During the St Petersburg International Economic Forum in mid June, President Medvedev espoused the stance for continued diversification and modernization of the Russian economy. Its ambition to become "a cornerstone of the new world economic order". Amongst the high profile intentions are Moscow as a powerful financial hub, and the creation of a 'Silicon Valley'. Such initiatives assisted by FDI incentives.
The financial press however reports that the transition from broad national ambition to distinct, actionable policy-setting to create a delivery mechanism has proved less than successful. Those with an ideological or political counterpoint view highlighting the failure of the state to properly address everyday door-step issues, let alone grande plans. The recent fire-fighting debacle seen during the recent heat-wave provides the tinder for such allegations regards state incompetence. However, the homeland priority of a heavily diminished 2010 wheat crop could be said to counter this picture, publicly reflecting strong leadership to the people - even if an 'invisible outcome' would be to latterly release the commodity into the global market for a higher price.
Of course the apparatus of industrial modernization – visible and invisible - is distinctly separate from the newspaper headlines and regional politicking. Instead largely crafted by both the slow evolution of a massive but dinosaur-like ex-state infrastructure, and the faster joint venture collaborations with international corporations. Acting as catalysts within and alongside this mix are the role of domestic entrepreneurs, with as a not so small aside, the issue of their funding bases.
Undeniably, as with all countries, partiality of multiple interests obviously exists, but perhaps in Russia a little more obvious given the high profile of oligarchs and associates, than might be the case in other countries. To many since the collapse of communism the famed Churchillian quote that “Russia is a riddle, wrapped in a mystery, inside an enigma” stands more prophetic than ever. The fractious BP-TNK relationship in the oil sector perhaps the archetype case in point for today's and tomorrow's international business students.
However, as part of its metamorphoses from 'emerging' to 'advanced' status, the country has obviously been keen to re-generate its sizable automotive industry. And over the last decade has been successful in attracting FDI from global manufacturers, themselves keen to participate in a previous boom, with still high potential once the region gets back on track.
[NB Putin well recognises this reality, and so seems happy to slow WTO accession so as to create an 'FDI window of opportunity' (reflected in a reversal of normative import tariff reductions) which provides a more immediate route to industrial impetus.
Bodies such as OAR (Association of Russian Automakers) and AEB (Association of European Business' Auto Manufacturers' committee) act as umbrella and co-ordination agents to assist the ambition; especially so in providing the reliable domestic sales reporting and product regulation harmonization so required to assist the business fundamentals of credible market data and access.
To this end, factories were built by GM, Ford, BMW, Daimler, Renault, PSA, Hyundai-Kia, Mitsubishi etc, with the new comers from China in the guise of Chery, Great Wall etc chosing to use Russia as a stepping stone for their European entry strategies. As politically determined, simultaneously this foreign interest has enabled growth of its home capability via an improving supplier-base to periodically re-engineer long-in-the-tooth domestic vehicles, whilst also leveraging JV accessed foreign technology.
Whilst some legendary USSR names such as ZIL and Moskvitch effectively changed their operational shape through their own efforts to try and re-acclimatise, including purveying 'retro-chic' in old and new guises, others have been, and are in the process of being, reborn.
AvtoVaz initially joined with GM to largely produce Chevrolet badged Opel Astras until 2008, which whilst commercially unsuccessful was far more useful for knowledge and capabilities absorption. This JV model set the necessary template, and was more recently superseded when AvtoVaz joined with Renault-Nissan to update Lada. GAZ (owned by Basic Element – Russian Machines') bought Chrysler's mid-size car tooling with limited market success badged as Volga, and has toyed with the idea of re-generating the old Volga brand as 'retro-esque'. It also critically bought the UK's LDV van company to bolster the commercial vehicles section, yet the UK assets where eventually sold to private equity group China Venture. Elsewhere ex-Ford senior management took seats on the Board of Kamaz Truck, indicating likely co-operation.
[NB Thus the Russian auto industry is effectively seen to come full circle from the days when Moskvitch licenced Opel designs and Lada (like other eastern bloc companies) replicated FIAT].
Moreover, this approach to leverage 'piggy-backed' technology now seems to sit central to new premium positioned niche vehicle ambitions.
The Russian interest in niche vehicles has always been prevalent, from specialist military devices to home-grown adaptations of cars grey-imported from Poland and Germany, but perhaps first came properly into view during Russia's commodity exporting and industrial boom years when Russian businessmen had cash and incentive to do so.
Nikolai Smolensky bought the UK's TVR in 2004 (from ex oil man Peter Wheeler), split the company into 3 divisions* and shipped much of the tooling to Russia, choosing the near-namesake Tver as the supposed new home. [NB the company had been rationally split into 3 areas as presumed to be exploited or re-sold to other investment groups as ongoing concerns: they are: 1. Motors (IPR & Brand), 2. Power (Parts & Spares), 3. Blackpool Automotive (Factory and Manufacturing Assets). Although understandably disliked by the TVR faithful, that action helped jump-start Russia's own considerations of its own upmarket niche vehicle industry.
That perception was assisted by the creation and (15 unit) sale of the impressive Russo-Baltique Impression in 2006, which aped and enlarged the legendary carrozerria styles of the 1920s/30s, bodies seen on cars such as the Bugatti 57CS Atalante Coupe, Lago, Hispano-Suiza, Delahaye et al. The car was presented as what would have naturally evolved had the operation continued beyond 1919. [NB Russo-Baltique existed between 1909-1919 in St Petersburg & Moscow]
Yet to date little had emerged as properly engineered, broadly certified and market successful. The TVR tooling was rumoured to have been sent to Turin in Italy, and then onto the near name-sake town of Tver in Russia; but this appears more of a PR motivated story than solidly proven as a basis for new manufacture.
The blow of the 2007/8 financial melt-down created a major Russian recession with over-leveraged conglomerates such as Basic Element having to restructure under external debt and internal efficiency pressures. As a consequence of the country's rapid industrial re-structuring – essentially from bottom-up and demanding massive cash injections (as seen by Avtovaz vying Renault on its 25% stake) – the remote fringe ideals and focus of creating a Russian niche sportscar / luxury car market, appeared periodically halted.
However, moving into this picture at that time, apparently spotting the future opportunity, was Nikolai Fomenko - a domestically renowned musician, actor, motor-sports driver and presenter of Russia's Top Gear TV programme..
[NB investment-auto-motives suspects a low-profile yet well-connected 'backer' has identified the present opportunity to create something anew, exploiting the low point of the financial crisis 'after-shock' within the economic cycle. Given his background and public familiarity, Fomenko has seemingly been positioned as the high profile front-man].
'His' idea for “all new Russian supercar” and luxury brand titled MARUSSIA (aired in 2006).
However, given the lack of quality domestic niche manufacturing capability - which in recent history has seen variable levels of niche sporting car sophistication - the MARUSSIA business model would have to look further afield to access both (ostensibly) ready-made platforms and access higher levels of engineering and fit & finish.
From investment-auto-motives' external view, the fundamental business plan appears to 'simply' overlay new body/bodies, accompanying cabin re-engineering and the additional of multi-media services, to position the MARUSSIA marque in 'luxury sporting' territory. This essentially combines the typically distinct arenas set out by front-engined luxury coupes and mid-engined sporting/track cars. The closest parallel is perhaps the limited series Maserati MC12 – itself derived from Ferrari Enzo, the synthesis of both cars developing other limited editions.
Thus MARUSSIA's self-proclaimed ethos is the age-old automotive scheme of adding greater comfort and practicality features to 'bear-bones' credible/proven sporting origins; Bentley, Bugatti and Alfa Romeo good yesteryear illustrations. The difference here is that these British, French and Italian companies both fully designed and modified such vehicles as the 4.5 Litre, the Atalante and the 8C. MARUSSIA must short-cut such conventions given its limited capabilities.
However, an additional twist to the business model is that MARUSSIA offers a 're-body' service, which at first impression seems to mirror the yesteryear exercise of re-bodying a vehicle to suit different seasons or fashions – very much in the old carrozeria mode. However, Fomenko says without giving detail that this is not quite the case. [NB A latter-day re-body initiative was to be part of Daimler's >smart brand business vision, its ForTwo car designed to enable the swapping of different coloured skin panels]. However, Fomenko apparently states that his offering neither parallels that 'pick & mix' exercise. Exactly what he means by the “re-body service” is thus not yer clear.
Fomenko has been promoting the venture with an overtly philosophical stance, driven by what he describes as his own 'ideological' perspective; something that no doubt chimes well with the Russian mentality. Reasonable enough as part of the marketing ploy, yet the real operational trick – especially given Russian economic and capability constraints – is to pull together the business package by effectively outsourcing the prime and 'added-value' elements of the proposition.
This process, balancing resources vs cost vs product capability - is the archetypal 'triangular heart' of the niche vehicle business model; seen decade after decade across the globe.
He claims to have developed a new mid-engined supercar from what he would have the world believed as 'from scratch', intended to compete against, and sit squarely between the likes of Ferrari/Lamborghini and Bentley. This as a consequence of Russia's wealthy turning to the more comfortable, practicle and liveable Bentley on Russia's poor roads, after enjoying Ferrari/Lamborghini but frustrated by the infrastructure limitations that prohibit use and damage vehicles. Moreover, B1 is set to compete against Koenigsegg, Spyker, McLaren, Venturi et al, aswell as – one would think – Pagani's Zonda.
Furthermore, the original B1 model has also been developed into an additional B2 variant to give the brand and products greater breadth and so wider customer appeal/
[NB By no coincidence the MARUSSIA badge/logo mimics the iconic badge used by MARCHAL, the maker of headlamps for the finest marques in the pre-WW2 years – the metaphor of 'leading light' not lost on classic car connoisseurs].
At first rudimentary glance, given the fact that Fomenko drives an Audi Q7 SUV (from VW Group) and mentions Italian design assistance on B1, it was conceivable that he would ideally use the solid supply source of VW's last-generation - well proven and much amortised – platforms. Thus VW AG would also strengthen its business and political ties with Russia, something very much needed given the level of mass market competition, and Fomenko could use Q7 as the base for his F2 SUV.
Thus investment-auto-motives' original hypothesis was that the B1 was derived from the 2002-2011 Lamborghini Murciellago. But closer inspection of the cars front-end 'hardpoints' such as screen shape and wheel-centre to screen A-post relationship proved otherwise. Instead, its proportions and general form and detailing (such as exhaust outlet positioning) tentatively appears closer to the Pagani Zonda. This would make sense given Fomenko's mention of Italian design/engineering, and Pagani's need to generate an income to service the R&D and production requirements of its next advanced generation of supercars.
However, its seems that for various reasons (including Zonda's IPR protection, exploitation of Russia's own metals resources & processing development, aswell as ease of Russian build), Zonda's has not divulged its core-competence expertise in carbon-fibre race structures. Instead the MARUSSIA B1 uses an aluminium semi-monocoque which accords to early Zonda models and reflects the more conventional construction method used by the 2002-2010 Lamborghini Murciellago. This older construction method better befits new supercar business models which require greater business case elasticity given their unproven nature. (Zonda itself is developing its new generation cars from its R CS model). However, the B1 does incorporate a level of carbon fibre application but largely includes use of a supposedly advanced polyurethane material, which whilst not proving leading-edge theoretically provides nominal weight saving at reasonable costs.
MARUSSIA was shown in 2008 in Moscow, 2009 at Frankfurt, and April 2010 in Monaco, comes in the aforementioned 2 guises: the original B1 incorporates various 'generic' and specific supercar cues from competitor and past cars, aswell as the Zonda-esque small 'bubble' cabin and broad flanks – derived from FIA GT1 and LMP racing.
The B1was showcased alongside Virgin Racing's F1 team given Marussia's partner status, no doubt to provide Virgin with Russian exposure, aswell as the obvious halo/credibility rub-off from F1 - and shared engine use - for Marussia (ie using two versions of a V6 'Marussia-Cosworth' engines, a 3.0L naturally aspirated and 2.8L turbo-charged).
[NB A possible sponsorship link could also feasibly be agreed with MARUSSIA to run at Le Mans and similar Series races such as Sebring and Daytona so as to help raise its and Virgin's international profile alongside F1].
The B2 (2+2) takes-on a more geometric front & side look with a different vertical A-post style windscreen that aids entry/egress, 2-window side DLO graphic and an archetype aerodynamic tear-drop roof profile (with usual Kamm tail) so as to accommodate 4 people. It has an unusual appearance given the coupe cabin volume and treatment, which in part reflects a supposed functionalism which stylistically echoes the intendedly differentiated Avions Voisin cars from the 1920s/30s.
However, oddly the dimensional specifications for the car as listed on the official website are the same as the B1. Of course as much similarity as possible reduced cost but given its differing remit seems strange, especially regards height given head room requirements and an apparent visual difference. It is suspected that the B2 specs are little more than copy+ of B1 for simple website publishing.
In addition to the cars is the intention to develop a performance SUV vehicle, as showcased by the F2 concept in Moscow in May 2010. This is logical given wealthy Russian's demand for large SUVs, however the treatment as shown does leave much to be desired
The eventual vehicle portfolio then will essentially mimic Porsche's & Aston Martin Lagonda's use of sportscars and performance 4x4. (Porsche also of course offers coupes and coupe saloon, the latter also offered by AML. Aston Martin Lagonda also offers its 'novel' city car sourced from Toyota).
Thus in product positioning and model portfolio, MARUSSIA follows in the path of 2 legendary companies. However, given the need to markedly differentiate its products from their origins means that their vehicles' innate cosmetic and functional DNA is somewhat 'different' or 'interesting'.
The B1 two-seat mid-engined supercar appears the most conventional, whilst the 2+2 packaging of the B2 version suffers typical 2+2 M-E packaging faults, whilst its use as a 'product bridge' to the cosmetically 'alternative' F2 SUV, means that it is compromised on the aesthetic front aswell as the packaging front.
Ironically given its mid-engined layout, the B1 names itself a 'Grand Turismo Sport Coupe', something nominally associated with front engined road cars which allows for adequate rear storage. However the B1's reference is to the FIA's GT racing class. This then has obvious connetation to Maserati's GranTurismo Coupe & Convertible.
[NB It also correlates to TVR's 1960s Grantura model name, so possibly leaves the door open for latter-day operational synergies with a resurrected TVR]
As for the B2, things from this admitted distance look unclear, especially the subject of a shared wheelbase with B1 which would compromise either one or the other.
[NB the idea of 'long cabin' 2+2 or 4 seater laid-out within a mid-engined car package has long been seen as 'the worst of both worlds' since it leads to a heavily compromised product basis on dynamic performance grounds given the loss of true mid-engined positioning and on passenger occupancy grounds given rear leg & head-room squeeze. Though it 'works' as a theoretical USP on paper, historical precedents demonstrate the limited appeal: the less than successful 1980s Ferrari GT4 & Mondial, and more recent 2006 Lotus Europa. Typically 2+2 M-E based cars are created either to build-up the volume basis for a project's business case, or to extend the life-cycle of a platform seeking either required additional volume to realise original business case ambitions, or to try and maximise margins from a previously amortised base].
Given the apparent use of an adapted Pagani Zonda frame, investment-auto-motives believes margin maximisation is MARUSSIA's intention, whilst the Pagani desire is to licence old technology for an additional income stream.
As is to be expected, and all to typical within the start-up arena, a certain amount of press chasing and public story-telling is being told by Fomenko to support the project and business.
To this end the B1 and B2 have supposedly designed wholly on computer via advanced CAD systems, aiding the speed of development and enabling a quicker market launch, since this supposedly negates the need for typical running prototypes, the full prove-out process supposedly achieved via computer hardware programmes and rig-testing of a single vehicle.
This again is somewhat questionable, since throughout the history of CAD use such assertions have been made, the reality being that initial customers end-up as the trialling process that irons out problems that a mass manufacturer would solve during in-house trialling. The prototype trialling process is of course a costly one, and so for small start-up businesses with limited liquidity it makes sense to create a business model which modifies a proven platform, enables niggle-fixing from customer feedback and critically shortens the period between set-up and supply costs and customer revenue receipts.
Getting the Overhead and CapEx budget balanced by the Income Receipts is the most important element of any new business, especially so in the auto-motive sector. The failure to do so has been the downfall of many ventures over the last century, and is the reason why (rightly) the investment community generally prefers the pragmatic attitude of the businessman to the perfectionist attitude of the inventor-engineer.
With no doubt help from other more low-profile colleagues, Nikolai Fomenko, ever the showman will need to balance marque enthusiasm, commercial practicality, product delivery and ongoing support to be taken seriously by customers. That is the real challenge given that MARUSSIA is still in its infancy, with the possibility that its eyes are bigger than its belly.
However, Fomenko indicates that a production volume of 100-150 units would be “ a good result”, though it is not clear whether that 100 figure equals the project's financial break-even, and the additional units profit. Or whether it requires 150 vehicles to reach break-even. It is an important point to make that such a 50% variation is highly unusual when assessing the viability of a niche manufacture vehicle project. Whilst exacting figures are understandably in-credible, a reduction in the volume's effective 'spread' would be deemed very necessary to pin down the business case.
To this end MARUSSIA must present itself well and convincingly to an international crowd.
Fomenko's ultimate ideal, as presented to latter-day investors, could well be piggy-back Pagani to build reputation and credibility in the near term – ie over the next decade - then to piggy-back a bigger sourcing partner such as Lamborghini (ie VW Group) to gain production efficiencies.
This would appear to be a notionally stable long-term plan if viable.
Yet, even with greater levels of FDI pumped into Russian capital markets, seeking higher-value returns than available in the West or Japan, given the past foreign investment concerns in Russia, there will be a need by any foreign investor to see tangible returns and/or growth evidence. An immediate ROI 'bang for the buck' directing capital to the likes of commodities, metals, telecoms and state-support initiatives. Whilst for VC orientated entities, the need to have far greater transparency throughout the infancy stages of any start-up company; critically to ensure allotted funding is fully accountable and provides visible early-stage business traction.
That future FDI that President Medvedev seeks will have investor procedural demands of its own, but especially, and necessarily, so in the relatively complex, costly and politicised world of national supercars.
Ironically, even with the current pro-Russia stance of global capital markets, in such non-conventional capital plays, it will be the Russian who will act the bulls and the FDI outsiders the legendary Russian bear.
