Will the Recovery in the Russian Auto Industry Last?
CEIC Russia Data Talk - February 9, 2015 During the first decade of the 21st century, the Russian government offered incentives to major global automobile manufacturers to attract investments into domestic production industries. At the same time automobile import tariffs were raised to discourage foreign automobile imports. As a result, domestic auto production capacities grew, barring a respite for the global economic crisis in 2008-2009. In the past decade foreign automobile producers expanded in the Russian market by striking alliances with domestic automobile producers which benefited from the technological, managerial and infrastructural investments. The existing regional auto industry structure remained intact for the most part, and brand new production facilities emerged in some regions. The Central Federal District produced 28,595 passenger cars in December 2014, where the city of Moscow, the Moscow region and the closest Kaluga region became the auto industry hubs for the following foreign producers: Citroen, Mitsubishi, Peugeot, Renault, Skoda, Volkswagen and Volvo. The North Western Federal District produced 41,314 passenger cars in the same period, where the St. Petersburg, Leningrad and Kaliningrad regions became auto industry regional hubs for the following foreign producers: BMW, Ford, GM (Cadillac, Chevrolet, Opel), Hyundai (Kia), MAN, Nissan, Scania and Toyota. The Volga Region Federal District has emerged as the largest passenger cars production hub in Russia, accounting for 79,332 units, or 51.4% of all cars produced in the country in December 2014. The Samara region within the district is the main hub for the Renault-Nissan owned AvtoVaz, the biggest Russian auto producer. Dramatic changes occurred in the automobile market in 2014 when passenger car sales (including light commercial vehicles) started to shrink from 243,335 units in March 2014 to 172,015 units in August 2014. Automobile production declined, hitting its lowest value since May 2010 at 94,296 thousand units in August 2014. To stimulate automobile production and sales, in September 2014 the government initiated a new round of the federal programme for automobile utilization, providing financing to car companies for a customer rebate scheme. Under this programme, old cars can be traded-in for the purchase of new ones, as long as they are produced in Russia. A similar plan implemented in 2010-2011 proved viable in reviving the automobile industry after the 2008-2009 global financial crisis. On top of this assistance, the rouble’s depreciation since the summer spurred increasing sales as automobile prices failed to adjust immediately. Automobile sales surged to 270,653 units in December 2014 as buyers tried to obtain pre-devaluation price deals in roubles. Yet, selected automobile producers suspended sales by mid-December 2014 because of the abrupt fall of the rouble. Some of them ran out of stocks of the popular models by that time due to the unforeseen demand. Automobile production increased from the August slump and remained around 136,000 units on average from September to November 2014. The December 2014 data indicate further growth to 154,249 units, driven by consumer demand. The government decided to renew the automobile utilization programme in 2015, hoping to maintain the positive effects apparent in 2014. However, with inflation expectations high, auto producers poised to raise their prices, and general uncertainty over the economy, consumers may be discouraged. Given the wave of sanctions imposed by the western nations in 2014, along with the rouble devaluation and overhaul of investment programmes due to the economic uncertainties, there might be a shift in automobile production in Russia. Economic factors favour the Russian market, which is comparable to major European countries in terms of size, while proximity to other European and Asian markets adds to the attractions. However, the political unrest in Ukraine, Russia’s involvement, and its attendant confrontation with the West, might deter further foreign investments and create obstacles for further development in the auto sector. By Alexander Dembitski - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog