GM Gives Russia a Test-Drive

Question: What's the first thing a Russian does after buying a new car?

Answer: Fix the broken parts.

Unfortunately, that's been less of a joke and more of a truism for Russian car buyers. Faced with the option of buying a secondhand, probably hot, certainly pricey "Western" car imported from Europe, or a brand spanking new Volga, Lada, or Zaporozhets of domestic manufacture, most Russians opted for the former. And the first thing they did after buying the thing was figure out which parts were defective and fix them.

Which is precisely why I'm so optimistic about the prospects for General Motors (NYSE: GM  ) in Russia. Tuesday, CEO Rick Wagoner officiated at the opening of GM's first in-country automobile assembly plant, in St. Petersburg. In doing so, the company joined rivals Toyota (NYSE: TM  ) , Nissan (Nasdaq: NSANY  ) , and Ford (NYSE: F  ) in the city. Of the world's Big Six automakers, only Honda (NYSE: HMC  ) and DaimlerChrysler (NYSE: DCX  ) aren't in St. Petersburg. DaimlerChrysler actually had planned to set up shop there, and its pullout from that project opened up the possibility of GM's entry.

But back to GM. The company has been building cars in Russia in conjunction with partner AvtoVaz since 2001, a venture into which GM sank about $340 million. But that relationship has been a rocky one, which explains why GM wants to go it alone in St. Pete. Up there, it can build cars for a market that still boasts less than two cars for every 10 people -- the very definition of an unsaturated growth market. It can sell into this untapped environment without the burden of high auto import taxes, using cheap, skilled, local labor, enjoying the numerous tax benefits that Russia's cities have historically doled out to foreign investors, and best of all, selling to a populace that views Western cars as higher-quality than its own.

Here at home, GM continues to be dogged by a reputation for making shoddy products that, honestly, ceased to be true years ago. Its market share is falling, and its revenues likewise. Abroad, however, in Asia, Latin America, Western Europe, and yes, in Russia too -- sales are on the rise and the company is capturing market share.

In this Fool's view, GM's doing exactly the right thing in St. Pete -- going where its products are in demand. Now, if only the company could convince us to demand them as well.

For more views on automakers in Russia, read:

Fool contributor Rich Smith does not own shares of any company named above.


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