2014 SEMA Russia Business Development Conference

SEMA News—August 2014

INTERNATIONAL
By Linda Spencer

2014 SEMA Russia Business Development Conference

Russian Market Has Potential for U.S. Specialty-Equipment Manufacturers Concluded Participants on an Inaugural SEMA Trip to Moscow
 

Robert Park (far left), international key account manager for Rigid Industries LED Lighting in Gilbert, Arizona, described his company’s products to a large off-road distributor. “It’s great to see that the aftermarket customizing scene is alive in Russia and that U.S. products are highly sought after,” Park said.
Robert Park (far left), international key account manager for Rigid Industries LED Lighting in Gilbert, Arizona, described his company’s products to a large off-road distributor. “It’s great to see that the aftermarket customizing scene is alive in Russia and that U.S. products are highly sought after,” Park said.  

   

Executives from eight SEMA-member companies traveled with SEMA staff to explore the automotive specialty-equipment market in Russia and determine the potential for products in that country of 142 million. There was some trepidation, given the current political tensions between the U.S. and Russia, but once in Moscow, the group was impressed with what they saw.

“What a country,” said Ed Rossi, vice president of sales for Injen Technology. “It’s full of rich culture, history and majestic sights. Injen Technology ventured to Russia with a bit of skepticism due to the Crimea takeover. We had reservations about how Americans would be treated in light of our contradictory political stances, but the people of Russia were overwhelmingly kind and very openly happy to meet us. From the moment we landed and the initial meet-and-greet dinner, the potential buyers were eager to find ways to facilitate importing American aftermarket products for their market, which is in the infancy stages.”

Added David Borla, vice president of sales and marketing for family-owned Borla Performance: “The automotive enthusiast culture in Russia is fostered by the powerful and combined effect of a unique set of circumstances. You find the opulence of China, the deep-rooted automotive proficiency of Germany, the brand consciousness of the Middle East, the limited government regulation of the United States and a fairly easy parts importation process. It really is a perfect storm for our industry.”

After a few intensive days that included visiting speed and off-road shops, exhibiting in a mini trade event attended by pre-vetted buyers from throughout Russia, a roundtable with some key buyers and a high-level briefing from the U.S. Embassy, the group was unanimous that potential existed for their products, and each came away with some leads that they will be following up.

Paula Argiropoulos (left), international sales manager for Rigid Industries, met with a buyer while her colleague, Robert Park (black shirt), met with other buyers. Paula Argiropoulos (left), international sales manager for Rigid Industries, met with a buyer while her colleague, Robert Park (black shirt), met with other buyers. Rigid Industries personnel previously traveled to the Middle East and China with SEMA. The company is interested in exploring how to grow the market for its lighting products.


Troy Wirtz of Dee Zee checked out one of his products at an off-road dealer the group visited.Troy Wirtz of Dee Zee checked out one of his products at an off-road dealer the group visited.
  Troy Wirtz (far left) is the national retail account manager for Iowa-based Dee ZeeTroy Wirtz (far left) is the national retail account manager for Iowa-based Dee Zee, a manufacturer of running boards, toolboxes and other truck-bed accessories, and was visiting Russia for the first time. “What surprised me the most about our trip was how eager the potential buyers are to support our products,” he said. “As a buyer told us, ‘America thinks Russia is a sleeping bear, when in reality, America is the sleeping bear for taking this long to look at opportunities in Russia!’ Opportunities in Russia are strong for Dee Zee, but our biggest challenges will be the new applications required for their vehicles. Dee Zee will support the growth and work toward these new additions, but it will take time.”  
       

The group met with an impressive number of Russian (and even a Ukrainian) buyers.

The participating U.S. manufacturers—representing a wide array of products that ranged from exterior components to under-hood performance parts with applications for trucks and street-performance vehicles—were unanimously optimistic about the market for both off-road and performance manufacturers.

The participants also identified a number of challenges to selling into Russia—common to emerging markets—such as a fragmented distribution system, the legal use of specialty products in a “gray zone,” the difficulty of shipping product to Russia and language barriers.

However, each of the companies reported obtaining leads during the visit and planned aggressive follow-up this year.

“We laid the groundwork for the future and established personal relationships that we expect to become professional relationships very shortly,” said Rossi.

“The biggest hurdle will once again be logistics. But now that we have a feel for the potential and the type of markets, we have addressed one piece of the puzzle. We are optimistic about our future in Russia.”

Vehicles Sales
 

The SEMA event attracted buyers from throughout Russia. As with the first SEMA overseas programs in the Middle East and China, the exhibiting companies displayed their products in a hotel ballroom. Each company on this inaugural trip to Russia was assigned a 6-ft. table. Buyers such as this Novossibirsk, Russia-based (more than 2000 miles from Moscow) installer/retailer traveled to the event from throughout Russia. David David Borla (center), vice president of sales and marketing for Borla Performance Industries, was clearly impressed and excited about the opportunities for his company.Borla (center), vice president of sales and marketing for Borla Performance Industries, was clearly impressed and excited about the opportunities for his company. “The automotive enthusiast culture in Russia is fostered by the powerful and combined effect of a unique set of circumstances,” Borla said. “You find the opulence of China, the deep-rooted automotive proficiency of Germany, the brand consciousness of the Middle East, the limited government regulation of the United States and a fairly easy parts importation process. It really is a perfect storm for our industry.”

  Debbie Sweet (back to camera), international sales manager for Penda Corp., talked with a buyer interested in the company’s bedliner products

Debbie Sweet (back to camera), international sales manager for Penda Corp., talked with a buyer interested in the company’s bedliner products. The Wisconsin-based firm offers bedliners for U.S. and international pickups. As in many other markets, Russians buy large pickups such as one might find on U.S. roads, but the vehicles are often brought in through the gray market and are not official imports. The Toyota HiLux, Ford Ranger and Mitsubishi L200 are among the pickups that are sold in Russia and around the world but not in the United States or Canada. Through a partnership with the U.S. Department of Commerce, SEMA has purchased a HiLux and Ranger. The vehicles are available to members to measure in order to create export-ready products. The newest vehicle—due to arrive at the SEMA headquarters in September—is a Mitsubishi L200. Mitsubishi recently reported that more than 1.1 million of these compact pickups, produced in Thailand and known as the Triton in some markets, have been sold since 2005.

       
       

Russia is the world’s sixth-largest automotive market in terms of annual passenger-vehicle sales and is the second largest in Europe after Germany. Russia sold about 2.6 million vehicles and Germany 2.9 million in 2013.Russia is one of the most attractive automotive markets due to its potential for growth. 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. Growth will also come from consumers buying their second or even third vehicles, and the average age of vehicles on the road in Russia is 16 years.

During Soviet times, a little over two decades ago, citizens had a choice of only four or five models of vehicles to purchase, and they had to wait years for the chance to buy one. As markets have opened, Russians have been drawn to new options, including foreign-branded vehicles that are open to them for the first time. Most of these vehicles were imported initially, but now a number of foreign brands are produced in Russia, and approximately a million more are imported.

About 48,000 U.S.-made vehicles were imported into Russia in 2013, according to a U.S. Department of Commerce report. In addition to U.S.-made vehicles exported to Russia, Ford’s 50-50 joint venture in 2013 produced the millionth Russian-built Ford-badged vehicle, and Russia is GM’s fifth-largest market for its Chevrolet brand. GM sold 174,649 vehicles in Russia overall. In addition, popularly customized vehicles, such as the Jeep Wrangler, are now officially sold in Russia.

The lineup of vehicles in Russia is quite different from that sold in the American market. Russia boasts a dizzying number of different makes and models from all corners of the earth. Omnipresent are local brands such as Lada and UAZ, which are still dominant, but foreign brands are taking the lion’s share of new-vehicle sales (see chart below).

Middle Class
 

Robert Park (far left), international key account manager for Rigid Industries LED Lighting in Gilbert, Arizona, described his company’s products to a large off-road distributor. “It’s great to see that the aftermarket customizing scene is alive in Russia and that U.S. products are highly sought after,” Park said.
Sources: AEB, PWC, Rosstat, U.S. Consulate calculations published in a recent report Russia: “Automotive Industry Update” by Alexander Kansky, U.S. Consulate St. Petersburg.

Russia has the highest gross domestic product per capita among the five major emerging national economies, which include Brazil, Russia, India, China and South Africa. Russia has double the per capita income of the Chinese—$20,000 compared to $11,000—and India is at about $6,000. A report issued last year by accounting giant KPMG highlighted the growing domestic demand.

   
Exhibiting SEMA-Member Companies

•Borla Performance Industries
•Bully Dog Technologies
•Dee Zee Inc.
•Injen Technology
•Penda Corp.
•Rigid Industries LED Lighting
•Royal Purple
•SCT Performance

 
   

The report said that the consumer boom in Russia from 1998 onward is a result of nearly eight years of economic prosperity and growth in credit facilities. This resulted in a doubling of real disposable incomes and the emergence of a middle class, with growth averaging over 6.5% a year.

The report estimated that the Russian middle class is expected to more than triple in the next eight years, rising from approximately 20 million in 2011 to nearly 70 million by 2020. That would make Russia the largest consumer market in Europe by 2020, while its per capita GDP is expected to triple to $35,000.

According to Jones Lang LaSalle, a real estate consulting firm, Russians spend 60% of their pre-tax income on retail purchases, a category that includes food. The country in second place in Europe is Sweden, where retailing accounts for 40% of total private spending. Germans, by comparison, spend 28% of their salaries shopping, according to Jones Lang LaSalle.

Interest in Specialty Products

Alexander Kansky, a commercial specialist with the U.S. Consulate in St. Petersburg, accompanied the SEMA delegation on the trip.

“Russians are interested in both styling improvements and performance upgrades that they buy in car dealerships, specialty shops and in overseas Internet shops,” he noted in a recent U.S. Department of Commerce report. “Automotive parts/accessories is the largest group of products that Russians buy on eBay.”

 

Adrian Croot (second right), marketing director of Idaho-based Bully Dog and sister-company SCT Performance, based in Sanford, FloridaAdrian Croot (second right), marketing director of Idaho-based Bully Dog and sister-company SCT Performance, based in Sanford, Florida, talked with buyers about the potential for the tuning products that both firms produce.

  Pictured here are Adrian Croot (right) of Bully Dog, Troy Wirtz of Dee Zee and SEMA Vice President of Communications and Events Peter MacGillivray SEMA’s overseas business-development programs provide a good chance for companies to network with each other. Pictured here are Adrian Croot (right) of Bully Dog, Troy Wirtz of Dee Zee and SEMA Vice President of Communications and Events Peter MacGillivray (back to camera).
       
 

Royal Purple’s George Shepherd (right) talked with a buyer at the SEMA mini trade show

Royal Purple’s George Shepherd (right) talked with a buyer at the SEMA mini trade show.

In post-event feedback, the exhibitors appreciated the chance to get to meet so many buyers in a smaller-scale setting.

Many of the buyers said that they planned to visit the 2014 SEMA Show to follow up with the visiting U.S. companies and see what other new products might sell well in Russia.

 

Debbie Sweet (center, light blue shirt) met with buyers at the opening dinnerThe first event was an informal roundtable discussion between a representative group of buyers and the SEMA delegation. Debbie Sweet (center, light blue shirt) met with buyers at the opening dinner. “The biggest misconception that I found with Russian buyers is that U.S. companies do not adapt their products for markets outside of the United States. Many of us carry an extensive number of models for vehicles made outside the United States and will continue to work to grow both our U.S. and international product offerings. Our visit to Moscow was the first step to enlighten the buyers to the fact that we are able to sell them products for the vehicles in their market,“ noted Sweet.

       
 

Buyers from throughout Russia were waiting at the door when the SEMA mini trade show opened

Buyers from throughout Russia were waiting at the door when the SEMA mini trade show opened. In addition to buyers from Moscow, retailers, wholesalers and installers traveled from other top Russian cities, including St. Petersburg (439 miles), Rostov-na-Donu (670 miles), Nizhny Novgorod (263 miles) and Novossibirsk (2,116 miles). Ed Rossi (far right), vice president of sales for Injen Technology, said that his company travelled to Russia with a bit of skepticism due to the Crimea takeover. “We had reservations about how Americans would be treated in light of our contradictory political stances, but the people of Russia were overwhelmingly kind and very openly happy to meet us. From the moment we landed and the initial meet-and-greet dinner, the potential buyers were eager to find ways to facilitate importing American aftermarket products for their market, which is in the infancy stages.”

  Russia is the third country added to SEMA’s Business Development Conferences

Russia is the third country added to SEMA’s Business Development Conferences. SEMA sponsors a trip to China each September (Beijing and Shanghai this year) and to the Middle East (United Arab Emirates) in March. The new program to Russia will be held each May. These low-cost, turnkey programs include a chance to meet formally with buyers (in a booth or at a table-top display), networking events with buyers, briefings by the U.S. government and a chance to visit shops. Exhibitors are encouraged to avoid the high cost of shipping products and instead carry them along. Pictured here setting up their display are Ed Rossi (left), vice president of sales for Injen Technology, and Ron Delgado (right), president of Injen.

       
 

Pictured are George Shepherd (center), export sales manager for Royal Purple, and Ed Rossi (far right) of Injen

The delegation visited six retailers and installers during the last day of the program. Pictured are George Shepherd (center), export sales manager for Royal Purple, and Ed Rossi (far right) of Injen. The shops the delegation visited sold and installed products for a wide range of vehicles, including Jeeps and both U.S. and internationally popular pickup models, such as the HiLux and the Mitsubishi L200 as well as GT-Rs, Subarus, Mitsubishi Evolutions, BMWs and local Russian brands, such as the UAZ Patriot and Hunter.

  At a networking reception with buyers, SEMA’s Bill Miller (left) and Peter MacGillivray (right) chatted with Michael Kasakov

At a networking reception with buyers, SEMA’s Bill Miller (left) and Peter MacGillivray (right) chatted with Michael Kasakov, a co-owner of Rennsport Imports, a Massachusetts-based wholesale distributor of OEM and aftermarket parts and accessories for the automotive and powersports industries with offices in Moscow.

       
 

George Shepherd checked out the UAZ (Ulyanovskiy Avtomobilnyi Zavod, which means Automotive Factory of Ulyanovsk) Hunter, a popular locally built and branded vehicle

George Shepherd checked out the UAZ (Ulyanovskiy Avtomobilnyi Zavod, which means Automotive Factory of Ulyanovsk) Hunter, a popular locally built and branded vehicle. The delegation visited a UAZ dealer and saw the UAZ Hunter and newer UAZ Patriot—both of which are popular for off-roading, hunting and fishing. UAZ was founded in the 1941. UAZ’s best-known product is the 469, which has seen wide use as a military vehicle in the Eastern Bloc and around the world. Located 550 miles from Moscow on the Volga River, the UAZ factory started production in 1941 as part of the Soviet World War II effort. With its aggressive image, affordable cost and ease of do-it-yourself maintenance, the Hunter has an enthusiastic support base. The Hunter costs approximately $14,000 USD, and the Patriot is about $19,000 USD. SEMA is importing a UAZ Hunter for member manufacturers to measure.

  Andrea Brouillette-Rodriguez (second from right), deputy minister counselor for political affairs at the U.S. Embassy

Andrea Brouillette-Rodriguez (second from right), deputy minister counselor for political affairs at the U.S. Embassy, briefed the delegation on current U.S./Russia political relations.

Robyn Kessler (fourth from right) commercial attaché for the U.S. Embassy in Moscow, and Alexander Kansky (fifth from right), commercial specialist for the U.S. Consulate in St. Petersburg, also briefed the group on commercial issues.

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