Luxury Auto Makers Finding No Bear Market in Russia

The Russian market is becoming a battleground for premium auto makers that in recent years have enjoyed significant salesgrowth in the country.

According to PricewaterhouseCoopers, sales of new cars priced at $50,000-$70,000 (RR1.58 million-RR2.21 million) in Russia increased more than 30% in 2011, while deliveries of cars costing at least $100,000 (RR3.16 million) more than doubled. The typical Russian buyer of a premium car has a monthly income of $4,000-$5,000 (RR126,250-RR157,800).

As in much of the rest of the world, the Russian premium segment is dominated by German brands Audi, BMW and Mercedes-Benz.

In the case of Mercedes-Benz, last year was its most successful in Russia. The auto maker sold 31,761 light vehicles in the country, up 45.4% compared with prior-year, according to WardsAuto data. Sales in 2012 are on track to beat like-2011’s total, with 18,436 deliveries through the first six months.

Its growth in Russia has prompted Mercedes to contemplate building cars locally. Mercedes-Benz Russia CEO Juergen Sauer said in early 2011 the auto maker was considering establishing production at Russian auto maker GAZ’a Gorky Automobile Plant, but a decision would be based on analysis of Mercedes’s business plan for the country.

Audi sold 23,250 cars in Russia in 2011, a 25.6% improvement over 2010. Audi Russia spokeswoman Elena Smirnova says the auto maker is thinking about resuming local production, but she does not elaborate. Audi models were assembled from semi-knocked-down kits at parent Volkswagen Group’s Kaluga factory until about two years ago.

Unlike Mercedes and Audi, BMW has a manufacturing presence in Russia, assembling cars at Russian auto maker Avtotor’s facility in Kaliningrad. BMW’s Russian sales jumped 36.8% last year to 28,165 units, a higher growth rate than in the European Union countries, WardsAuto data shows.

Other premium auto makers enjoying sales growth in Russia include Infiniti and Land Rover, makers of the luxury SUVs long favored by consumers there.

Russian demand for upscale cars has been stable; sales of premium brands not only declined less than other market segments during the global recession of 2008-2009 but also recovered more quickly.

According to analysts cited by Motorreview magazine, wealthy Russians are willing to spend money on high-end cars even amid adverse economic conditions because they consider them good investments.

Dealers of premium brands note that in recent years, affluent consumers have become more pragmatic, showing a preference for cars with fewer options than those sold before the economic crisis. In addition, the useful life of a premium car has increased from 1½-2 years in 2008 to 3-4 years in 2012.