Ford, GM Aiming to Clear Russian Economic Hurdles

ST. PETERSBURG, Russia – The Russian auto market is on the verge of a crisis, with industry-watchers expecting a period of stagnation after two years of robust growth.

According to forecasts by the Russian Ministry of Industry and Trade, as well as a number of local analysts, the market not only might stop growing this year but might also decline for the first time since the economic crisis of 2008-2009.

Russia has one of the lowest levels of motorization in Europe, with 250 cars per 1,000 people.  However, the Association of European Businesses’ Automobile Manufacturers Committee reports 2012 new-vehicle sales rose to a record 2.93 million cars, up 11% compared with year-ago.

The committee says it expects the market to grow no more than 5%, to 2.95 million units, in 2013.Analysts at auto-dealer.ru, meanwhile, predict sales will drop 5%.

According to Sergei Udalov, executive director of the Avtostat, one of Russia’s leading auto-market analytical agencies, consumers’ purchasing power stalled late last year, with the steepest declines in car sales occurring in the low-and middle-priced segments.

For example, sales of the popular Ford Focus fell 10% in November and December compared with year-ago, while deliveries of another best-seller, the Renault Logan, plunged 49%.

Double-digit sales declines were reported by Suzuki, Nissan, Mitsubishi, Mazda, Volvo and Peugeot.

While analysts expect the market for cars costing no more than RR1 million ($33,000) to continue falling in 2013, they say the premium segment will evade Russia’s economic slowdown.

Deliveries for the first 11 months of 2012, compared with a year ago, showed Jaguar Land Rover gaining 33%; Porsche, 11.4%; and Audi, 7.2%, according to WardsAuto data. BMW and Daimler sales were flat.

Tatiana Lukovetskaya, CEO of ROLF, one of Russia’s biggest automotive dealers and vehicle importers, attributes the current and projected slowdown to the increasing difficulty of obtaining auto lending. Other factors are consumer uncertainty about the country’s economic future, including fears of a repeat of the 2008-2009 recession.

Unlike the European Union and the U.S., the sales decline will not reduce car prices in Russia. Analysts believe this stems from corruption and monopolization, which lessens dealers’ dependency on what consumers can afford. Falling demand results in limitation of offers instead of lower prices.

The predicted stagnation of the market is not expected to disrupt the previously announced expansion plans of many global auto makers, most of which remain optimistic about Russia.

A spokesman for the Ford Sollers joint venture predicts the market will stabilize at 2012 levels this year, while the possibility of significant decline is seen as low.

Ford aims to expand its local market share, mainly through increased sales of its Explorer SUV and Kuga cross/utility vehicle, which are expected to be produced at the JV’s Elabuga facility in Eastern Russia.

General Motors’ JV with local auto maker AvtoVAZ is proceeding with expansion of its Togliatti plant and development of the next-generation Chevrolet Niva SUV. With the EU vehicle market rapidly shrinking, Russia is among GM’s few bright spots in Europe.

Renault has increased line speed 10% at its Avtoframos joint-venture plant in Moscow, giving it capacity to produce 188,000 vehicles annually from complete-knocked-down kits. The facility also assembles cars from semi-knocked-down kits in a separate workshop.

Russian analysts believe that despite the projected steep decline in sales of locally built low- and mid-priced cars, both domestic and foreign auto makers operating in Russia should continue focusing on building cars for the mass market.

Sales of several new small and midsize cars are launching here this year, including the restyled Lada Kalina hatchback and wagon, Mazda CX-5 CUV and the Opel Astra, Nissan Almera and Chevrolet Cobalt sedans.