While The U.S. Car Business Is Struggling, Russia Is Booming

Implications: While the Detroit Three struggle to stay afloat in the middle of the worst auto sales year in a decade, emerging markets such as China and Russia are booming. So much so that while Ford is closing plants in the U.S., it is building them in Russia. They are not alone.

Analysis: Sharp growth in demand in Russia is leading Ford to add more production capacity at its Saint Petersburg plant. They are not alone.

There is growing demand in Russia and a big opportunity ahead for western carmakers, but wage rates are rising fast and poor infrastructure and logistics can add costs. Corruption is rife and the Russian government intrudes with a heavy hand in energy, media, auto and other sectors it considers critical.

Witness GM's efforts in 2001 to form a partnership with Russian automaker AutoVAZ. A series of mishaps, including nationalization of the carmaker, still leaves the partnership on shaky ground. GM is now in talks with Russia's No. 2 carmaker ,GAZ.

Yet despite the challenges, global automakers and Russian manufacturers are eager to forge closer links. For the Russians, who are struggling in their home market, its a matter of survival. They need partners to update the technology in their vehicles and their production methods.

For global automakers, the potential rewards outweigh the risks. Russia is no longer full of poor people who can only afford cheap, simple cars.. It's full of people who can afford very nice cars.

Awash in oil money, Russia is on track to become Europe's No. 1 auto market in two to three years. Is revenues are assured by huge reserves of gas, oil and minerals, and its newly flush consumers are showing a preference for foreign brands- in their drinks, their clothes, and especially their cars.

In the past five years, Russian automakers' share of their booming market has shrunk from 80 percent to 32 percent, as foreign car sales outpaced demand for outdated Ladas, Volgas and other domestic models. Global automakers are attracted by Russia's unused production capacity and local carmakers' political connections

For GM, Ford, Renault and other competitors in Russia, the one commodity in short supply is time. Time to develop new platforms, new engines and time to  market.