The co-owner of Atlant-M: “By the next crisis, we will already have money set aside to buy our more careless competitors”
The Belorussian Atlant-M began its automobile business in the early 1990s, by buying four Zhiguli cars and reselling them in Minsk. Today the company includes 35 automobile enterprises in Belarus, Russia and Ukraine. In 2011, the Holding sounds about 38,500 automobiles, and its turnover reached 1.5 billion dollars. It is the largest organization in the CIS specializing in selling and servicing cars. One of its founders, Sergei Savitsky told Forbes.ua about how the largest automobile holding in the post-Soviet world was created.
How did your automobile business in Belarus begin?
In 1991, we created Atlant-M Brokers’ House LLC. The name makes it easy to guess what the company did. We sold timber, paper and oil from Russia on the Minsk exchange. We had no capital of our own at the time, so we worked on commission contracts. We went to the directors of Belorussian factories and persuaded them to sign agreements with us under which we would sell their products on the exchanges where we were represented.
How did you come to the automobile business?
After we earned our first capital from commission contract transactions, we started to buy goods with our own money and at our own risk. We also had a place on the Russian automobile exchange. We bought four Zhiguli cars there and then sold them in Minsk. I don’t remember the details of the transaction. But this is roughly what the numbers looked like; we bought four cars in Moscow for 200,000 rubles, then sold them in Minsk from 400,000. That seemed like a good business to be in. So we decided to go to Moscow and buy more Zhiguli’s with that money. Though I must admit, we didn’t manage to sell them quite as profitably as the last time.
I don’t remember the details of the transaction. But this is roughly what the numbers looked like; we bought four cars in Moscow for 200,000 rubles, then sold them in Minsk from 400,000. That seemed like a good business to be in.
The economy was unstable. Everything changed very quickly. We sold some of the cars for a good price. The others got hung up. We traded the last two Zhiguli’s for Latvian RAF’s. It turned out that nobody wanted those either. Eventually, we found a client that was interested in the RAF’s. It was a chemical enterprise from Novopolotsk. That didn’t have any money, but they had cellophane film. We traded them one “Raffie” for two truckloads of film. Then we traded one load of film for some Belvst shoes. We sold the others on the market for greenhouses. We sold the shoes too; we had to open two stalls just for that.
But you weren’t disenchanted with cars yet?
No. An automobile is a nice good to trade it. It doesn’t need special storage conditions. Just park it, and you’re done. There are no transportation problems either, it can transport itself, just get in and drive, like always. We also understood that it could be an even more attractive good if, instead of buying it on an exchange, you go to the factories’ representatives directly.
How did you new plan for buying cars look?
We started buying re-exported cars. Russian cars were exported with not VAT. We intercepted them at the ports, got a good price and could compete with the existing AutoBAZ retail chain.
What does “intercepting” mean? If the cars were set to the port for shipping, that means someone signed a contract for them.
So how can you intercept cars like that?
You have to remember that it was the early 90’s. The market was still a bit wild. The “interception” plan looked like this. The cars were contracted for Panama, for example. That means that their price was reduced by the VAT rate when they left the AvtoVAZ factory. The cars went to the port and they were supposed to load them for export. But they didn’t. They were documented there as imports. Importing Russian cars into Russia was also tax-free. So we didn’t pay either VAT or the import tariffs. So the price of the car turned out to be lower than it would have been on the free market.
So the Zhiguli’s were considered re-exported, even though they never left the country where they were produced?
De facto, yes. De iure, it was re-export.
Were you only working with AvtoBaz in the 1990’s?
Not. Eventually we went to AZLK and started to sell Moskvich cars. Then UAZ and GAZ also appeared in our product line.
To sell cars today, you have to know a lot about them. Did you know the product you were selling well at the time?
Back then the main skill you needed was how to buy them. You didn’t have to be a real specialist to sell them. Getting hold of a shipment of cars, loading them at the factory, getting past the semi-criminal structures that had formed around car factory; that was the hard part.
Volkswagen instead of Zhiguli’s
When did foreign brands appear in you “kit”?
That was in 1994. There was a list of all the automobile producers and their addresses in the magazine Auto motor und sport. We picked 14 companies and wrote them letters about how we would like to sell their cars in Belarus. 8 of the 14 companies answered, and six of them came to meet us.
How did you pick the companies you wanted to write to?
We had two criteria. The first was that their trade mark wasn’t represented in Belarus. The second was that that brand had a good image and had good growth potential, as far as we could tell.
Who wound up coming to meet to?
I don’t remember everyone. Volkswagen, Mazda, Volvo, Subaru and Nissan were there, though.
How did you position yourself at the time?
At the time, we didn’t know that word?
Ok, so then what did you tell them about yourselves?
We told them that we’re a young company. We have some capital and we’re ready to rent space in our dealerships.
Who found those arguments persuasive?
At first we had agreements with Volkswagen, Nissan, Volvo and Mazda. But then Nissan and Volvo disappeared.
We agreed that Volvo would deliver two truckloads of cars. They promised us a discount. But then they raised the price and made it very clear that they were not interested in development in Belarus. The most important thing for them was how many cars we were prepared to buy from them. The story with Nissan was basically the same. At the time, it was a trading company in the United Kingdom that was selling cars under that brand. They also weren’t particularly interested in the development of their brand. Eventually, we made a deal with Mazda and Volkswagen. We liked their approach. They weren’t just interested in how many cars we would buy, but also developing their brand in our country. They asked for a business plan from us. Then we participated in a competition for the status of the importer of the German brand in Belarus. And we won.
There was an unusual mishap in our negotiations with Volkswagen. The owners of a service station, who were older people by then, suddenly told the Germans “why would you work with these kids? Talk to us. We have all the equipment we need.” That was a nasty shock.
Was it difficult to convince Volkswagen that you could represent their brand well? After all, at the time you had no experience working with companies like that.
Our German colleagues had two opportunities. The first was working with enterprises that represented the Soviet automobile industry. The second was betting on your entrepreneurs that had earned their own capital in the 1990’s. In Belarus, Volkswagen took the second path.
Was there fierce competition for the status of Volkswagen’s importer in Belarus?
Two companies were supposed to participate in the last stage of the tender: the ZAZ dealer station and Atlant-M, in partnership with one of the Minsk service stations. We agreed with the owners that we would create a joint enterprise. That was an advantageous agreement. That service station was completely new; its equipment was advanced enough to satisfy Volkswagen’s requirements.
We agreed that the station would provide the property assets. We had the contracts and the turnover capital to buy the cars and equipment and train the personnel. But there was an unusual mishap in our negotiations with Volkswagen. The owners of a service station, who were older people by then, suddenly told the Germans “why would you work with these kids? Talk to us. We have all the equipment we need.”
That was a nasty shock. We have to find an alternative. We found a gym that could be quickly and cheaply reequipped as a dealership, and we offered it to the Germans. Eventually, there were three companies fighting for the status of import, the former ZAZ station, Atlant-M and the service station that ditched us. But Volkswagen still picked us.
Was it hard to made a deal with Mazda?
We worked with Mazda for six years through a Japanese trade company. It was only then that we could break through to the producer and sign a direct import contract. Different national business cultures created some difficulties. We met for negotiations in Japan. The manager of the Mazda side of Atlant-M’s business gave a presentation. We didn’t hear a single word in response from them. We thought it might have been a bad translation. I said “Andrei, let me try.” I brought the same presentation and gave it again. A tried to show them more energy, we used a slightly different translation. But once again, we didn’t hear anything back. All we heard was “that’s it, your time is up, and the meeting is over.” A while later they told her that the management of Mazda had decided to sign a contract with us.
When did you decide to stop selling the products of the former-Soviet auto industry?
That was in the early 2000’s, when capital spent on foreign brands turned out to be more effective that that spent on the products of AvtoVaz.
Entering “brother markets”
Companies that sell automobiles rarely enter markets outside their own countires. There isn’t a single Ukrainian firm that has done so. How did the Belorusian Atlant-M grow into an international holding with assets in Russia and Ukraine?
Volkswagen showed us how. In 1998, we prepared a business plan for the development of a VW dealership network in Belarus. But that concern thought that the Belorussian market wasn’t enough, and that Atlant-M would also be responsible for the Kaliningrad region. That seemed like an odd decision, but we accepted us. Volkswagen liked how we prompted their brand in Belarus. In a few years it became the number 1 brand in the country, and it still is today. Representatives of the German company offered us an opportunity to build a dealership in Moscow. One of the co-owners of Atlant- Oleg Husaenov, went to tap into the Russian capital.
Did you go to Ukraine in the same way?
It was a little different here. It was suggested that we buy Intercar Ukraine, the company that had had an import contract with Volkswagen in Ukraine since 1993. It was a pretty difficult decision. There was a lot of money involved, and the scale of the market was totally different. Eventually, we were able to reach a consensus with both Volkswagen and the owners of Intercar Ukraine.
Where is it most difficult to do business now, Belarus, Russia, or Ukraine?
I wouldn’t say that it’s more difficult in one particular place. They’re different markets. Every country has its own features. When it comes to Atlant-M, then one plus in Belarus is our leading position in that country. We are in first place on the automobile market. But there is also a significant minus; the Belorussian market is very limited; the population is only 9 million. There is no such minus in Russia, and there is a huge plus. The market has already exceeded 2 million imported cars per year. An analysts promise that in 2016-2017, Russia will be the largest market in Europe. But in Russia, our share is only 2% of the automobile market. It’s very difficult for us to compete with large players.
The Ukrainian market is the most balance. It is fairly understandable in terms of scale. You can get anywhere in one day. However, Ukraine is having trouble recovering after the crisis. It’s currently very expensive to attract borrowed capital. The most expensive loans in our credit portfolio are Ukrainian.
Do you have plans to enter new markets?
No. The board of directors has decided that we won’t go anywhere yet. We need to develop the potential we already have.
Where do you see that potential?
I think that the next challenge that companies in the CIS countries will have to deal with is changing owners. Many of the people who started their businesses in the 1990’s are in their 30’s and 40’s. Now they’re approaching the moment when they will have to decide who to transfer their businesses to. So we expect an increase in mergers and acquisitions on the market.
How soon do you think that will happen?
When the next crisis starts. According to my calculations, that will be no earlier than 2016. By then, we will have a “sack of money” big enough to buy our less careful competitors.