organizations. How, in your opinion, do these forms of cooperation help ROAD in carrying out its duties and functions?
Any cooperation, if it is real cooperation, always helps. For example, ROAD during the development of old cars recycling programs helped work out the schemes of cooperation among the program participants, as auto dealers were one of the main elements of the program. Today, ROAD, together with the Association of Auto Insurers, have defined new principles and procedures of conducting technical inspection of cars. When a task assumes a supra-industry scope, it is impossible to solve it without the participation of all sides involved.
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