Russian auto market preparing for another difficult year

Russian auto market preparing for another difficult year
Photo: Alexander Poprygin

Sales of new cars in Russia declined by 2% in 2019. Without more active support from the Russian government, the industry is unable to boost sales, claim executives of the Automobile Manufacturers’ Committee of the Association of European Businesses (AEB). Meanwhile, the government is supporting local production and doesn’t care too much about foreign carmakers that may leave the market.

Russia’s car market is braced for a turbulent year ahead, says The Moscow Times adding that a leading business association warns sales are likely to drop and more manufacturers could give up on Russia altogether. On Tuesday, the AEB published its annual forecast and called for more “active government support”. The association criticised the Russian government for measures that were “hurting the industry” such as “protectionist regulations designed to localise the production of cars”.

According to the AEB’s data, sales of new vehicles dropped by 2,3% to around 1,76 million units in 2019. At the beginning of the year, sales were constrained by a hike in VAT, reads the report adding that hopes for market revitalisation in the second half of 2019 “did not materialise”. A mini-rebound in car sales in December was due to seasonal effects, says head of Mazda in Russia Joerg Schreiber, who chairs the association’s Automobile Manufacturers’ Committee. In 2020, the AEB expects “similarly challenging market circumstances” and predicts that sales will fall by a further 2,1%.

According to Schreiber, confidence in the industry remains low, and “the situation may not be sustainable for some market participants” to continue operating in Russia. “The government is introducing non-tariff protections to support local production. But excessive localisation makes it economically unfeasible to introduce the latest state-of-the-art technology,” he said. According to AEB CEO Frank Schauff, it is quite possible that regulations become tougher and will no longer coincide with the interests of some market players.

Ford Sollers plant in Yelabuga, August 2016. Photo: https://alabuga.ru

Last year, US industry giant Ford stopped making passenger cars in Russia. Sales of Ford vehicles dropped by 57% to 17,700 units in 2019. Russia’s largest carmaker AvtoVAZ, on the contrary, managed to increase sales by 1% despite the market slowdown. Following AvtoVAZ, Kia, Renault, Hyundai and Toyota became the leading brands of car sales in Russia in 2019.

Other industry analysts expect stagnation rather than continuing decline in 2020. “The AEB’s forecast for the market in 2020 is more conservative than our view,” commented Vladimir Bespalov from VTB Capital. “We project that car and light commercial vehicle sales will grow in low single digits in 2020 on the back of a fairly neutral macro backdrop, a relatively favourable base effect and government support,” he said adding that low consumer confidence would impede any significant acceleration of the car market in Russia.

By Anna Litvina
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