13 Feb Sergey Petrov – Russian Billionaire, Automotive Oligarch and Prisoner of the KGB
I recently had the opportunity to interview Sergey Petrov, Deputy of the State Duma, and member of the “Spravedlivaya Rossiya” (A Just Russia) political party, member of the Russian Budget and Taxes State Duma Committee and the founder of the ROLF Group, the first diversified automotive business in Russia.
Sergey Petrov is an exception to the rule: a Russian billionaire who built his business from nothing as opposed to benefiting from the privatisations in the early 1990’s. An independent straight talker, with a remarkable personal history; he reflects the changes and turbulent times of post and pre Soviet – Russia.
He is a pragmatic and passionate about his country and a vociferous critic of the status quo in Russian politics; and of Russia’s leaders.
Graduating from school in 1971 he entered the Higher Military Aviation School in Orenburg, southern Russia. In 1975 he was commissioned and qualified as a pilot in the elite Soviet Strategic Air Force. Flying Tupolev Tu-16 BADGER aircraft, a twin- engine, strategic nuclear bomber, he often challenged NATO skies.
“I remember these days, flying the big planes and making the (NATO) fighters accompany us” recalled Sergey.
Retraining on fighter aircraft he became an Instructor, won the Soviet TOP GUN at Fighter School, Orenburg and looked set for a meteoric military career as he made Major at 26, a decade earlier than most of his peers. And, like a meteor, his career in the military crashed.
He recalled “It was in 1982 when I finished my military career as I fought against the KGB and the Communist Party.”
Whilst it became possible to challenge authority in the Soviet Union in the early 1990’s the earlier era of Brezhnev and Andropov (1964 to 1985) were a different case entirely. Soviet justice was swift and severe. Andropov, the former KGB leader who led the Soviet Union between 1982 and 1985, was a hard liner whom played a key role in crushing the Hungarian Revolution in 1956; the ring leaders were arrested and executed.
In 1982, if you were not part of the ‘system’, it was an intimidating environment.
“The KGB had been watching us and decided to bring us into custody. Not only me, but 12 colleagues as well, living in different cities as we had now scattered across the Soviet Union”.
Sergey Petrov had started his protest against the ruling Communist Party at the age of 21 and had tried to influence his colleagues and students highlighting the injustice of the system.
“I had many targets and goals. I had to teach the students to fly the aircraft, to hit the targets and to indoctrinate them with Soviet propaganda. No one asked me to fight against the Soviet system. It was not in my job description. It was why they decided to kick me out.”
By 1982 his war of ‘propaganda’ had been noticed and he was dismissed from the Soviet Army and expelled from The Communist Party of the Soviet Union for anti-Soviet propaganda and participation in secret democratic organizations.
Unable to find work in Orenburg, Petrov along with his wife and baby, made their way to Moscow. Petrov’s anti- Soviet activities precluded him from working for any elite organisations like the military, security or diplomatic corps.
Between 1982 and 1989 he worked for the Mosinzhstroy, the Moscow construction company and studied at the Soviet Trade Institute. He graduated in 1987.
“When the market economy became a reality I decided to stop working for nothing and to open my own company. But first, as I had nothing I decided to acquire experience. I got a job in a joint venture with Rosek for a small period of time, maybe a year and a half and gained experience”.
In 1991, as the Soviet Union fell apart, Petrov joined thousands of Russians at the barricades around Bely Dom, the Russian White House, resisting the attempted coup d’état by Soviet hardliners loyal to the crumbling regime.
“On the day of the Coup I spent the night in the crowd outside the White House. It was my dream. I was dedicated to the democratic process, democratic rules and future”.
The coup attempt failed and led to the annulment of the 1922 union treaty that established the Soviet Union, led to the creation of the Commonwealth of Independent States and the beginning of radical Russian economic reforms. The new reality for its citizens was a fight for survival in the new Russia.
“We were in an awful environment in the 1990’s but we had hope. Every year it was getting better and better.”
Sergey Petrov’s first foray into his own business was with a car rental business.
“I decided to set up my own company “Rolf”. The Company was registered on the 5th August 1991 but we had already been working in that year. A successful business, especially if you consider the unfriendly environment we had in Russia. In the beginning we worked for foreign companies. When we expanded into the home market, we immediately lost a lot of cars. People rented the cars and went to Kavkaz (to export them).”
He laughed as he recalled the situation.
“No one could find the cars. The people renting them had a good business!”
The business, sold off by MBO, still flourishes today.
Sergey moved into the automotive retail sector.
“Mitsubishi created a tender for its first car dealership in Russia. We participated and we won. We started the business and we were very successful. We had a very ‘soft’ approach with Mitsubishi, asking them to teach us. We were not arrogant, unlike the other participants in the tender process, who tried to teach the Japanese how to sell cars.
I remember the Japanese, in charge of the tender, losing his cool with the other participants. Leaning forward, he banged his hand on the table.
“Thank you very much! We shall not work with you”.
It was a very successful day for us”.
In 1992 ROLF started sales of Mitsubishi new cars, managing to sell 192 that year.
In 1994 the company opened the first purpose built Mitsubishi show room in Moscow.
When asked about his choice of industry and his thoughts that the automotive sector in the 1990’s being heavily criminalised with gangsters and oligarchs a like carving out chunks of cash and areas to control he says “The industry was like a toy for an oligarch. We had absolutely different aspirations. They only had the target of earning money and gaining political power. We were focused on how to build a nice Company, a great Company. We had the dream to build our company to be like the best companies in the world.
Sergey Petrov built his business around core values of openness, honesty and transparency which will have presented more than a few challenges in an environment renowned for its opaqueness. His goal was to recruit people who believed in his vision.
By 1999 ROLF was the largest foreign car importer in Russia, with revenues of $100 million, a not insignificant figure for a start up business only 9 years old.
In 2000 Sergey Petrov enlisted Matt Donnelley, the charismatic business leader,promoted him Chief Executive in 2004 and took the post of “Honorary President” himself. Thus began the second Epoch, the ‘Donnelley years’. The success of the new management team from 2000 was reflected in the position Rolf continued to enjoy its dominant position as the premier importer and distributor of foreign cars in Russia.
“You recruit people who bring efficiency in the long run, if they share your core values then they can run the business without making any big mistakes and you don’t have to keep telling them what to do”.
In 2001 Rolf opened its first non Mitsubishi Dealerships as the company started sales of Audi and Ford cars. In 2006 as ‘Best Brand in Russia’ it sold approximately 124,000 cars with 155,000 cars the following year. The ROLF machine, by now the 5th largest in Europe by new car sales, seemed unstoppable. In 2007 the Avtomir organisation, ROLF’s closest Russian rival, managed to achieve less than half of ROLF’s sales. In September 2008, Rolf Import had landed 15,000 Mitsubishi cars for the Russian market through Kotka and St Petersburg.
Halcyon days, indeed.
However, changes were in the offing and the entrepreneurial flair went from the business as both Sergey Petrov and Matt Donnelley exited the business. Sergey was nominated to the Duma in December 2007. Matt Donnelley had overseen Rolf’s stratospheric growth and had been instrumental in taking Rolf from a $100 million turnover to over $ 5 billion in 7 years.
Sergey recalled “I had completely left the business at that point. I was elected to parliament and tried to change the whole environment. I tried to help. It did not make sense to make another billion if the powers that be can take away the first one. I decided to spend my time and energy to improve Russia’s business environment.
In 10-years we built a good company but discovered it is impossible to build the world’s greatest company in this country. It is not a business friendly state… all the officials are dedicated to history. We, the people, need to fall down a few times and learn lessons that we should be more concerned about ourselves, our family and friends and co-fellows… than being a super power. It needs to be overcome and will take two generations”.
The end of the second Epoch ushered in a new ROLF.
Sergey Petrov recalled Nick Hawkins, the new ROLF CEO 2007 to 2010, asking when ROLF was strongest. Sergey’s response “between 2004 and 2007.”
This period saw ROLF revenues double in size year on year, a colossal achievement with remarkable profits, and the envy of similar groups worldwide.
“The best years for Rolf were after I handed over to Matt Donnelley as Chief Executive. Matt compensated for my imperfections. He contributed his professionalism, made sure the company remained focused on our core values and gave us our greatest mutual success”
A privately owned company, with one single-minded shareholder and a very strong CEO, reflects both the character and personalities of those business owners. The abrupt removal of these characters from ROLF and the knock-on changes in leadership led to an emergence of a different company with a changed ethos; and an end to the runaway success of previous years.
“The Company started to deteriorate after 2007. Even before the crisis, the Company was not so strong.”
The 3rd Epoch saw a changed and expanded management team, hungry to benefit from big bonuses and the success of Russia’s accomplished automotive group. Ultimately the evolution was ephemeral, expensive and doomed as it ran head long off the cliff in 2008.
Welcome to the global financial crisis.
In Petrov’s words “ROLF became more and more bureaucratic and more and more inefficient… and not flexible enough to face the future”.
One can sympathise with him as he underwrote the largesse with over $300 million losses. The ROLF pendulum swung far, in a relatively short space of time and the cash burn was prodigious.
The management team went into crisis mode: free hold sales and lease backs, the cancellation of all new projects and scale backs on others, a fire sale of stock (new vehicles were sold for less than the wholesale prices leading to one European manufacturer recalling an entire model range from the Russian market).
A desperate grab for business began across all the business sectors. Belatedly, business unit managers recognised the scale and severity of the crisis. The actions were too little and too late as other, more agile businesses, took available contracts and more direct measures of cost reduction.
Sergey Petrov returned in 2010, leading to a mass exodus of top management, and heralding ROLF’s rapid resurgence. The business had survived the greatest financial crisis since the 1930’s; but at a cost, as Petrov sold 40% of his company to the Mitsubishi Corporation.
ROLF is a different company now to the one that entered the global crisis in 2008. The management team has changed and again, led by its founder. The ethos is now on efficiency and rebuilding profit whilst focusing on the car retail sector. None core businesses may spun-off. The market is changing as IPO’s will see a swathe of mega-groups retailing cars in the Russian market.
Sergey Petrov, “receiving purchase offers every other day” has no intention of following suit and intends to remain the owner of a “family business” albeit a large one. Rolf has been, since its inception, one of leading companies in the Russian automobile market. Now it is the official dealer of 13 brands, with 30 Moscow and Saint Petersburg dealership centers and remains one of the largest automotive concerns in Russia.
“We will be chasing efficiency as government will put more burdens on business.30% social taxes are high so we have to become the most efficient”
What was the pivot moment?
“It was not my decision that changed my life but the KGB’s; when they arrested and kicked me out of the Air Force. I couldn’t find a job in the city where I lived so I had to leave Orenburg and go to Moscow with my wife and 1-year old son. I think that changed my life, drastically.
I could not do anything except fly my fighter jet and I thought that this was a big problem. But, I was young and it allowed me a restart. I lost 7-years but I retrained and I graduated from Moscow University. All the diplomatic and military careers were closed to me. The KGB watched me and accompanied me everywhere’.
What are you most proud of?
“I think it is the people around me. Like Tatiana (Lukovetskaya) and others. We brought up a lot of people who are working now in different companies but they absorbed some of our core values. The most profitable business is the most honest business.”
Where do you see yourself in 5 years?
“A politician working for a better Russia and leader in my business “
Aston Martin or a Ferrari?