FAVORIT MOTORS remains the key pacesetter on Russia's auto retail market

In this interview, Vladimir Popov, the president of FAVORIT MOTORS, one of the leading Russian auto dealership holdings, shared his views on the domestic and foreign auto retail markets.

How would you briefly assess today's Russian and global auto dealership services markets and other trends and processes in this industry?

In general, the Russian auto market can be classified among the most developed global markets, while its dealership sector is in the fastest growing category. Today, there are all types of automakers in Russia. For example, the foreign automakers, represented by our company, in terms of market structure, are typical oligopolistic in nature. At the same time, there are old domestic automakers, which can also be classified as oligopolistic, while the rest players belong to free competition market. With regard to 2011, our orientation is based on the European carmakers’ forecasts of an annual output of about 2.5mln cars. But I think that we are likely to exceed this level and hit about 2.7mln. However, I must say that this year has so far been characterized by iconic errors. The automakers, acting on previous years’ data, thought that the demand for cars will be much less this year, and hence reduced their production. Today, it is clear that all have been wrong, specifically with respect to production level forecasts. The fact is when the logistic supply for 2011 was drafted, the automakers targeted the level of 2.2mln-2.4mln. But the Russian market turned out to be much ‘hotter’ than expected, thus forcing demand for almost all auto brands to supersede the projected levels. In other words, demand today has far outstripped supply.  Indeed, it is obvious that today Russia is a seller's, rather than a buyer’s market, a trend that is most unlikely to change before the end of this year.

What, in your opinion, is the volume of the Russian auto retail market in monetary terms?

The size of the Russian market of cars that can be classified as ‘new’ is about $75bln. To this sum, one needs to add another 20% for ‘second-hand cars’ sales, or extra $20bln-$25bln. Hence, the gross size of the market can be estimated at $100bln. In the course of executing FAVORIT MOTORS’ projects I always have the opportunity to meet with different automakers, the people defining the ‘real face’ of modern global auto industry. Their interest in our country is not accidental.

“Today, Russia, in term of technologies possessed by some auto dealership centers, surpasses or is on a par with the best dealers’ salons on the world’s other most developed markets.”

For example, I was opportune to recently have talks with Tim Lee, the president of General Motors, responsible for all the U.S.-based autogiant’s international operations. His assessment of the world market was as follows: in the first place is China, followed by India on the second slot, while Russia rounded up the troika list in the third place. However, in terms of sales growth rates, Russia has long overtaken the other European markets. Thus, while Russia is growing at a ‘galloping’ rate of 40% per year, the rest of European market is lagging behind at a much slower rate.

During the crisis, the Russian government slapped ‘protectionist import duties’ on foreign cars. How, in your opinion, has this policy impacted on auto dealers’ operations in Russia?

Any normal government must protect its market. I cannot imagine a normal government that does not engage in such practices. However, the most important thing is that we must not confuse ‘natural protectionism’ on one’s market with government policies that are similar to anti-free market, socialist regulatory practices. If we look at the West, was it not the U.S. government that helped Chrysler and GM, or Angela Merkel that helped Opel at the peak of crisis? You can put ‘a good face on a bad game,’ but such actions were absolutely normal.  Another issue is the size, scale and frequency of using such policies. In my opinion, such application must be reasonable and time-limited; otherwise, manufacturers will be tempted to become very large and ineffective. In any case, this policy directly helped improve the difficult situation in our auto industry, and also generated additional revenues to the state in form of taxes.

What new trends prevailing today on this market would you likely to specifically highlight?

The Russian auto market is very specific. For instance, while the current trend in other European countries is a growing fascination for small-sized, compact cars with small engines, usually between 1.2 liters and 1.4 liters, in Russia, however, the opposite is the case, as the prevailing trend is large cars with powerful engines, despite the higher taxes slapped on them. A similar situation also exists with the demand for cars with diesel engines. This means that on one hand our government has made the possession of such vehicles financially unattractive, but in practice we are seeing the opposite trend, and this leads us to only one conclusion, which is not in favor of car owners.

If you were to rank countries by the levels of development of their local auto retail markets, how would your ‘World’s Top-5 Countries’ ranking look like?

Today, Russia, in term of technologies possessed by some auto dealership centers, surpasses or is on a par with the dealers on the world’s other most developed markets. The differences that exist manifest themselves in the quality of dealership networks, accessibility of the most advanced services to clients, etc.  For example, today, some of the IT solutions being used in Russia are yet to be heard of even by the most advanced car dealers in Western Europe and US. For example, in Russia, dealership centers are often like ‘real palaces’ that cannot be compared with most similar centers abroad, even in countries that are traditionally called ‘the birthplaces’ or ‘trendsetters’ in the global auto industry. This notwithstanding, the first spot on my ranking naturally belongs to the US, thanks to its advanced technologies, big companies, top-rate professionals with the right expertise to sell high-quality services, comprehensive understanding of all components of customer satisfaction and needs, etc. The second place belongs to Germany for technological sophistication of its auto products, while Russia is third, in terms of technologies, overall market development and potential. Rounding up the list are China and India, in terms of attractiveness of their local markets. Today, these two Asian countries have just started introducing advanced technologies in their auto retail centers. But it must be noted that the current Chinese and Indian cars can hardly be called high quality and competitive goods, but they hope to make a sharp upward jump in the near future.  Today, the whole world is looking up to them, as every major auto manufacturers want to get a piece of the Asian market pie, especially as the population of each country is over 1bln people with fast-rising disposable incomes. In one sentence, the future really belongs to them.

Your company’s site homepage features a photo of Che Guevara and his slogan, ‘Be realistic, demand the impossible.’ One would think that Che would be your ideological opponent…

This has nothing to do with ideology; it just happens that some of Che Guevara’s principles fully rhyme with many company’s philosophy, as FAVORIT MOTORS has always scrupulously paid attention to its production expenditures. But at the same time, we demand from ourselves the solution of impossible tasks, such as becoming the best or the first in our industry.

“I can assure you that most people seeing the name, ‘FAVORIT MOTORS,’ the first time, will always remember it for a long time. It just stays in people's minds.”

That is, while being realistic, we always demand or set ourselves almost impossible tasks and always achieve them. Of course, this mainly concerns the value of our overhead costs and level of customer satisfaction. Now, we understand that such an aggressive way of development no longer reflects FAVORIT MOTORS’ key goals and objectives in our industry. Therefore, in the near future, we plan to redefine our mission and significantly change the elements of visual perception of our company.

That is, while being realistic, we always demand or set ourselves almost impossible tasks and always achieve them. Of course, this mainly concerns the value of our overhead costs and level of customer satisfaction. Now, we understand that such an aggressive way of development no longer reflects FAVORIT MOTORS’ key goals and objectives in our industry. Therefore, in the near future, we plan to redefine our mission and significantly change the elements of visual perception of our company.

That is, while being realistic, we always demand or set ourselves almost impossible tasks and always achieve them. Of course, this mainly concerns the value of our overhead costs and level of customer satisfaction. Now, we understand that such an aggressive way of development no longer reflects FAVORIT MOTORS’ key goals and objectives in our industry. Therefore, in the near future, we plan to redefine our mission and significantly change the elements of visual perception of our company.

That is, while being realistic, we always demand or set ourselves almost impossible tasks and always achieve them. Of course, this mainly concerns the value of our overhead costs and level of customer satisfaction. Now, we understand that such an aggressive way of development no longer reflects FAVORIT MOTORS’ key goals and objectives in our industry. Therefore, in the near future, we plan to redefine our mission and significantly change the elements of visual perception of our company.

Let’s talk about the origin of your company’s name, FAVORIT MOTORS.  Why is the word ‘FAVORIT’ written neither in British English ‘FAVOURITE’, nor in U.S. English as in ‘FAVORITE?’ Is this a reflection of the so-called special Russian life philosophy in business?

Can you imagine a medieval Europe, and who then was considered the most respected person in the society? These were the Roman Catholic Church ministers and doctors. Then, all pharmacies, drug names, etc., were written in Latin. It is by the same analogy that I decided to name my company in Latin, and I can assure you that most people seeing the name, ‘FAVORIT MOTORS,’ the first time, will always remember it for a long time. It just stays in people's minds, and this is the purpose of using such name.

Your company has become a huge organization recognized today among the market leaders.  Briefly put, how can you explain such a resounding success in a short time?

We work hard, drink little and do sports. This is our success secret.  This formula, first announced by V. V. Putin, is fully applicable to our business.

Your site has another slogan: “We want to be the best in terms of quality of service.” In this regard, how does this slogan correlate with the traditional price-quality dilemma?

There is one specific paradigm in our business. In order to attract clients, a company needs to meet two conditions: the prices of its goods/services should not be the highest on the market, while their qualities should be. Also, it should be able to save clients both time and money, and I think this is the most important thing in our business.

“We work hard, drink little and do lots of sports. This is the secret of FAVORIT MOTORS’ success on the Russian auto retail market.”

In our company, we have actually achieved this. Take, for example, the labor-per-hour cost of serving clients in a service station. As we know, this comprises the real work time and the time for getting the needed spare parts from the warehouse. The waiting time for spare parts in our company does not exceed 5 minutes.  Thus, we save customers money and time for our staff, because a lot depends on the quality of staff’s job.

In our company, we have actually achieved this. Take, for example, the labor-per-hour cost of serving clients in a service station. As we know, this comprises the real work time and the time for getting the needed spare parts from the warehouse. The waiting time for spare parts in our company does not exceed 5 minutes.  Thus, we save customers money and time for our staff, because a lot depends on the quality of staff’s job.

In our company, we have actually achieved this. Take, for example, the labor-per-hour cost of serving clients in a service station. As we know, this comprises the real work time and the time for getting the needed spare parts from the warehouse. The waiting time for spare parts in our company does not exceed 5 minutes.  Thus, we save customers money and time for our staff, because a lot depends on the quality of staff’s job.

In our company, we have actually achieved this. Take, for example, the labor-per-hour cost of serving clients in a service station. As we know, this comprises the real work time and the time for getting the needed spare parts from the warehouse. The waiting time for spare parts in our company does not exceed 5 minutes.  Thus, we save customers money and time for our staff, because a lot depends on the quality of staff’s job.

Despite the fact that you are a multi-brand dealer, your main partner is KIA Motors. Does this cause jealousy among your other automakers that are also your partners?

At times, it does.  For example, there was this funny story with SKODA. One of its top managers set before its Russian auto dealers the task of achieving the best sales result on the market, singling out the KIA brand as the competitor to beat.  But the fact is the dealership network of Avtopraga, an affiliate of FAVORIT MOTORS, is already the best SKODA brand dealer in Russia. So, in order to achieve this task, I would have had to compete with myself. However, I promised to do everything we can.

Based on your personal experience, how would you formulate an ideal model for a successful business in this industry, taken into consideration so-called uniqueness of Russia conditions?

My success formula for success comprises the following: “I do,” multiplied by “I can,” plus “I want,” brackets closed, and then plus “good luck”.

In conclusion, we always ask interviewees our standard question: how you like would to see your name and company go down in the history of the Russian auto industry?
 
I would like formulation of this type: FAVORIT MOTORS was an outstanding team of likeminded people, who did not only simply made huge contributions to the overall development of the auto industry, but also through their innovations were able to help transform Russia into a modern country with a post-industrial economy.