SEMA News—July 2013

INTERNATIONAL
By Linda Spencer
Images Courtesy of Polny Privod 4x4

A Closer Look at Russia

One of the World’s Largest Vehicle Markets

This article looks at the size of Russia’s passenger-vehicle market, the interest in customizing, consumer purchasing power, types of vehicles on the road and the implications for U.S. specialty-equipment companies as well as growth potential, opportunities and challenges.

Second Largest Market in Europe

Russia ranks sixth in the world in terms of annual passenger-vehicle sales. The country’s auto market has rebounded from the 2008–2009 recession with new-vehicle sales for 2012 up 11% from the previous year, which makes Russia the second-largest European vehicle market. With 2.9 million passenger vehicles sold last year, the country is quickly gaining on Germany, the top market in Europe, and many experts estimate that the positions will flip between these two countries in the next few years. Russia could be the number-one country in sales in Europe as early as next year, said Stephen Biegun, vice president of international affairs for Ford in a recent interview with the Detroit Free Press.

Potential

Most motorists in Russia are fairly new drivers. Under the Soviet regime, which ended in 1991, private vehicles were rare. Typically, only high-level government officials had access to cars. How times have changed! There are now 38.7 million passenger vehicles on Russian roads. But with 140 million people, a large, unmet demand still exists for those who have not yet had the opportunity to purchase a vehicle.

There are only 271 vehicles per 1,000 people in Russia, according to the World Bank, compared with 797 per 1,000 in the United States. And the vehicle market is sure to expand further because of the number of people who are likely to be in the market for a second vehicle and the fact that the average age of registered vehicles is 16 years.

The passenger-car market in Russia could grow by another 1 million vehicles annually and top 3.5 million sales, according to PricewaterhouseCoopers, whose research team also estimates that the number of new-car sales in Russia in the next 10 years will be equal to all of the cars on the road today because of an aging vehicle fleet and a declining light-vehicle import tariff.

Types of Vehicles on the Road

“In Russia, one can expect to see a wide range of American-, European- and Asian-made vehicles, with the added component of Eastern European-made vehicles that exist in only a few markets and are locally accessorized,” said Nathan Calabrese, Omix-ADA’s director of international sales. Calabrese worked in Russia for several years and has closely followed trends in that market. “This wide range is not something that is usually seen on this scale overseas,” he said, “and it presents strong opportunity for those who produce products with a wide range of applications or who are willing to develop products to match such an expanded vehicle mix.”

Cars vs. Light Trucks

SUVs represent the largest and fastest-growing automotive sector in Russia, making up 31% of all passenger sales in 2012. Nearly one-third of all passenger-vehicle sales were SUVs—more than double the rate of SUV sales throughout the rest of Europe.

“We anticipate SUV sales will continue to grow, as Russian customers prefer the image and performance these utility vehicles provide in severe weather and challenging road conditions,” said Ted Cannis in a recent interview with Just-Auto.com. Cannis is president and CEO of Ford Sollers, a joint venture that is building Fords in Russia.

But many of the SUVs sold in Russia might not be familiar to Americans. For example, among the best-selling SUVs are the Lada Niva and UAZ Patriot, neither of which is sold in the United States.

Petr Likholitov, editor-in-chief of Moscow-based Polny Privod 4x4, explained that these vehicles are popular because they are inexpensive. The price for base models begins at about $12,000. They are easy to work on, repair or customize, and there are a lot of local accessorizes available.

According to Likholitov, other popular vehicles in this category are the Lada 4x4 (a small off-roader built almost without changes since the ’80s and very popular in Russia as well as in the former Soviet republics and even in Italy and France). Other popular foreign brands include the Toyota Land Cruiser 70 and 80 (old fashioned, iconic and now produced for Australia and the countries of the third world) and the Land Rover Defender 90 (a reliable British 4x4 with military heritage).

Among other vehicles growing in popularity are Jeeps including the Wrangler—Likholitov’s personal favorite. He said that these vehicles are “tuning friendly” and are available secondhand. In addition, Jeep exported 4,700 vehicles to Russia in 2012, but the average cost after tariffs was close to $100,000. While the Wrangler is likely to continue to be imported from Toledo, Ohio, Chrysler announced plans to build some Jeep models—likely the Cherokee—in Russia within the next few years. In addition, Ford has announced that the company will build a fullsize SUV outside the United States for the first time at a factory 300 miles outside of Russia to meet local demand.

Pickups

The pickup market is another growing segment. The top-selling pickup in Russia is the Mitsubishi L200, followed by the VW Amarok and the Toyota HiLux. Again, those vehicles are sold worldwide but not in the United States or Canada.

“A few years ago, our pickup sector emerged, and we have of lots of trucks now, including the Toyota HiLux, Nissan Narava and NP-300, Ford Ranger (built in South Africa) and Mitsubishi L200,” said Likholitov. He added that there is also a growing market for the VW Amarok pickup, now with an eight-speed automatic transmission. Ford Raptors, Ford F-Series, Rams and Toyota Tundras can also been seen on Russian roads, he said, but all have been imported from the United States through the gray market.

Disposable Income

Concentration of Consumers

Moscow—the fifth-largest city in the world with a population of 12 million—boasts some of the world’s largest malls, many of which are packed with luxury brands. The city is also the capital of Russia and is its center in terms of population and wealth. Thus, it is the most important market for vehicle and automotive specialty-equipment sales. St. Petersburg, to the west, is a city of five million and is the second most important market.

The Big Three American automotive manufacturers are active in the Russian market, and all have ongoing investments. The size of the middle class is growing in Russia and with it, the hope for a reduction of vehicle import duties and increased production of U.S. brands of customization-friendly vehicles, so the Big Three are targeting the Russian market.

“Most of us project [that in the] next few years, Russia will surpass Germany,” said Cannis. “That is why we are all here.” The Ford-Stollers joint venture manufacturing site is approximately 300 miles from Russia and is now producing the Ford Explorer as well as other Ford models. All production at the Soller’s plant is aimed at the Russian market.

Peter Layer, purchasing director for General Motors in Russia, said in a recent Just-Auto.com article that Russia is one of the company’s top four markets.

“Even 10 years ago, Russia was not in the top 10 globally,” he said, “but it is amazing how fast the world changes.”

General Motors has announced plans to more than double its annual production capacity from the current 98,000 vehicles to 230,000 vehicles by 2015 at its wholly owned GM Auto subsidiary located in St. Petersburg. Russia is already Chevrolet’s fourth-largest market. In 2013, new products in Russia include the midsize Trailblazer SUV, Colorado pickup and the seventh generation of the Corvette Stingray.

Chrysler Group LLC said that it still expects to start building Jeep sport-utility vehicles in Russia next year, despite the lack of an agreement on a production site with its joint-venture partner: ROLF. In addition, the owner of more than 30 dealerships in Moscow and St. Petersburg began selling Jeeps and Dodge-badged vehicles in December 2012.

“We are interested in dealer center launch for Chrysler, Jeep and Dodge because we see a high growth potential for these brands in Russia,” said Likholitov.

In 2012, Fiat exported 4,700 Jeeps to Russia. Likholitov noted that duties make the import of the United States and other vehicles exorbitantly expensive. He said that the taxes for vehicles imported into Russia complicate development of the Russian customizing industry.

“For example, prices for the Jeep Wrangler Unlimited Rubicon (my favorite by the way) at an official dealer begin at 1,855,000 Russian rubles ($59,838),” he said. “That is double compared with American prices. The ’13 Chevrolet Camaro costs 2,055,000 Russian rubles ($66,290 USD) compared with $28,685 USD MSRP in the States. But we are optimistic. The government promised us that the prices for import cars will go down year by year after the introduction of Russia to the World Trade Organization in 2012.”

Customizing

Michael Kasakov splits his time between Boston and Moscow. He works for Rennsport Imports, a Massachusetts-based wholesale distributor of OEM and aftermarket parts and accessories for the automotive and powersports industries with offices in Moscow. He said that the market for modifications is still in its early stages of development, so there is a higher percentage of visual rather than technical modifications for cars.

“Think body kits, tinted windows, airbrushing and vinyl wraps,” he said. “But I do believe that the focus will be shifting as the market matures. When it comes to tech stuff, I don’t think Russia is any different compared with other countries. Depending on the segment, people usually start with the typical mods—intake, exhaust and chips in the sport compact and street segments and wheels, tires and lift kits in 4x4s. The only difference that comes to mind would be suspensions and the type of wheels you see people outfitting their cars with. Due to our fairly bad roads (related to the weather conditions and seasonal temperature differences), only the most hardcore guys go for lower or stiffer suspensions on daily-used cars. Same goes for wheels. People may go for a different design or do a Plus 1 wheel-and-tire combo, but you won’t see too many cars pushing the envelope with really big low-profile tires. In fact, most of the cars sold in Russia come with what is sometimes called an ‘Eastern European Package,’ meaning higher ground clearance compared to the same models sold in Europe or the United States.”

The vehicle mix is quite diverse, with many of the most popular modification-friendly vehicles not found in the United States. Still, U.S. performance and accessory manufacturers that produce universal products and are willing to expand their product applications can do well in this market.

Kasakov identified those most likely to succeed in the Russian market as those with a commitment to developing products for non-U.S. applications, such as the Mitsubishi L200, Toyota HiLux, VW Amarok and others, and those who can support local distributors with marketing help.

Audrey Subin, deputy editor-in-chief of the Russian enthusiast magazine Off Road Drive, also advised U.S. companies to make products for the vehicles that are already on Russian roads. He said that there is also a large market for universal products, such as winches, high-lift jacks, navigation devices and beadlocks.

Even those who make products for specific U.S. brands, such as Jeeps or large pickups may find markets as sectors continue to grow and are helped by a positive perception of all things American.

“We have a lot of fans of American equipment just because it is authentic,” Likholitov said. “For example, guys from the Moscow Dodge Ram Club asked our partners from the Mickey Thompson dealership to deliver them Dick Cepek tires just because they look tough. People from the Jeep Wrangler Club order Hemi engines and spare parts from the States. Lift kits for American SUVs and pickups are also popular, and Russian consumers particularly value American products that are actually made in America.”

Challenges

U.S. companies should proactively take steps to protect their intellectual property in Russia. The U.S. Department of Commerce recommends that firms register their trademarks with the Federal Service for Intellectual Property and with the Russian Federal Customs Service.

In addition, Russia’s infrastructure desperately needs updating. The country’s roads and bridges are in notoriously bad shape and are not built to deal with the growing number of vehicles on the roads, which results in gridlock. For example, the highway connecting the country’s two biggest cities, St. Petersburg and Moscow, located nearly 400 miles apart, is mostly only two lanes, which results in constant backups. This lack of roads also affects the transport of goods, making deliveries more expensive and lengthy.

It’s a New Market With Spotty Distribution

Russia can be a difficult country to deal with in terms of setting up distribution. Import duties can be high, excessive documentation may be required and the process can be difficult and time-consuming. Many distributors will request contracts, which tends to frighten U.S. businesses. Such contracts are generally required for customs purposes or are needed in order to allow the distributor to send payments, added Calabrese.

“Businesses should always consult with their legal counsel prior to signing any document or contract,” Calabrese said. He also cautioned U.S. companies to keep an open mind on their volume expectations for distributors until they have a better idea of the actual demand of the market for their products. “Language and communication can be challenging,” he added, “but any company already doing business overseas should be able to navigate this fairly well. There is also a level of price sensitivity that seems to correlate with different niches of the aftermarket industry, and this should be taken into consideration as well.”

Exports to Russia currently account for only about half of 1% of all American exports. With its growing sales of passenger vehicles, large SUV demand and a growing middle class increasingly having the wherewithal—and interest—to customize their vehicles, sales are bound to grow dramatically in the short term.

SEMA will be hosting a seminar on the Russian market with key buyers and media at this year’s SEMA Show. For more information on the Russian market or SEMA’s international programs worldwide, contact Linda Spencer at lindas@sema.org.

SEMA News—July 2013

INTERNATIONAL
By Linda Spencer
Images Courtesy of Polny Privod 4x4

A Closer Look at Russia

One of the World’s Largest Vehicle Markets

This article looks at the size of Russia’s passenger-vehicle market, the interest in customizing, consumer purchasing power, types of vehicles on the road and the implications for U.S. specialty-equipment companies as well as growth potential, opportunities and challenges.

Second Largest Market in Europe

Russia ranks sixth in the world in terms of annual passenger-vehicle sales. The country’s auto market has rebounded from the 2008–2009 recession with new-vehicle sales for 2012 up 11% from the previous year, which makes Russia the second-largest European vehicle market. With 2.9 million passenger vehicles sold last year, the country is quickly gaining on Germany, the top market in Europe, and many experts estimate that the positions will flip between these two countries in the next few years. Russia could be the number-one country in sales in Europe as early as next year, said Stephen Biegun, vice president of international affairs for Ford in a recent interview with the Detroit Free Press.

Potential

Most motorists in Russia are fairly new drivers. Under the Soviet regime, which ended in 1991, private vehicles were rare. Typically, only high-level government officials had access to cars. How times have changed! There are now 38.7 million passenger vehicles on Russian roads. But with 140 million people, a large, unmet demand still exists for those who have not yet had the opportunity to purchase a vehicle.

There are only 271 vehicles per 1,000 people in Russia, according to the World Bank, compared with 797 per 1,000 in the United States. And the vehicle market is sure to expand further because of the number of people who are likely to be in the market for a second vehicle and the fact that the average age of registered vehicles is 16 years.

The passenger-car market in Russia could grow by another 1 million vehicles annually and top 3.5 million sales, according to PricewaterhouseCoopers, whose research team also estimates that the number of new-car sales in Russia in the next 10 years will be equal to all of the cars on the road today because of an aging vehicle fleet and a declining light-vehicle import tariff.

Types of Vehicles on the Road

“In Russia, one can expect to see a wide range of American-, European- and Asian-made vehicles, with the added component of Eastern European-made vehicles that exist in only a few markets and are locally accessorized,” said Nathan Calabrese, Omix-ADA’s director of international sales. Calabrese worked in Russia for several years and has closely followed trends in that market. “This wide range is not something that is usually seen on this scale overseas,” he said, “and it presents strong opportunity for those who produce products with a wide range of applications or who are willing to develop products to match such an expanded vehicle mix.”

Cars vs. Light Trucks

SUVs represent the largest and fastest-growing automotive sector in Russia, making up 31% of all passenger sales in 2012. Nearly one-third of all passenger-vehicle sales were SUVs—more than double the rate of SUV sales throughout the rest of Europe.

“We anticipate SUV sales will continue to grow, as Russian customers prefer the image and performance these utility vehicles provide in severe weather and challenging road conditions,” said Ted Cannis in a recent interview with Just-Auto.com. Cannis is president and CEO of Ford Sollers, a joint venture that is building Fords in Russia.

But many of the SUVs sold in Russia might not be familiar to Americans. For example, among the best-selling SUVs are the Lada Niva and UAZ Patriot, neither of which is sold in the United States.

Petr Likholitov, editor-in-chief of Moscow-based Polny Privod 4x4, explained that these vehicles are popular because they are inexpensive. The price for base models begins at about $12,000. They are easy to work on, repair or customize, and there are a lot of local accessorizes available.

According to Likholitov, other popular vehicles in this category are the Lada 4x4 (a small off-roader built almost without changes since the ’80s and very popular in Russia as well as in the former Soviet republics and even in Italy and France). Other popular foreign brands include the Toyota Land Cruiser 70 and 80 (old fashioned, iconic and now produced for Australia and the countries of the third world) and the Land Rover Defender 90 (a reliable British 4x4 with military heritage).

Among other vehicles growing in popularity are Jeeps including the Wrangler—Likholitov’s personal favorite. He said that these vehicles are “tuning friendly” and are available secondhand. In addition, Jeep exported 4,700 vehicles to Russia in 2012, but the average cost after tariffs was close to $100,000. While the Wrangler is likely to continue to be imported from Toledo, Ohio, Chrysler announced plans to build some Jeep models—likely the Cherokee—in Russia within the next few years. In addition, Ford has announced that the company will build a fullsize SUV outside the United States for the first time at a factory 300 miles outside of Russia to meet local demand.

Pickups

The pickup market is another growing segment. The top-selling pickup in Russia is the Mitsubishi L200, followed by the VW Amarok and the Toyota HiLux. Again, those vehicles are sold worldwide but not in the United States or Canada.

“A few years ago, our pickup sector emerged, and we have of lots of trucks now, including the Toyota HiLux, Nissan Narava and NP-300, Ford Ranger (built in South Africa) and Mitsubishi L200,” said Likholitov. He added that there is also a growing market for the VW Amarok pickup, now with an eight-speed automatic transmission. Ford Raptors, Ford F-Series, Rams and Toyota Tundras can also been seen on Russian roads, he said, but all have been imported from the United States through the gray market.

Disposable Income

Concentration of Consumers

Moscow—the fifth-largest city in the world with a population of 12 million—boasts some of the world’s largest malls, many of which are packed with luxury brands. The city is also the capital of Russia and is its center in terms of population and wealth. Thus, it is the most important market for vehicle and automotive specialty-equipment sales. St. Petersburg, to the west, is a city of five million and is the second most important market.

The Big Three American automotive manufacturers are active in the Russian market, and all have ongoing investments. The size of the middle class is growing in Russia and with it, the hope for a reduction of vehicle import duties and increased production of U.S. brands of customization-friendly vehicles, so the Big Three are targeting the Russian market.

“Most of us project [that in the] next few years, Russia will surpass Germany,” said Cannis. “That is why we are all here.” The Ford-Stollers joint venture manufacturing site is approximately 300 miles from Russia and is now producing the Ford Explorer as well as other Ford models. All production at the Soller’s plant is aimed at the Russian market.

Peter Layer, purchasing director for General Motors in Russia, said in a recent Just-Auto.com article that Russia is one of the company’s top four markets.

“Even 10 years ago, Russia was not in the top 10 globally,” he said, “but it is amazing how fast the world changes.”

General Motors has announced plans to more than double its annual production capacity from the current 98,000 vehicles to 230,000 vehicles by 2015 at its wholly owned GM Auto subsidiary located in St. Petersburg. Russia is already Chevrolet’s fourth-largest market. In 2013, new products in Russia include the midsize Trailblazer SUV, Colorado pickup and the seventh generation of the Corvette Stingray.

Chrysler Group LLC said that it still expects to start building Jeep sport-utility vehicles in Russia next year, despite the lack of an agreement on a production site with its joint-venture partner: ROLF. In addition, the owner of more than 30 dealerships in Moscow and St. Petersburg began selling Jeeps and Dodge-badged vehicles in December 2012.

“We are interested in dealer center launch for Chrysler, Jeep and Dodge because we see a high growth potential for these brands in Russia,” said Likholitov.

In 2012, Fiat exported 4,700 Jeeps to Russia. Likholitov noted that duties make the import of the United States and other vehicles exorbitantly expensive. He said that the taxes for vehicles imported into Russia complicate development of the Russian customizing industry.

“For example, prices for the Jeep Wrangler Unlimited Rubicon (my favorite by the way) at an official dealer begin at 1,855,000 Russian rubles ($59,838),” he said. “That is double compared with American prices. The ’13 Chevrolet Camaro costs 2,055,000 Russian rubles ($66,290 USD) compared with $28,685 USD MSRP in the States. But we are optimistic. The government promised us that the prices for import cars will go down year by year after the introduction of Russia to the World Trade Organization in 2012.”

Customizing

Michael Kasakov splits his time between Boston and Moscow. He works for Rennsport Imports, a Massachusetts-based wholesale distributor of OEM and aftermarket parts and accessories for the automotive and powersports industries with offices in Moscow. He said that the market for modifications is still in its early stages of development, so there is a higher percentage of visual rather than technical modifications for cars.

“Think body kits, tinted windows, airbrushing and vinyl wraps,” he said. “But I do believe that the focus will be shifting as the market matures. When it comes to tech stuff, I don’t think Russia is any different compared with other countries. Depending on the segment, people usually start with the typical mods—intake, exhaust and chips in the sport compact and street segments and wheels, tires and lift kits in 4x4s. The only difference that comes to mind would be suspensions and the type of wheels you see people outfitting their cars with. Due to our fairly bad roads (related to the weather conditions and seasonal temperature differences), only the most hardcore guys go for lower or stiffer suspensions on daily-used cars. Same goes for wheels. People may go for a different design or do a Plus 1 wheel-and-tire combo, but you won’t see too many cars pushing the envelope with really big low-profile tires. In fact, most of the cars sold in Russia come with what is sometimes called an ‘Eastern European Package,’ meaning higher ground clearance compared to the same models sold in Europe or the United States.”

The vehicle mix is quite diverse, with many of the most popular modification-friendly vehicles not found in the United States. Still, U.S. performance and accessory manufacturers that produce universal products and are willing to expand their product applications can do well in this market.

Kasakov identified those most likely to succeed in the Russian market as those with a commitment to developing products for non-U.S. applications, such as the Mitsubishi L200, Toyota HiLux, VW Amarok and others, and those who can support local distributors with marketing help.

Audrey Subin, deputy editor-in-chief of the Russian enthusiast magazine Off Road Drive, also advised U.S. companies to make products for the vehicles that are already on Russian roads. He said that there is also a large market for universal products, such as winches, high-lift jacks, navigation devices and beadlocks.

Even those who make products for specific U.S. brands, such as Jeeps or large pickups may find markets as sectors continue to grow and are helped by a positive perception of all things American.

“We have a lot of fans of American equipment just because it is authentic,” Likholitov said. “For example, guys from the Moscow Dodge Ram Club asked our partners from the Mickey Thompson dealership to deliver them Dick Cepek tires just because they look tough. People from the Jeep Wrangler Club order Hemi engines and spare parts from the States. Lift kits for American SUVs and pickups are also popular, and Russian consumers particularly value American products that are actually made in America.”

Challenges

U.S. companies should proactively take steps to protect their intellectual property in Russia. The U.S. Department of Commerce recommends that firms register their trademarks with the Federal Service for Intellectual Property and with the Russian Federal Customs Service.

In addition, Russia’s infrastructure desperately needs updating. The country’s roads and bridges are in notoriously bad shape and are not built to deal with the growing number of vehicles on the roads, which results in gridlock. For example, the highway connecting the country’s two biggest cities, St. Petersburg and Moscow, located nearly 400 miles apart, is mostly only two lanes, which results in constant backups. This lack of roads also affects the transport of goods, making deliveries more expensive and lengthy.

It’s a New Market With Spotty Distribution

Russia can be a difficult country to deal with in terms of setting up distribution. Import duties can be high, excessive documentation may be required and the process can be difficult and time-consuming. Many distributors will request contracts, which tends to frighten U.S. businesses. Such contracts are generally required for customs purposes or are needed in order to allow the distributor to send payments, added Calabrese.

“Businesses should always consult with their legal counsel prior to signing any document or contract,” Calabrese said. He also cautioned U.S. companies to keep an open mind on their volume expectations for distributors until they have a better idea of the actual demand of the market for their products. “Language and communication can be challenging,” he added, “but any company already doing business overseas should be able to navigate this fairly well. There is also a level of price sensitivity that seems to correlate with different niches of the aftermarket industry, and this should be taken into consideration as well.”

Exports to Russia currently account for only about half of 1% of all American exports. With its growing sales of passenger vehicles, large SUV demand and a growing middle class increasingly having the wherewithal—and interest—to customize their vehicles, sales are bound to grow dramatically in the short term.

SEMA will be hosting a seminar on the Russian market with key buyers and media at this year’s SEMA Show. For more information on the Russian market or SEMA’s international programs worldwide, contact Linda Spencer at lindas@sema.org.

SEMA News—July 2013

INTERNATIONAL
By Linda Spencer
Images Courtesy of Polny Privod 4x4

A Closer Look at Russia

One of the World’s Largest Vehicle Markets

This article looks at the size of Russia’s passenger-vehicle market, the interest in customizing, consumer purchasing power, types of vehicles on the road and the implications for U.S. specialty-equipment companies as well as growth potential, opportunities and challenges.

Second Largest Market in Europe

Russia ranks sixth in the world in terms of annual passenger-vehicle sales. The country’s auto market has rebounded from the 2008–2009 recession with new-vehicle sales for 2012 up 11% from the previous year, which makes Russia the second-largest European vehicle market. With 2.9 million passenger vehicles sold last year, the country is quickly gaining on Germany, the top market in Europe, and many experts estimate that the positions will flip between these two countries in the next few years. Russia could be the number-one country in sales in Europe as early as next year, said Stephen Biegun, vice president of international affairs for Ford in a recent interview with the Detroit Free Press.

Potential

Most motorists in Russia are fairly new drivers. Under the Soviet regime, which ended in 1991, private vehicles were rare. Typically, only high-level government officials had access to cars. How times have changed! There are now 38.7 million passenger vehicles on Russian roads. But with 140 million people, a large, unmet demand still exists for those who have not yet had the opportunity to purchase a vehicle.

There are only 271 vehicles per 1,000 people in Russia, according to the World Bank, compared with 797 per 1,000 in the United States. And the vehicle market is sure to expand further because of the number of people who are likely to be in the market for a second vehicle and the fact that the average age of registered vehicles is 16 years.

The passenger-car market in Russia could grow by another 1 million vehicles annually and top 3.5 million sales, according to PricewaterhouseCoopers, whose research team also estimates that the number of new-car sales in Russia in the next 10 years will be equal to all of the cars on the road today because of an aging vehicle fleet and a declining light-vehicle import tariff.

Types of Vehicles on the Road

“In Russia, one can expect to see a wide range of American-, European- and Asian-made vehicles, with the added component of Eastern European-made vehicles that exist in only a few markets and are locally accessorized,” said Nathan Calabrese, Omix-ADA’s director of international sales. Calabrese worked in Russia for several years and has closely followed trends in that market. “This wide range is not something that is usually seen on this scale overseas,” he said, “and it presents strong opportunity for those who produce products with a wide range of applications or who are willing to develop products to match such an expanded vehicle mix.”

Cars vs. Light Trucks

SUVs represent the largest and fastest-growing automotive sector in Russia, making up 31% of all passenger sales in 2012. Nearly one-third of all passenger-vehicle sales were SUVs—more than double the rate of SUV sales throughout the rest of Europe.

“We anticipate SUV sales will continue to grow, as Russian customers prefer the image and performance these utility vehicles provide in severe weather and challenging road conditions,” said Ted Cannis in a recent interview with Just-Auto.com. Cannis is president and CEO of Ford Sollers, a joint venture that is building Fords in Russia.

But many of the SUVs sold in Russia might not be familiar to Americans. For example, among the best-selling SUVs are the Lada Niva and UAZ Patriot, neither of which is sold in the United States.

Petr Likholitov, editor-in-chief of Moscow-based Polny Privod 4x4, explained that these vehicles are popular because they are inexpensive. The price for base models begins at about $12,000. They are easy to work on, repair or customize, and there are a lot of local accessorizes available.

According to Likholitov, other popular vehicles in this category are the Lada 4x4 (a small off-roader built almost without changes since the ’80s and very popular in Russia as well as in the former Soviet republics and even in Italy and France). Other popular foreign brands include the Toyota Land Cruiser 70 and 80 (old fashioned, iconic and now produced for Australia and the countries of the third world) and the Land Rover Defender 90 (a reliable British 4x4 with military heritage).

Among other vehicles growing in popularity are Jeeps including the Wrangler—Likholitov’s personal favorite. He said that these vehicles are “tuning friendly” and are available secondhand. In addition, Jeep exported 4,700 vehicles to Russia in 2012, but the average cost after tariffs was close to $100,000. While the Wrangler is likely to continue to be imported from Toledo, Ohio, Chrysler announced plans to build some Jeep models—likely the Cherokee—in Russia within the next few years. In addition, Ford has announced that the company will build a fullsize SUV outside the United States for the first time at a factory 300 miles outside of Russia to meet local demand.

Pickups

The pickup market is another growing segment. The top-selling pickup in Russia is the Mitsubishi L200, followed by the VW Amarok and the Toyota HiLux. Again, those vehicles are sold worldwide but not in the United States or Canada.

“A few years ago, our pickup sector emerged, and we have of lots of trucks now, including the Toyota HiLux, Nissan Narava and NP-300, Ford Ranger (built in South Africa) and Mitsubishi L200,” said Likholitov. He added that there is also a growing market for the VW Amarok pickup, now with an eight-speed automatic transmission. Ford Raptors, Ford F-Series, Rams and Toyota Tundras can also been seen on Russian roads, he said, but all have been imported from the United States through the gray market.

Disposable Income

Concentration of Consumers

Moscow—the fifth-largest city in the world with a population of 12 million—boasts some of the world’s largest malls, many of which are packed with luxury brands. The city is also the capital of Russia and is its center in terms of population and wealth. Thus, it is the most important market for vehicle and automotive specialty-equipment sales. St. Petersburg, to the west, is a city of five million and is the second most important market.

The Big Three American automotive manufacturers are active in the Russian market, and all have ongoing investments. The size of the middle class is growing in Russia and with it, the hope for a reduction of vehicle import duties and increased production of U.S. brands of customization-friendly vehicles, so the Big Three are targeting the Russian market.

“Most of us project [that in the] next few years, Russia will surpass Germany,” said Cannis. “That is why we are all here.” The Ford-Stollers joint venture manufacturing site is approximately 300 miles from Russia and is now producing the Ford Explorer as well as other Ford models. All production at the Soller’s plant is aimed at the Russian market.

Peter Layer, purchasing director for General Motors in Russia, said in a recent Just-Auto.com article that Russia is one of the company’s top four markets.

“Even 10 years ago, Russia was not in the top 10 globally,” he said, “but it is amazing how fast the world changes.”

General Motors has announced plans to more than double its annual production capacity from the current 98,000 vehicles to 230,000 vehicles by 2015 at its wholly owned GM Auto subsidiary located in St. Petersburg. Russia is already Chevrolet’s fourth-largest market. In 2013, new products in Russia include the midsize Trailblazer SUV, Colorado pickup and the seventh generation of the Corvette Stingray.

Chrysler Group LLC said that it still expects to start building Jeep sport-utility vehicles in Russia next year, despite the lack of an agreement on a production site with its joint-venture partner: ROLF. In addition, the owner of more than 30 dealerships in Moscow and St. Petersburg began selling Jeeps and Dodge-badged vehicles in December 2012.

“We are interested in dealer center launch for Chrysler, Jeep and Dodge because we see a high growth potential for these brands in Russia,” said Likholitov.

In 2012, Fiat exported 4,700 Jeeps to Russia. Likholitov noted that duties make the import of the United States and other vehicles exorbitantly expensive. He said that the taxes for vehicles imported into Russia complicate development of the Russian customizing industry.

“For example, prices for the Jeep Wrangler Unlimited Rubicon (my favorite by the way) at an official dealer begin at 1,855,000 Russian rubles ($59,838),” he said. “That is double compared with American prices. The ’13 Chevrolet Camaro costs 2,055,000 Russian rubles ($66,290 USD) compared with $28,685 USD MSRP in the States. But we are optimistic. The government promised us that the prices for import cars will go down year by year after the introduction of Russia to the World Trade Organization in 2012.”

Customizing

Michael Kasakov splits his time between Boston and Moscow. He works for Rennsport Imports, a Massachusetts-based wholesale distributor of OEM and aftermarket parts and accessories for the automotive and powersports industries with offices in Moscow. He said that the market for modifications is still in its early stages of development, so there is a higher percentage of visual rather than technical modifications for cars.

“Think body kits, tinted windows, airbrushing and vinyl wraps,” he said. “But I do believe that the focus will be shifting as the market matures. When it comes to tech stuff, I don’t think Russia is any different compared with other countries. Depending on the segment, people usually start with the typical mods—intake, exhaust and chips in the sport compact and street segments and wheels, tires and lift kits in 4x4s. The only difference that comes to mind would be suspensions and the type of wheels you see people outfitting their cars with. Due to our fairly bad roads (related to the weather conditions and seasonal temperature differences), only the most hardcore guys go for lower or stiffer suspensions on daily-used cars. Same goes for wheels. People may go for a different design or do a Plus 1 wheel-and-tire combo, but you won’t see too many cars pushing the envelope with really big low-profile tires. In fact, most of the cars sold in Russia come with what is sometimes called an ‘Eastern European Package,’ meaning higher ground clearance compared to the same models sold in Europe or the United States.”

The vehicle mix is quite diverse, with many of the most popular modification-friendly vehicles not found in the United States. Still, U.S. performance and accessory manufacturers that produce universal products and are willing to expand their product applications can do well in this market.

Kasakov identified those most likely to succeed in the Russian market as those with a commitment to developing products for non-U.S. applications, such as the Mitsubishi L200, Toyota HiLux, VW Amarok and others, and those who can support local distributors with marketing help.

Audrey Subin, deputy editor-in-chief of the Russian enthusiast magazine Off Road Drive, also advised U.S. companies to make products for the vehicles that are already on Russian roads. He said that there is also a large market for universal products, such as winches, high-lift jacks, navigation devices and beadlocks.

Even those who make products for specific U.S. brands, such as Jeeps or large pickups may find markets as sectors continue to grow and are helped by a positive perception of all things American.

“We have a lot of fans of American equipment just because it is authentic,” Likholitov said. “For example, guys from the Moscow Dodge Ram Club asked our partners from the Mickey Thompson dealership to deliver them Dick Cepek tires just because they look tough. People from the Jeep Wrangler Club order Hemi engines and spare parts from the States. Lift kits for American SUVs and pickups are also popular, and Russian consumers particularly value American products that are actually made in America.”

Challenges

U.S. companies should proactively take steps to protect their intellectual property in Russia. The U.S. Department of Commerce recommends that firms register their trademarks with the Federal Service for Intellectual Property and with the Russian Federal Customs Service.

In addition, Russia’s infrastructure desperately needs updating. The country’s roads and bridges are in notoriously bad shape and are not built to deal with the growing number of vehicles on the roads, which results in gridlock. For example, the highway connecting the country’s two biggest cities, St. Petersburg and Moscow, located nearly 400 miles apart, is mostly only two lanes, which results in constant backups. This lack of roads also affects the transport of goods, making deliveries more expensive and lengthy.

It’s a New Market With Spotty Distribution

Russia can be a difficult country to deal with in terms of setting up distribution. Import duties can be high, excessive documentation may be required and the process can be difficult and time-consuming. Many distributors will request contracts, which tends to frighten U.S. businesses. Such contracts are generally required for customs purposes or are needed in order to allow the distributor to send payments, added Calabrese.

“Businesses should always consult with their legal counsel prior to signing any document or contract,” Calabrese said. He also cautioned U.S. companies to keep an open mind on their volume expectations for distributors until they have a better idea of the actual demand of the market for their products. “Language and communication can be challenging,” he added, “but any company already doing business overseas should be able to navigate this fairly well. There is also a level of price sensitivity that seems to correlate with different niches of the aftermarket industry, and this should be taken into consideration as well.”

Exports to Russia currently account for only about half of 1% of all American exports. With its growing sales of passenger vehicles, large SUV demand and a growing middle class increasingly having the wherewithal—and interest—to customize their vehicles, sales are bound to grow dramatically in the short term.

SEMA will be hosting a seminar on the Russian market with key buyers and media at this year’s SEMA Show. For more information on the Russian market or SEMA’s international programs worldwide, contact Linda Spencer at lindas@sema.org.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

CHRIS KERSTING

SEMA Search: A Bigger Hammer in the Retailer Toolbox

Here’s the big news: The SEMA Data Co-op is currently building SEMA Search, an online product look-up tool powered by the SDC product information library.

Scheduled for roll-out in November of this year, SEMA Search will allow member retailers, including countermen and sales consultants at brick-and-mortar retail outlets, to find and present the digital product information and images of their manufacturer partners for every customer.

Not only will this provide the opportunity for resellers to view more sales options than ever, they will also enjoy this information at a speed to market rarely experienced before.

We bring this up because the SEMA Board has recently been discussing what it means for our industry that distribution and retail are evolving so rapidly. One thing is certain: your business needs to be adapting and evolving as well—and it’s all about adding value. So SEMA is accelerating its efforts to help its members—particularly brick-and-mortar retailers—understand how to add value and thrive as this evolution continues.

The SEMA Search tool is exciting, but just like any good tool, you need to see it, reach out and use it. And there are other tools you should know about. To make it easy, we’re going to put them all in one place on the SEMA website where our retail members can find them. Consider it a Toolbox for Retailers.

Once you visit the online toolbox, you’ll see that we have long worked to put our members in touch with retail experts who are focused on offering business value in today’s retail environment. For example, the SEMA Education Institute (SEI) has a range of webinars and educational sessions specifically aimed at helping retailers tune up their businesses in today’s competitive environment. You can get expert advice on how to use today’s communications and online media tools to bring in new prospects, how to use customer service as a difference-maker and ways to build killer promotional strategies. These webinars and educational sessions are available to SEMA members free—just sign in and download from the Education tab on the sema.org website.

We also have an archive of high-quality articles relevant to retailers that regularly appear in SEMA News. In the past year, this magazine has addressed best practices in trade and consumer advertising (February 2012) and retail store design (December 2012). These articles are also available for download to SEMA members on www.sema.org.

Live seminars and expert roundtables at the SEMA Show are another opportunity for retailers to gain perspective and learn to adapt. Sessions at last year’s Show provided expert advice on how to deal with customers walking into your showroom with loaded weapons—their smartphones. Another seminar showed that training your retail employees to build trust and establish relationships will move merchandise. The 2012 SEMA Show hosted eight educational events addressing sales solutions for retailers in the contemporary retail environment. For the coming year, at the 2013 SEMA Show, attendees can expect a solid menu of compelling educational opportunities relevant to retailers.

But we think the SEMA Search tool will be a game changer, a huge help to retailers in an environment where customers more and more use the Internet to locate and learn about products. Keep in mind, the data will be available to SEMA-member retailers to power their website lookups, counterman displays and internal B2B systems. For free. That’s correct—as part of SEMA membership, retailers will have access to SEMA Search at no additional charge.

Taken all together, we offer these assets as a great toolbox to help our industry’s retail businesses succeed in a changing environment. We can’t predict where technology will take us or exactly when it will settle. But we do believe that knowledge and good tools will help those interested to grow and prosper.

SEMA News—July 2013

BUSINESS
By Mike Imlay

Insuring Specialty Vehicles

How to Cover the Basics and More

Build vehicles are valuable commodities, so whether your business keeps them on display at the shop or takes them on the road to tout your brand, you’ll want to have them properly insured. Yet, adequately covering them can be complicated.

“There can be a lot of crossover and confusion when it comes to coverages,” said Adam Baillie, division manager for HT&R Performance, a section of Hayward Tilton & Rolapp Insurance Associates that focuses primarily on the automotive and motorcycle aftermarkets. “The insurance industry has a lot of terms that we use that are sometimes misunderstood by the general public.”

Covering the Basics

“When it comes to SEMA members, we’ve found the majority [that we cover] are installer shops—the retail guys who deal directly with the public, selling products that are provided by SEMA manufacturers and sometimes also installing them,” Baillie said. “So you have two sides to the business. You have the selling of the product, and then you have the installation. We’re finding that, obviously, due to the Internet, the selling side is probably quite a bit more popular than the installation side. So from an exposure standpoint, the majority of SEMA members are going to have insurance through a business owner’s policy (BOP). That’s designed to be a one-stop, include-all insurance policy usually provided by a big-name insurance company.”

Typically, a BOP can include any or all of the following coverages:

• General liability
• Product liability
• Property insurance
• Commercial automotive insurance

“That probably meets the needs of 90% of the installer members,” Baillie pointed out, adding that BOPs are usually provided by a local regional broker.

Within that BOP, however, the way a vehicle is registered will greatly affect policy particulars.

“When it comes to insuring a vehicle, the majority of the time you’re going to insure it one of two ways,” explained Baillie. “If it’s a non-owned vehicle, you’re going to insure it with garage-keeper’s coverage, which is designed to insure vehicles that are in your care, custody and control. Autos owned by the business are going to be insured under a business or commercial auto policy.”

“The thing with liability insurance is it breaks down into all these specific sections,” added Bob Leggio, principal at Motorsports Insurances Services, which also specializes in coverage for the specialty-equipment industry. Like Baillie, he advises carefully weighing all the factors about how a vehicle is owned and used to fine-tune policies.

“If you’ve got your own cars and they’re used to promote your business, they could be added to your garage-keeper’s liability policy,” Leggio said. “But there are benefits and negatives to that. The obvious negative is that if they’re personal cars owned by you and not necessarily by your business, you may be better off insuring them as individual collector cars that happen to be garaged at your business. The reason for that is the specialty-car policies are more geared toward the correct valuation of the vehicle as well as the adjusting process. More often than not, you’ll have adjustors who are very familiar with your specific car.”

Note that the operative words here are “specialty-car policies.” You normally wouldn’t want to cover a project or collectible vehicle under the typical personal auto policy, said Franco Ganino, vice president of Alliant Insurance Services, another agency catering to the automotive specialty-equipment market.

“I have seen some circumstances where an individual registers a vehicle in their own personal name and they’re calling personal line carriers like State Farm and Allstate and insuring it like it’s their everyday car,” said Ganino. “However, they need to make sure that carrier recognizes the fact that the vehicle has an increased valuation so they don’t just do a replacement cost. Say a $50,000 vehicle has $50,000 put into it and it gets damaged or stolen in the process. The insurance company is going to see it as a stock car, and they’ll be out of pocket for that variance.”

Protecting Dollar Vehicles

All the foregoing is fine if a vehicle is an “ordinary” project car or collectible of a business owner, retailer-installer or manufacturing company. But what if it’s a so-called “dollar car”—a build vehicle purchased through a contracted discount from an OEM to showcase product at trade and consumer events? Here, things can become much more complicated.

“In most cases, what we’re seeing is that these contracts require the business owner or the recipient of the vehicle or even the professional restyler working on the vehicle to carry general liability coverage, and the OEM likes to be named as an additional-named insured,” said Ganino. “Becoming a co-named on the policy allows the OEM to be protected should something happen with the build where they feel they can get pulled into some level of lawsuit as a result of them giving the vehicle to the recipient.”

Some OEMs go even further than that.

In the end, however, the OEM will be most interested in two items of coverage. The first, as mentioned above, is general liability. The OEM wants to know that it is protected against possible injuries to people in and out of a vehicle—even if it will only be driven to and from a trailer to a show or to and from a trailer into a place of business.

“The second item is the physical damage side of the equation,” said Ganino. “If the vehicle is not going to be used on the road or registered through DMV records, the business has to secure an inland marine policy to insure the vehicle no matter where it is.”

That includes loaning the vehicle out to subcontractors.

What’s It Worth?

Which brings us to the tricky factor of determining a specialty vehicle’s value. According to Baillie, it’s vitally important that the policyholder understand the three different ways insurance companies pay out.

The primary method is termed “actual cash value” (ACV). Here, an insurance provider will pay what it would cost to replace the vehicle minus depreciation at the time of the claim.

“The problem is that coverage doesn’t take into account extra equipment on the vehicle,” explained Baillie. “You put a $30,000 to $40,000 engine in there, and the insurance company is not going to take that into value because they’re not charging premium for it.”

Leggio agreed. “Actual cash value with any kind of specialty car is what you absolutely don’t want, because actual cash value when calculating a loss takes in depreciation,” he said. “I don’t think any of these kinds of cars ever depreciate.”

A second way is “stated value”—an oft-misunderstood term. It’s employed when you want to pay insurance on a vehicle for less than what it’s really worth. In the event of theft or total loss, the insurance company will pay the stated value or actual cash value of the vehicle, whichever is less.

“Say, for instance, that you’ve got a $1 million restored classic collector vehicle that you somehow inherited or acquired at much less cost but can’t afford the insurance on the car’s full value,” explained Baillie. “You may want to insure the vehicle for half its worth, since not only will the premium be cheaper, but also what you’ll recover is still more than what you spent acquiring the car in the first place.”

Stated value is not to be confused with “agreed-upon value,” the third method of determining payout. This is what most specialty-vehicle owners will want. Essentially, the insurance purchaser and the insurance company agree on a value before any money exchanges hands.

“That guarantees you the exact number that you’ve agreed upon in the event of a total loss,” said Baillie.

Turning to Experts

Needless to say, there can be other complexities to covering specialty or project vehicles. Many such vehicles are not technically considered roadworthy by insurance companies.

“They’re not issued a VIN, nor are they registered in any way, shape or form through any level of a department of motor vehicles,” observed Ganino.

Regardless of the vehicle’s status, the policy buyer will want to discuss every detail about its build and use with an experienced broker specializing in the area to determine the exact type and extent of coverage required.

“Insurance companies don’t like to be surprised,” said Leggio. “The important thing is that you tell them as much as you possibly can about any exposures in the application process. If there’s ever a claim, most of them, just for due diligence, will research the paperwork that brought the account into the insurance company. They’ll look and see if the exposure that generated the loss was listed or explained in the application.”

Moreover, the time you want to be least surprised is at the time of a loss. Understanding the above insurance basics and working with a good broker who knows the ins and outs of the specialty-equipment business will go miles toward accomplishing just that.