Russia’s Wartime Economy Shores Up Auto Market

ST. PETERSBURG – Russia’s war against Ukraine is propping up the country’s economy and, in the case of the auto industry, giving some consumers enough purchasing power to partially offset rising interest rates and inflation.

Military spending accounts for more than half of Russia’s economy and is growing, according to estimates. Large salaries are being paid to contractors and other persons associated with the military, keeping the auto industry above water.

Most consumers, however, are finding it harder to afford a new or used car because of the Russian Central Bank’s limits on car loans that took effect July 1. The Russian Automobile Dealers Assn. (ROAD) predicts overall loans in the domestic car market will decrease at least 10%–15% when limitations by local banks are included.

This would be a sharp reversal from the first quarter of 2024, when the number of car loans increased 53% year-on-year, fueled by increased sales of Chinese and other Asian brands and the Russian auto industry’s adaptation to Western sanctions imposed following the February 2022 Ukraine invasion.

ROAD projects interest rates for auto loans will increase at least 1.5 to 2 percentage points, up to 22%–27% for used cars and 19%–24% for new ones. This could curtail lending at a time when car prices have been steadily climbing in recent months.

According to Russian research agency Autostat, at the beginning of 2024 the average cost of a new passenger car in Russia reached RR2.9 million–RR3 million ($32,590-$33,700), a 24% increase from 2022. Six months later those figures reached RR3.4 million–RR3.5 million ($38,400-$39,500).

ROAD is critical of the tougher credit standards for borrowers and the introduction of Central Bank surcharges, saying car sales in general and used-car sales in particular will be curtailed. Association vice president Alexey Grigoriev tells the Izvestia business paper that the reduction in auto lending volume in Russia will depress sales by at least 8%-10%. Sales may further decline if the Russian Central Bank raises interest rates again.