Russia's Auto Industry: Where the Cold War Rolls On and On

Of the so-called "BRIC" countries -- Brazil, Russia, India, China -- in the equally so-called developing world, Russia gets by far the least respect. This is particularly true when it comes to the Russian auto industry. Combine Russia and anything that smacks of competition and you immediately remind people in the West of the Cold War and all the juicy paranoia that came with it.

Ask yourself, what kind of stuff does Russian build? You probably know that Brazil builds jet aircraft, that India builds call centers and tech outsourcing hubs and the Tata Nano, and Russia builds... Surface-to-air missiles? Tanks? Ballet dancers? Oligarchs? It all seems so last century.

Major growth is coming to the Russian car industry
Most of the future growth in the auto industry -- more than 80 percent -- will happen in the developing world. Russia should see better than 30 percent growth, according to a Research and Markets summary, making it Europe's boom market.
A lot of global automakers would like to get in on this action. General Motors (GM) figures it can counter some of Ford's (F) traditional strength in Europe by selling cars to Ivan. The Germans, notably Volkswagen, see an opportunity to build vehicles and lower cost, earning higher profits. Fiat at one point wanted to buy Opel from GM (GM decided to keep it) in order to have German-engineered cars to build in Russia. Toyota (TM) wants in, in a bigger way. So do the French.

But then there's the paranoia...
You may detect a theme here: Western automakers building and selling their cars in Russia. Russia, of course, has its own automakers, not to mention wealthy investors who would like to become the Henry Fords of the post-communist nation.

But Western companies are reluctant to let them in on the action, and they're particularly worried about Russian businesspeople getting their hands on Western intellectual property, which would enable them to ramp up the pace of their home-grown industry.

This very issue prevented Magna International from buying Opel when GM put it up for sale in 2009, during the course of its emergence from bankruptcy. Opel is GM's main European division, but the General has struggled to make it profitable. But when Magna International, a Canadian part supplier, hooked up with a Russian carmaker, GAZ, and a Kremlin-controlled Russian bank to take Opel -- and its tech -- off GM's hands, GM wound up nixing the deal.

Foreign carmakers want to call the shots in Russia
GM was behaving like the old school cold warrior it once was, before the collapse of the Soviet empire. But it had other, more modern motives. The loss of Opel would have meant writing off Russia and its growth. Worse, it would have meant enabling Russia to catch up to other non-Russian carmakers. What's bad for GM is also bad for everyone else who used to live on the other wide of the iron curtain.

This is the ugly side of venturing into growth markets. GM really doesn't want, for example, China to develop a robust indigenous auto industry because it would undercut not just its ability to sell its cars to the Chinese, but also interfere with its plans to use China as a low-cost labor source for cheap cars it will export to Latin America. Likewise all the automakers who want to make cars in Russia; they want the sales to be theirs. Later on, they'll want the exports to other growth markets (say, Eastern Europe) to be theirs, as well.

We should expect more of this awkward dance in the future

Russia can't completely isolate itself. It knows that its citizens are demanding better cars, the kind that only Western automakers can provide. But it also knows that a bit of cloak-and-dagger, designed to assist its home industry by providing it with Western technology to copy, is necessary. It's the Cold War, recast in terms that Tom Friedman could understand.