Russia’s burgeoning auto industry is taking little notice of new powertrain technologies and alternative fuels being embraced by global car companies today, despite sales of more than 1 million vehicles in the year’s first half.

That’s because, as the world’s No.2 oil producer behind Saudi Arabia, gasoline is both cheap and plentiful, with most pump prices in the country hovering at the equivalent of $0.80 a gallon.

Lacking incentive, traditional auto makers largely have ignored the tightening fuel-economy standards and stringent vehicle-emissions regulations gaining momentum in other regions of the world, says Chris Layce, General Motors Corp.’s executive director of Central and Eastern Europe. “The availability of alternative-fuel vehicles is not on their list,” he says.

Nor is diesel fuel, prevalent in most of Europe, primarily due to Russia’s frigid climate. However, that’s changing as the new low-sulfur diesel fuel becomes more available, says Carol Thomas, an analyst at J.D. Power Automotive Forecasting in Russia.

While diesel-powered cars accounted for about 1.9% of new-car sales in 2006, “this year, that share is expected to reach 2.4%, rising to 6.5% in 2010 and 15% by 2014,” she says.

Meanwhile, the Russian government has mandated that all domestic-built vehicles adhere to Euro 2 standards and prepare for Euro 3 – albeit at the same time the European Union is moving toward more-stringent Euro 5 (2009) and Euro 6 (2014) regulations.

As one of the world’s top greenhouse-gas emitters, Russia is committed to meeting emissions standards set by the Kyoto Protocol for 2012 and is looking to ramp up regulations over the next several years to meet its target.

Layce says the lack of emphasis on tailpipe controls is hampering GM’s regional plans. “Russians are not pushing legislation on emissions as much as some (European) countries. It’s a vast country, and in order for us to move forward on (biofuels) or other alternatives we need a (fueling) distribution network.

“Also, authorities are not yet considering tax benefits or incentives to have greener and cleaner cars,” as many other markets have done, he says. But if Russia were to make alternative fuels a priority, GM is prepared to “move fast.”

Thomas says the government’s foot dragging largely is to protect homegrown auto makers that have not kept pace with foreign competition. But as the Russian market expands and exports increase, there is an increasing urgency to place stricter regulations on vehicle emissions.

“There are so many markets where they can’t sell their cars for export,” she says. “It’s sort of a catch-up with the rest of the European industry. Globally, really.”

Indeed, the domestics have seen market share drop drastically due to foreign competition. “A few years ago, they controlled 70% of the market. Last year it was about 42%,” Thomas says. “And this year, (it’s) less than 30%. They’re dropping like a stone.”

Sales of foreign brands increased 50% in August, alone, to 142,388 units, although OAO AvtoVaz, Russia’s largest auto maker, remains the top-selling marque. The Association of European Businesses in the Russian Federation lists the top-four foreign makers by volume as GM, Ford Motor Co., Hyundai Motor Co. Ltd. (including Kia Motors Corp.) and the Renault Nissan Alliance.

GM’s sales through September grew 98% to 180,000 vehicles, pushing its market share to 9.4% and making Russia its fourth-biggest market in Europe. Chevrolet, the No.1 non-domestic brand in the country, saw 131,653 deliveries in the period.

Russia is expected to join the World Trade Organization next year, but with an agreement to retain its 25% tariff on imported cars for the first seven years, prompting many foreign auto makers to consider building assembly plants. These include Hyundai, Chrysler LLC, Mitsubishi Motors Corp. and PSA Peugeot Citroen, which will announce by year-end the location for its 100,000-unit greenfield plant.

Ford was one of the first global players to establish a brick-and-mortar presence in the country, opening a manufacturing facility in St. Petersburg in 1999.

Russia’s total vehicle sales are forecast to reach 2.25 million this year, J.D. Power and Associates reports, rising to 2.45 million in 2008 and eclipsing 3 million by 2014 vs. just over 900,000 units in 2001. Deliveries of foreign imports in the first eight months jumped 66%, compared with year-ago, to 1,005,029 vehicles.

A major factor in the Russian market’s rapid ascent is the buying power of its populus. Goldman, Sachs & Co. predicts Russia will be the world’s eighth-largest economy by 2025, with a per capita income of $45,000.

Perhaps more surprising, Layce says by 2012 Russia will constitute Europe’s largest automotive market, surpassing Germany and the U.K.

bpope@wardsauto.com