Russian Auto-Sales Recovery Years Away, Analysts Say

ST. PETERSBURG –Russian automotive sales might not reach 2012 pre-crisis levels until 2020, according to analysts with the Boston Consulting Group and the Russian Ministry of Industry and Trade.

Deliveries totaled 2.8 million units in 2012 but plummeted the following year amid Western economic sanctions imposed in response to Russia’s annexation of Crimea and involvement in the rebellion by pro-Russian separatists in Ukraine. The market has contracted further as the  overall economy has been damaged by devaluation of the ruble and tight credit.

The Association of European Businesses Automobile Manufacturers Committee says Russian auto sales in May fell 37.6% from prior-year to 125,801 units, leaving the year-to-date total down 37.7% at 641,933. Full-year sales are not expected to exceed 1.7 million, roughly 30% below the 2014 total of 2.49 million deliveries.

Joerg Schreiber, chairman of the AEB committee, says there is evidence consumer activity is resuming in the Russian auto market, but recovery will be slow.

A sharp increase in sales in December 2014, when the ruble was depreciating rapidly, wiped out most of the pent-up demand for cars and led to both higher sticker prices and interest rates on loans.

The contracting market also has raised the debt burden for most Russian auto dealers, many of whom are attempting to renegotiate their debts while others are considering declaring bankruptcy.

Minister of Industry and Trade Denis Manturov says the government this year has provided about RR10 bilion ($200 million) in subsidies and various forms of compensation to domestic automakers and global manufacturers operating in Russia. He says the same amount of support may be provided for the second half of the year, noting the market would be in even further decline without government help.

Analysts say SUVs will be the only market segment that will continue to grow, while the market share held by premium brands such as Lexus and Mercedes-Benz is about 8%. Premium brands have an estimated 20% share of the Moscow and St. Petersburg markets, although the analysts predict demand will shift over the next few years from Russia’s largest cities to less-populated regions.

Used-car sales in Russia also are declining, albeit at a slower rate than new models. According to the AUTOSTAT analytic agency, used-car sales in May dropped 29.5% from year-ago to 366,832. Year-to-date, sales fell 24.1%, to 1.8 million cars.