Josef Graf, the Managing Director of Porsche Ukraine LLC, told LDaily about the latest trends of automotive business development, its perspectives and peculiarities of the industry in Europe and Ukraine.
LDaily: Would you be so kind to analyze the market of new passenger and light commercial vehicles? What are the positions of your brands?
J. Graf: The market development was quite descent in 2018. There were no big changes compared to the 2017 but we were in a lucky position that our brands used to perform very well. So, we gained some additional market share. This means that we come up to almost 12 % of market share in the segment of passenger cars and 11 % in the segment of light commercial vehicles by the end of 2018.
LDaily: How has this changed in 11 years of your work?
J. Graf: The market share has grown significantly. Unfortunately, the market has ranked significantly the other way. When we started our business in 2008, there were more than 600 thousand units of new passenger cars on the market. Then was the first crisis, the financial crisis, the revolution, and the war. So, the market ranked step by step and the deepest market rank was in 2015 — with only 46000 cars and it is now on the level of 80000. This shows that we have some potential to grow.
LDaily: I know that you have different brands in your holding. Which of them are in demand the most?
J. Graf: In general, we say ‘Porsche’ but we are responsible not for all the group brands in Ukraine. We are focusing on passenger cars of Volkswagen, Audi, SEAT, and on Volkswagen commercial vehicles. We talk about different segments. While Audi is clearly a premium segment and best selling models are Audi Q7 and Q8, Volkswagen is a more volume-oriented brand with a very different range of models beginning from Volkswagen Polo–hatchback to Touareg. Brand SEAT focuses on socially active segment, thus a narrower audience.
LDaily: So it is in demand but it doesn’t have a big market share?
J. Graf: Yes, it doesn’t have a big market share.
LDaily: We know that Europe is moving away from diesel engines. What do you think, when Ukraine will be ready to do the same?
J. Graf: This is a good question. We don’t see significant signals in this direction at the moment but as a matter of fact, we expect that Ukraine will follow international tendencies and European tendency with a certain delay. Noticeable, there is a good stimulation of the electric car market. Consequently, this market should grow significantly in the next few years, as environmental attention of Ukrainian population gets more sensitive. This will also affect the mix of engine types. These tendencies are quite clear to be expected but we don’t see a sharp cut in the demand for business. In Europe, it is different.
LDaily: There are not many places in Ukraine where you can charge your electric car and this is inconvenient. I am dreaming about driving an electric car, as I think about the environment and it is also cheaper – you don’t have to spend so much money on gas.
J. Graf: I would say the environmental conditions, and the charging infrastructure in particular, is developing quite well even compared to Europe. Of course, the development is more focused in Europe, as there is a combination of big manufacturers, for example, of premium brands. They invest in a chain of high voltage charging stations and network all over Europe that will allow traveling long distances without trying to find a charging point. The situation in Ukraine is similar, but this may be on a lower level. The market expects such development and gets ready for this.
LDaily: If you introduce new electric vehicles on the market, will this affect other models? Won’t it reduce the demand for models which used to be popular?
J. Graf: I don’t think so. This is just a question of demand. When the market and consumers demand such kind of engines, we switch from one engine variant to the other engine variant.
LDaily: So, you are flexible to meet the demand of consumers?
J. Graf: Basically, we are. I think this is not the end or at least not very sharp cut. It is important to have both engines in parallel but we think that electric engines will dominate in the long run.
LDaily: How is the pricing policy for cars formed?
J. Graf: The main factor is the price of car manufacturing. There is a calculation behind, of course. This is a basic price from the factory and a position on the market. The calculation is conducted according to basic parameters on the market. We have to deal with customs duties and excise duties; VAT has to be added to the consumer price in the end. We are also oriented on core competitors, we have a definition of main competitors or main competing models for each model line. We look at their pricing and try to adjust our pricing according to that. This is a common approach for any market and it is not specific for Ukraine. Finally, what I observe is that cars pricing in Ukraine is quite comparable to Europe and there is no big difference.
LDaily: You are also oriented at a potential of the market of consumers to buy those cars. You provide some kind of model and you are awaiting that the market would take it. So, consumers could afford it. This price would be fair enough for them. Still, if it is not, are you flexible to make changes to the pricing strategy? If do you see that the market is not ready to buy a car for that particular price, are you flexible to change it?
J. Graf: It is a permanent process of matching viability and pricing with the demand on the market. This is a constant process. On the other hand, flexibility is limited to a certain extent, because you have to warrant the production and the distribution of the car. I mean this is a very logical market mechanism. When we spoke about the development of the car market at the beginning, the car market was at the level of 600 000 10-11 years ago. So, the market could afford such a number of cars and now it is on the level of 80000 only because of purchasing power lost and maybe due to financing possibilities lost or a quite expensive cost for credit financing. This just doesn’t work that way. This means that there is a sort of flexibility which is constantly used. If we see that competitors are starting some pricing action, we have to consider a strategy how to deal with that.
LDaily: It is your fourth year on the position of the General Director of Porsche Ukraine. What have you achieved during the period?
J. Graf: First of all, I would say I am settled here in Ukraine with my wife and we have a wonderful private life and this is something that can be positively mentioned besides any business result. From a professional perspective, we succeeded at least to stabilize our position on the market during this period. We had a lot of difficult situations like the events in Donbass or losing Crimea, the revolution… We kept a stable position during such hard periods of time, which is a significantly radical achievement and we have always been profitable, so to my mind, we contribute to the state budget in a good extend.
LDaily: Can you name this ‘crisis management’?
J. Graf: Crisis management is a part of it. We are constantly monitoring the development of different topics in the country. Recently, we had martial law declared in November, and this is a crisis condition for business and we have to deal with that. There should be fine measures on how to protect your property, your staff, and your business partners.
LDaily: You are in the top 33 best managers of 2018. Could you please share your success formula with our readers? What are your strengths, what is your leader’s success based on?
J. Graf: Despite any position in a ranking, I need to mention a few aspects which allow being successful in that particular position. The first is being a part, a member of a big group. We are belonging to the Porsche Holding located in Salzburg, Austria. So, we are a very big strong system. We have very good, solid, and successful business here, provided by the mother company and which we are simply implementing here. There are many particularities depending on the market, but the basic business model is the same in all the countries we are operating in. These are international aspects. Locally, we are lucky enough to have a very good well-motivated team which is maintaining this constant management process to keep the business in a stable and successful way. I think this is one of the key aspects — to have a very good local team. For me personally, there is nothing specific, there is nothing I am doing differently, anybody else would do that the same way. There is maybe one difference to be mentioned — I am committed to the country. I am committed to the city. I am committed to the company and to the team here. I am a part of this game, part of this business, with a very strong commitment. I have been working in this position for four years but in total, I have been working in Kiev, in Ukraine, for already 11 years. I did a banking business for a group before, and at the very first beginning, 11 years ago, I fell in love with the country, with the mentality, with the people. It’s really super motivating to work here.
LDaily: What tasks do you set for 2019? Does the holding have any plans for investments in Ukraine?
J. Graf: One of the main tasks — we are planning to launch on the market Audi e-tron which is a pure electric car. The first pure eclectic car which we are going to import and it’s a beautiful car. This is one of the main events for Audi and than we have market launched of a new Audi A6 and a new Audi Q3. They are existing models but in a new shape, in a new version. In Volkswagen, we launch crossover models. These are T-Roc and T-Cross. Next, we have to update the model line of Passat and we will introduce a new Golf, the next generation of Golf, generation 8. So, these are quite important events for the brand and it is a significant statement for the market.
LDaily: What new trends can you highlight in the Ukrainian car market for 2018? How have sales been affected by the legalization of cars from Europe? How does the development of the segment of electric vehicles and hybrids influence the business?
J. Graf: First of all, let’s talk about European cars. We considered a very positive move, very positive development that Verkhovna Rada has finally found some legislative solution for those cars because it was practically a mess or is a mess currently. However, there is a way out. They offered some solutions that are on the way to be implemented. This is very good. This gives security to the market, to the consumers, and I would say, to the public administration. This is very good to stabilize and consolidate the checking of traffic aspects, speed limits or accidents, insurance coverage. These all are aspects of Europlan. Besides, these regulations have a very positive effect on a new car market, because excise rates were significantly reduced for cars, especially ones with a higher engine volume. Engines from 2.5-liter capacity became much cheaper. It also protects the market from the importation of old cars. On the other hand, we expect that the used car import market will grow based on the legalization of used car import by applying these new rules. This may be not the worst situation for consumers because they can expect to be able to import some used cars from Europe or the USA. As for the impact on the new car market, we have to see a correlation between import of used cars and new cars. We have to see how it works and we have to react properly. This is about regulations related to this Europlan: impact of electric cars and hybrid cars we discussed before. I think electric cars will be launched in the very nearest future not only in Audi. We already have a few providers so we plan to double. This is our first move in the right direction and I think it will have a very significant impact on market development. We are clearly planning to change engine type from diesel and to electric. Considering hybrid, I am not so sure. The hybrid performance was never really high, especially on the Ukrainian market. Hybrid is considered a bridge technology from diesel and petrol engines to electric cars. So, this is a kind of ‘not fish, not meat’. It’s somewhere between. And it is costly.
LDaily: How does the development of the segment of electric vehicles and hybrids influence the business? What new trends can you highlight on the Ukrainian car market?
J. Graf: This is basically what I have already mentioned. We have to launch an electric car. This will take some more time. Finally, it also depends on the support from the legislative site and environmental development. The legislation has already been providing some good support for that kind of cars and the development. We see the example of Scandinavian countries that have very strong support for electric cars. The second tendency I have mentioned before is that we expected used import car market to become stronger. The internal used car market is quite huge. There are 500000 units every year, which are sold mostly from private to private without any warranties. This is a quite common business but it’s very risky for consumers. When you buy a car from a private person, you pay money, a car breaks and you have no car and no money. This is not professional. We expect some development towards more professional used car dealings. We already have a used car brand, which is called Das WeltAuto that is active in Ukraine as well. We sell used cars with warranties. We guarantee that our cars are fine and operational. What I would expect is that such kind of business deals should be promoted and should become stronger.
LDaily: What innovative solutions your brands offer or preparing to offer consumers?
J. Graf: I just would like to give brief information about that. We develop quite active security and safety options, but this is not specifically for our brand. This is also a market trend. As for the autonomous driving scenario, these things are coming but not confirmed by legislation so far. In the USA, it is experimental now, so we should face more developments coming in this direction. We are proud that we have leading positions in safety systems for autonomous driving in our cars. Cars now have systems of detecting people, pedestrians and reacting. If the car doesn’t react, it gives a sound signal. Therefore, we focus on driver assistance and safety.
LDaily: How do you solve the problem of the lack of qualified personnel, including the outflow of personnel to the EU markets?
J. Graf: To be honest, we don’t have this issue in the company. I understand that the market and the country in general face such a problem but we don’t. We work with professionals. We provide attractive conditions for our employees like a good salary and convenient working conditions. We have a quite clear HR policy in the recruiting processes and maintain team development which is focused on long-term cooperation and long-term partnership.
LDaily: What risks does your company consider to be greatest in Ukraine? What does your company have to defend from in Ukraine?
J. Graf: I would say there are constant unexpected changes or political developments, which we can not predict like this martial law last year or the situation in Donbass. This is a kind of instability. Instability is always difficult to deal with for the companies. This is like a constant crisis monitoring and particular crisis management depending on the event. Therefore, this unpredictability and instability are the biggest challenges.
LDaily: How do you manage risks and what do you do to minimize them?
J. Graf: First of all, we are constantly monitoring various developments and try to keep our organization in internal compliance with regulations and be prepared for any kind of crisis events. This is related to compliance as well, so we are providing constant compliance trainings for our staff and also to external business partners for them not to face any serious legal issues. We can’t fully avoid these issues and if they happen, we have to individually react to the situation, still, we pay special attention to compliance of internal and external regulations and this is the best potential.
LDaily: Do you have problems with the authorities in your country? I mean risks for your business from them.
J. Graf: No, we don’t have any problems with them.
LDaily: So, this is a stable situation. You do business and just face the risks on the market.
J. Graf: We have to deal with the structure which we find in the country, in administration, with the business partners, with society, social aspects. They are different in any country and we have simply to deal with that. I do not think this is a problem, just a given fact that this scheme is different and we have to comply, we have to work with it. I don’t consider such things critical. They may be challenging but not critical, not substantial for the business. It’s fair enough to accept the rules and regulations of the country. We have to cope with that. This is our environment. I am not here to change this environment. I am a foreigner. I don’t understand the language, so there is nothing for me to be changed. I have to accept it as it is. This works pretty well. Of course, I have to understand that there are issues with corruption and bureaucracy. We are not confronted with that and our business partners and authorities might understand that we are not in a position of attending such things. We are unattached. If you have a clear policy and this is clearly communicated, you are out of such things.
Please read: The most important recommendations on business protection in Ukraine for 2019
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