Russian Auto Tech Slowed by Economic Uncertainty

Russia’s auto industry has been adversely affected by the economic downturn that was triggered by a slide in oil prices, devaluation of the Ruble, and international sanctions.

Some observers say the sanctions stemming from Russia’s ongoing dispute with Ukraine are less onerous on the automotive sector than Russia’s ownretaliatory sanctions against the Western automobile industry.

Passenger car production tumbled by 45 percent from December 2014 to January 2014, according to the Federal State Statistics Service.

Additionally, the World Bank predicts that the country's GDP will drop by 2.9 percent in 2015. The unstable situation raises concerns for businesses seeking partners in Russia to develop telematics services.

“Sanctions against Russia are not having a direct impact on the automotive sector but the indirect impact is certainly a concern,” says Lilit Gevorgyan a Senior Economist and Europe Analyst at IHS Global Insight. She explains that problems with the Russian ruble and high inflation make business planning difficult and erode customers' purchasing power so the economy is bracing itself for a downturn in 2015 and potentially the following year.

Several companies like Nissan Motor have either raised prices or pulled their business out of Russia. The Wall Street Journal stated in December that new models of General Motors, Audi and some Volkswagens would no longer be exported to Russia. Nevertheless not all car producers have been hurt by sanctions.

ŠKODA sold 84,400 units in Russia in 2014, which is almost the same number of vehicles it sold in 2013. And Tomas Kubik with the OEM’s corporate communications department says Skoda increased its marketshare in Russia with 8 percent sales growth in January while the overall market declined. But officials with the OEM say they are not selling cars with connectivity that its buyers are not looking to pay extra for these services. Kubik remains cautiously optimistic, “The situation in the Russian market remains difficult and uncertain, however, we strongly hope that the situation will stabilize soon.”

BMW launched ConnectedDrive in the Russian market at the end of 2014. This service is not well known in the market yet. There is also the federal program ERA GLONASS (analogous to eCall in Europe), a public intervention service that sends out a signal during an accident. Since January 2015, government policy has required all new cars to be equipped with this system. This policy will extend to all cars on the road by 2017. Finally, there is SVR (Stolen Vehicle Recovery) services that are offered by various companies to prevent car theft.

Despite the downturn, some local firms say the uncertainty can create opportunity. Andrey Zinkovestsky, director at Cesar Satellite, says, “Most companies are quite open to investors and partners from the West for now, but it depends on the company. You don't need to have a special license to develop telematics services, so if you are entering from the West or Asia, you can start from scratch.”

Cesar Satellite offers telematics devices as well as services including intervention, SVR, concierge and roadside assistance. Zinkovestsky explains that suchbusiness models are popular and demanded by potential clients as they provide control, comfort and real security in case of criminal cases and incidents.

According to Anna Antimiichuk, Communications Manager of International Projects at Omnicomm, the potential market in Russia for connected cars is huge. The company is working on a remote cloud services database.

Vinli produces OBD hardware for creating connected car solutions. According to Blake Burris, VP of Developer Evangelism and “Chief Hacktivist”, the company is planning on shipping its new product, an OBD device with 4-G LTE connectivity and Wi-Fi, to select developers internationally in March 2015 and to consumer channels in June 2015. Burris believes that Connected Car solutions will take off on a massive scale in 2015 and that autonomous car initiatives will follow in the next three to ten years, as regulatory issues are resolved.

“Vinli sees an immediate opportunity in connecting the 700 million cars with OBD II connections,” said Burris, “Vinli will make driving these cars more fun, more safe and more efficient.” Burris was in Moscow in October 2014 for the Open Innovations Forum where they discussed their technologies with startup communities and companies working in transportation. Vinli also co-hosted a ConnectedCarMeetup in Moscow. In Spring 2015 the Moscow State University, Russian community leaders and companies will participate in another.

“The start-up culture is alive in Russia and people are open to ideas for connected cars and hackathons,” explains Burris. Although Vinli hasn't connected cars in Russia yet, they have a number of partners interested in making it a reality. Russia doesn't compare to the U.S. when it comes to business for Vinli, and the economic climate is a big issue, according to Burris.

However he believes that this shouldn't stop entrepreneurs from building apps for external markets and reaping the financial rewards. Despite the political situation Vinli seeks to have deep relationships with partners in Russia who understand local dynamics and are familiar with Russian rules and regulations.

Whether consumers would pay more for data collection isn't clear but it's not likely in the near future, according to Steve Chernysh, CEO at AutoDealer-University. There are many entreés to the Russian consumer; some want roadside assistance and crash detection while others just want Wi-Fi. Many companies are also working on offering UBI in Russia.

OnStar and Volvo OnCall services are available but aren't mainstream yet. Like Europeans, Russians prefer buttons over voice controls and touch screens. Companies such as Vinli seek to solve Russia's urban mobility challenges by creating a vibrant ecosystem of innovators in collaboration with the Municipality of Moscow and universities.

“Technologically, there are no obstacles to the further development and implementation of such technologies, but from the point of view of the law – as well as from the point of view of safety – there are a lot of open questions,” says Catherine Chabanenko, expert and head of the educational program “Robotics” at Moscow State University of Mechanical Engineering.

She adds, “You can talk about the threats of hacking, false guarantees, unfair software theft – risk areas are plentiful. At the same time we must not forget that we're not just talking about the next mobile technology, but about the vehicles and traffic – that is, the field associated with increased risk for life.”

For the latest update on the auto technology market in the US, take a look at TU-Automotive Detroit Conference & Exhibition 2015 (June 3-4). 

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