Top Sales, Tanks at Berezovsky's LogoVAZ

In the early 1990s, one might have heard from a friend: Don't buy an automobile from LogoVAZ because they give a second key to bandits who follow you and steal your car.


Seven years later, the rumor takes an updated form: Don't take your Mercedes to LogoVAZ for servicing because they give a second key ...


The LogoVAZ chain of auto dealerships, founded by business magnate-cum-government security adviser Boris Berezovsky, has, for much of its eight-year history, fought attacks on its reputation. Nevertheless, under the guidance of Yuly Dubov, the general director of LogoVAZ and a longtime Berezovsky peer, LogoVAZ has held its top position on the Russian auto sales market.


"I've had to spend a lot of money and open up a serious investigation in order to refute the myth of the second keys," Dubov said.


Dubov said he hired investigators to pay a visit to each service station that works on Mercedes-Benz automobiles and tally up the number of Mercedes serviced at each. Then they obtained stolen-car statistics from the state traffic inspectorate and determined the average theft rate for Mercedes cars that had undergone servicing. According to Dubov, the number of cars stolen from LogoVAZ clients was lower than from clients of any other facility.


LogoVAZ ensures that its automobiles are well secured before they reach the buyer.


"I can show our partners warehouses unlike those of anyone else in the country," Dubov said . "They can hold 50,000 cars at a time, and they'll be safe because the warehouse perimeters are patrolled by tanks and armored personnel carriers with weapons."





Considered the heart of a powerful Russian business empire that includes the oil enterprise Sibneft, ORT television and several Russian publications, LogoVAZ has addressed allegations more serious in nature than the rumor of the second key.


In December 1996, under the headline "Is He the Godfather of the Kremlin?" the U.S.-based Forbes magazine implicated LogoVAZ founder Berezovsky in a high-profile murder and alleged he had amassed a fortune by spinning quick profits from money withheld from creditors. Berezovsky is suing Forbes for libel in Britain.


"Every time Forbes publishes something, our partners start calling and asking questions," said Dubov.


So far, however, not a single supplier has decided to stop working with LogoVAZ. "Of course, no one is happy that they are constantly the subject of some kind of attack or rumor," said a General Motors representative, who asked not to be identified. "But that isn't so important if they fulfill their obligations to their partners and don't do anything illegal."


The GM representative said he considers the LogoVAZ GM showroom -- now under reconstruction -- one of the best in Moscow. General Motors representatives also said LogoVAZ service stations maintain an unusually high level of quality.


LogoVAZ competitors say the company sells more cars and has more showrooms than any other company on the market. "They're in the leading position," said Trinity Motors spokeswoman Irina Prokhorova.


LogoVAZ representatives declined to comment on the company's sales figures. But independent experts estimate that LogoVAZ sells approximately 40,000 cars a year, accounting for just under 4 percent of the Russian car market. Oleg Pavlov, an automobile market specialist at Brunswick brokerage, says the Russian market has annual sales of approximately $14 billion. That would place LogoVAZ's share at approximately $500 million.


LogoVAZ was founded in 1989, when Berezovsky left his position as an applied mathematician in the Russian Academy of Sciences and approached the management of the AvtoVAZ carmaker in Tolyatti, producer of Niva and Lada cars, with an offer to form a partnership. At the time, he had strong ties with AvtoVAZ -- Berezovsky completed the practical work for his doctoral dissertation on management issues at the plant. AvtoVAZ director Vladimir Kadannikov, briefly a deputy prime minister and again the director of AvtoVAZ, is a minority LogoVAZ shareholder.


According to Dubov, who has known the LogoVAZ founder for 25 years, Berezovsky was awarded that contract because of his reputation as a man who gets things done. Berezovsky's distinction as a serious scientist also helped.


"To take a raw idea and realize it fully -- that is really accomplishing something," said Dubov. "If you've done that, it shows that you're worth a lot."


LogoVAZ was registered with the Finance Ministry in 1991 with a founding capital of 2.5 million rubles. Just two years later, according to National News Service, the company had annual sales in excess of $250 million.


LogoVAZ has grown at a steady rate since its first boom years, Dubov said, increasing its profits gradually each subsequent year. "Our growth is more stable than it is dynamic," he said.





Some observers, however, question how so much capital could have been amassed in such a short period of time.


In its article, Forbes described a scheme in which a dealer could contract with AvtoVAZ for a shipment of cars to be paid for in rubles. The dealer could sell the vehicles immediately and then convert the money into hard currency for short-term investments. With inflation rates of 20 percent monthly at the time, the ruble price of the car would have fallen to half of its real value by the time AvtoVAZ received its payment three or more months later.


Dubov categorically denied allegations that LogoVAZ was involved in illegal business activity.


"LogoVAZ had no such contracts with AvtoVAZ, and no financial operations of the sort," said Dubov. "We fulfilled all of our obligations day by day, kopek by kopek."


Dubov acknowledged, however, that the company took advantage of economic conditions at the beginning of the 1990s. "Inflation and economic instability -- this is the ideal environment for making money," he said. "Everything changes so fast, and if you understand what's happening, you can make a dollar from a ruble. And not everyone who did this should be called a crook or be accused of swindling."


LogoVAZ has had its own security service since it began doing business, Dubov said. Such service is apparently necessary: In September 1993, LogoVAZ lots in the Krylatskoye region and on Khoroshyovskoye Shosse came under attack three times by grenades and grenade launchers.


The first attempt on Berezovsky's life took place in the spring of 1994, when a grenade was attached to the handle of the LogoVAZ founder's apartment door. The grenade was removed before it could injure Berezovsky. In June of the same year, Berezovsky narrowly escaped death when a bomb exploded in his car, killing his driver. In addition to these incidents, Dubov said there have been kidnappings for ransoms and robberies on LogoVAZ cashiers.


"A security service is very expensive, but it's even more expensive without one," Dubov said.





Today, LogoVAZ is organized as a holding company with a coordinating center and 50 car showrooms and service stations. LogoVAZ is one of the founders of TV6, the Moscow Bankers Association and ORT Russian Television. It also has stock holdings in AvtoVAZbank, Ogonyok magazine and the daily newspaper Nezavisimaya Gazeta.


The service stations and showrooms are now legal entities independent of the LogoVAZ holding company. In spite of their formal independence, Dubov said LogoVAZ holds controlling shares in all of its subsidiaries and maintains a majority position on each board of directors.


"We can replace the management of any of these businesses in an instant," said Dubov. In addition, security for all LogoVAZ subsidiaries is provided by a single LogoVAZ subdivision that is subordinate only to the parent company.


The company's automobile business is based on seven general agreements it has with auto producers Volvo, General Motors, Daewoo, Chrysler, Mercedes-Benz, Honda and AvtoVAZ. LogoVAZ is Russia's largest dealer of AvtoVAZ cars, with independent experts estimating that it sells 5 to 7 percent of the automaker's output.


LogoVAZ has placed its current strategic focus on the sales of foreign cars assembled in Russia and the CIS. Since last year, the company has been taking delivery of Daewoo automobiles assembled in Uzbekistan. This year, LogoVAZ signed a contract to sell Chevrolet Blazers assembled in the Yelabuga plant in Tatarstan, and negotiations are currently in progress with the Kaliningrad KIA-Baltika factory.


LogoVAZ's second area of strategic development is focused on the regions. Moscow remains Russia's top auto market, but the company now has centers in St. Petersburg and Sochi, with deliveries going out to eastern regions.


"LogoVAZ is going to grow into Siberia," Dubov said. "We have to go beyond the Urals; that's absolutely obvious."