Interviews

Interview with Bohdan Kulchyckyj for “Economicheskie Izvestiya”

Global crisis affected nearly all automotive corporations of the world, and shares of many of them lost over 2/3 of capitalization. Ford, Porsche, Volvo, Jaguar – the brands you represent in our country – have similar past experience. In your opinion, how will everything end this time?
Bohdan Kulchyckyj:
We do observe fall of stocks of many major automotive companies, down to the level of the late 1950s. If only a year ago someone had told me that American General Motors would be threatened with bankruptcy, I would have just laughed in their face and I would not have believed them. Nobody knows how this crisis will end, because the present day situation differs from any events in the past. But I think this state of affairs will last for a year or two. Ukrainian market will be definitely falling next year, and the question is how much it will fall – maybe by 5-10% and maybe by 50%. The current situation is unique because nobody can foresee future developments, since you need to make a forecast for the entire global economy. Even the leading financial experts of the world refuse to make forecasts. Global crisis was not caused by automotive manufacturers and its resolution does not depend on auto corporations. It is a banking crisis. The bad thing is that Ukrainian economy proved to be dependent on credit incentive. As soon as crediting stopped, all consumer activity slowed down. I came to Ukraine sixteen years ago from the USA, and until now I thought that the crisis in Ukraine was a permanent state, and even its absence would be another crisis. But now we have a unique situation – the crisis in Ukraine became a part of the worldwide crisis. And when the present exchange rate crisis adds up to everything, the situation for both importers and consumers turns from bad to worse. In October we kept growing, because we were able to maintain stable prices. Nowadays, versus November, we have dropped by 7-8%. At the moment we can keep prices in check, adjusting them to the official NBU rate, though the market in general reviews prices almost daily.

Are you negotiating with, for example, Ford to bring this company's finance unit to Ukraine for boosting sales during the crisis? One bank like that has already become available in Ukraine – Renault Credit International Banque, Renault’s financial division, which offers lower rates and boosts sales…
Bohdan Kulchyckyj:
As a matter of fact, there is one noticeable global tendency – fall of crediting and growth of credit rates. Rates become higher because the risks are very high. We have been negotiating this matter with Ford for quite a long time. Banks are very conservative – they want to see a stable market growth. If the things that happened had not happened, the bank might already be here. As of now, the situation must at least become stable. Besides, Ford’s first priority is American market, and the second priority is its EU market. Earlier, Ford considered possibility of building an assembly part (and possibly in Ukraine) - there is a plant in Russia, so a major investment project was considered. But today, when all major automotive companies are forced to shut down their main plants which operated for decades, I am afraid there is no question of new serious investment and adding a new financial option in Ukraine. Everyone takes two steps back, cuts down their expenses and tries to understand what actually happens. Yes, American automotive industry may receive billions in loans from US government, but so far the companies should deal with their internal problems first.

Then how can governmental support help automotive manufacturers to improve their business?
Bohdan Kulchyckyj:
If GM suddenly goes bankrupt, at least 10 million people all over the world will lose their jobs. This the direct effect. The indirect effect of this event is hard to evaluate now, and just a possibility of this bankruptcy has been causing a stir in automotive industry for several months. I think that in the first place the money will be invested in increasing production efficiency and probably in break-through technology which will allow American corporations at least to regain their positions. There is a full program of the new US President Barack Obama, and according to this program in ten years the USA must become fully independent from oil imports. For the largest energy consumer in the world, this means reviewing basic principles of fuel consumption by modern cars. The latest technologies will be implemented, and most likely manufacturers will start producing more hybrids. In addition to making necessary adjustments to overall balance, this will help to improve American and global economy in general. Earlier, you could hardly imagine a diesel-powered Porsche, but such cars will come to the market. And I also can think of another good thing resulting from all of this – now all corporations will look deeper into processes implemented at their dealer networks all over the world. Weak, inefficient dealers, let alone grey dealers, will have to leave the market, because during the current recession they will not be able to survive. This year in the USA, over 2,000 dealerships will be closed, including some major dealerships. This means that for the sake of higher business efficiency the entire production chain will be revised – from parts suppliers to retail sales. You may call this a “purge” for business, and though this process may be painful, it will improve the health of business. Consumer will only benefit from this.

During the financial crisis in South East Asia, in the 1990s, there were a lot of mergers, new alliances between automotive companies. Should we expect similar events now?
Bohdan Kulchyckyj:
Ford announced sale of its Mazda shares and has already sold two oldest British companies – Jaguar and Land Rover – to the Indian manufacturer Tata. The global leader GM is likely to sell some of its brands, and this year the German manufacturer Daimler completely ended their alliance with Chrysler (USA), because Chrysler was threatened with bankruptcy. Within the next several months the largest new alliance may be created – GM-Chrysler. Ford does take part yet, but this does not mean Ford ignores opportunities of possible alliances with its partners. I think this time we are in for very serious changes.

What is happening to Jaguar and Land Rover, now that they belong to Tata?
Bohdan Kulchyckyj:
I'd say both companies keep working as usual. They have a new share holder, and new major investment is expected. All members of management team keep working and prepare projects for new model ranges of these British cars. Both companies are given free rein with their technical policies. Jaguar, for example, now faces the task of returning to its roots - they plan to focus on creating classic elite sports cars, though until now Jaguar was experimenting in a somewhat different segment. I'd say the brand will again compete against such manufacturers as Porsche and Bentley.

This year Porsche bought Volkswagen. Will this cause any changes in sales volumes and for customers?
Bohdan Kulchyckyj:
No, I do not think it will. These two companies are long-time partners that worked jointly creating car platforms. This merger is just the increase in stake.

There is the legendary Ford Mustang which is for some reason not imported officially to Ukraine yet, but is distributed successfully through grey importers. Why don’t you bring this vehicle range to our country? Many cars of this segment may sell well in Ukraine.
Bohdan Kulchyckyj:
The grey market in Ukraine has really grown and grown significantly. And exchange rate fluctuations are one of the factors. This is especially true for premium brands. For example, for Porsche cars, according to our estimates, “grey” sales volume in October was 70%. The grey market for Land Rover has become very large. Another factor that added up to this problem is excessive stock of cars in the markets where recession began suddenly. All these extra cars went on sale through grey importers. The grey market has really become a part of every business, but it is even worse in Ukraine, because laws do not work in the same way for everyone, and because here the share of grey market is abnormally large. Maybe the government is not interested enough in getting rid of it. As for the legendary Mustang series, unfortunately these cars so far arrive in Ukraine through grey importers, not being certified for Europe. Their headlamps, audio system, fuel system and many other technical parts do not meet European standards. For the time being we cannot ensure the adequate sales volume for Mustang in Ukraine, to cover expenses required for adapting this model to Ukrainian market and Ukrainian standards. So we have put off this matter until Ukrainian market starts to grow steadily.

Most of your brands belong to premium segment and have their unique customer groups. Which models are your best sellers, by quantity and by profit?
Bohdan Kulchyckyj:
Most sales come from Ford - this year the sales volume will be over 13,000, while last year we sold 11,000 Ford cars. We have 37 Ford dealerships across Ukraine – this is a mass volume car. The second best selling brand is Porsche. In fact, Ukraine is one of Porsche’s major markets, surpassed only by Russia and several large countries of the continent. That is why we put a lot of effort into development of the dealer network for this legendary brand – our Kyiv showroom has already been joined by similar centers in Donetsk, Dnipropetrovsk and Odesa. We may also open dealerships in Crimea and Lviv. Ford and Porsche are followed by Land Rover, Volvo and Jaguar. - Which new models of your brands will be launched in Ukraine next year? Bohdan Kulchyckyj :Porsche will finally launch its new sports model Panamera – a four-door car with a generous room for rear passengers. Volvo is expected to start selling XC-60 crossover. As for Ford, keep an eye open for Kuga and the new Fiesta. Jaguar will bring us the new XF.

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