Ford sees big Russia gamble vindicated assales finally turn corner Ford (F.

N) has become the first major foreigncarmaker in Russia to see sales grow after three bad years, potentially vindicating itsdecision to double down on a notoriously volatile market when rivals decided to cut and run.

Sales of cars in Russia have fallen by morethan half since a 2012 peak of 2.

9 million vehicles, due to an economic crisis broughton by low oil prices and Western sanctions.

The market fell by 11 percent last year, andwas down a further 5 percent in January from a year earlier.

Ford's big U.

S.

rival General Motors (GM.

N)pulled out of Russia two years ago.

But Ford chose not only to stay, but to keepinvesting, launching new models with modifications designed to suit the country's harsh drivingconditions.

Since 2011, its joint venture with SollersSVAZ.

MM, a Russian partner, has ploughed $1.

5 billion into making cars locally to localspecifications.

Now Ford's sales have turned a corner androse 10 percent last year, an achievement the company says is proof its strategy isat last paying off.

The 40,000 Fords sold in Russia last yearare still barely more than a fifth of the almost 190,000 vehicles the company sold in2008, before the global financial crisis brought the first of two collapses in the Russiancar industry in less than a decade.

During the latest crisis, Ford's share ofthe market for foreign cars fell at the expense of Korean competitors Kia (000270.

KS) andHyundai (005380.

KS), which chose to shore up market share through aggressive pricing.

But now their sales are still falling, whileFord's are on the rise.

The Russian market is "starting to turn",Ford CEO Mark Fields told Reuters last week, promising to stand by the company's investmentsin Russia.

"Our intent is to build on that.

" The Association of European Businesses lobbygroup forecasts the Russian car market to finally stabilize this year and grow by 4percent.

But it will still be years before a full rebound.

"Despite the economic turbulence, we didn'tcut investments and delivered the initial plan to launch seven new vehicles with a significantlevel of localization," Mark Ovenden, CEO of the Ford Sollers joint venture, told Reuters.

He noted that the company opened a $275 millionengine plant in 2015, a year in which Ford's Russia sales nosedived 41 percent.

The joint venture now operates four plantsin Russia.

New models, such as the Fiesta hatchback andEcoSport SUV, have been adapted for Russian conditions of bad roads and extreme cold,with higher ground clearance, anti-corrosion finishes and engines adapted for lower gradefuel, Ovenden said.

Ford would not say when it thinks its Russianoperations will earn money.

A spokeswoman declined to comment on profitabilityin Russia, saying Ford does not break down its European operations by individual market.

Vladimir Bespalov, an analyst at Russia'sVTB bank, said Ford's Russian operations were still loss-making but could be profitableas soon as 2018.

IHS analysts predict Ford's sales in Russiacould rise to 60,000 vehicles by 2020.

"But it's going to be a long, slow build up,"said Tim Urquhart, principal analyst at IHS Automotive.

Even at such small numbers, sales growth inRussia would mark a bright spot for Ford's European operations after it warned last monththat the impact of Britain's vote to leave the EU would put a $600 million dent in its2017 earnings.

"POINT OF NO RETURN" Russia has been one of the great dream marketsfor carmakers since the automobile was invented.

Ford first entered Russia in 1907 under thereign of Tsar Nicholas II, but foreign automakers were shut out during the Soviet era when Moscowbuilt its own industry.

Well into the 2000s, the market was stilldominated by boxy Ladas built on a design licensed by the Soviets from Fiat in the 1960s,leaving huge pent-up demand for more comfortable and reliable models.

A decade after the Soviet Union fell, Fordopened Russia's first foreign car plant in St Petersburg in 2002.

By the time of its sales peak in 2008, someRussian automotive experts predicted the Ford Focus could become Russia's new national car.

Although that ambition now seems far off,the decision to invest so heavily in building cars locally was one reason Ford decided tostay when GM left, said Bespalov.

"Ford passed the point of no return in termsof investment," he said.

"Ford and GM were in different situations.

For Ford the decision to continue to investmeant fewer losses than a decision to leave.

For GM, it was the other way round.

" Urquhart noted that GM had also been hurtworse than Ford globally by the 2009 downturn, giving it more reason to be cautious in theyears that followed.

While Ford saw sales grew last year, otherforeign car companies suffered further falls, in line with the wider market.

Kia, now Russia's second-biggest seller behinddomestic top producer Avtovaz (AVAZ.

MM), fell by 9 percent, and third-place Hyundai fellby 10 percent.

France's Renault (RENA.

PA), which sunk $1billion into an initial 25 percent stake in now struggling Avtovaz in 2008, saw salesslide 3 percent last year.

Sales of Volkswagens (VOWG_p.

DE) fell 5 percent.

IHS' Urquhart said it was still unclear whetherFord's bet on Russia would pay off in the long term, but its presence in Russia wouldhelp cement its position among the world's biggest car producers.

"If you want to be a global carmaker, you'vegot to be in the Russian market," he said.

Australia and UAE to explore deeper defenseties, A$1 billion in sales Australia and the United Arab Emirates (UAE)will explore closer defense ties after a meeting on Sunday between a senior Australian governmentminister and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan.

Australia's Defence Industry Minister ChristopherPyne and Sheikh Mohammed, who is also Deputy Supreme Commander of the UAE Armed Forces,met on the sidelines of the biennial International Defence Exhibition and Conference (IDEX) inAbu Dhabi.

The two agreed to consider a 10-year defenseplan that could include more than 1 billion Australian dollars ($767 million) in salesto the UAE, Pyne told Reuters.

"What the Crown Prince is talking about isa more mature long-term relationship built around security and procurement," he said.

Australia has military personnel stationedin the UAE, taking part in the United States-led campaign against Islamic State.

A final agreement has yet to be reached butcould include a transfer of knowledge from Australian to UAE companies.

"They are looking for genuine partners, notjust foreign military sales, and that suits Australia's attitude extremely well," Pynesaid.

Sales could include everything from ammunitionto large items such as "high-speed support vessels", he said.

"We have very significant capabilities, particularlyaround coastal protection and surveillance, which I think we should be sharing with ourMiddle Eastern partners.

" Australian companies could finalize hundredsof millions of dollars in defense sales to the UAE at IDEX this week, Pyne added.

The UAE, a federation of seven emirates onthe Arabian Peninsula, has invested heavily in its domestic defense manufacturing capabilitiesthrough international partnerships.

It is also a close U.

S.

ally and a globaltrade, transport and tourism hub.

The development of its defense industrieshas been led by Abu Dhabi, the UAE's main petroleum-exporting emirate, to boost thenon-oil economy.

"I think potential here for defense procurementpartnerships as well as security partnerships is very significant," Pyne said, calling theUAE one of Australia's "closest friends in the Arab world".

The UAE is part of the Saudi Arabia-led militarycoalition fighting in Yemen against the Iran-allied Houthi movement in support of the country'sinternationally recognized government.

It has also taken part in the United States-ledeffort against Islamic State.

IDEX opened on Sunday with a military demonstrationwatched by Sudan President Omar al-Bashir alongside Sheikh Mohammed bin Rashid al-Maktoum,who is vice president and prime minister of the UAE and ruler of Dubai, and Abu Dhabi'sSheikh Mohammed bin Zayed.

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