Currencies, Emerging Markets, Stocks

In Russia, The Auto Industry Is In A Tailspin

By Daniel Schearf

A Lada Kalina Super 1600, painted in khokhloma national ornaments. Lada is the brand of AvtoVAZ, the largest Russian car manufacturer.  Photo courtesy of Wikipedia.

A Lada Kalina Super 1600, painted in khokhloma national ornaments. Lada is the brand of AvtoVAZ, the largest Russian car manufacturer. Photo courtesy of Wikipedia.

Russia’s auto industry appears to be in reverse along with the contracting economy and sliding ruble.

At the opening of the International Moscow Automotive Forum this week, a Russian business association representative spoke openly about the crisis facing industry leaders, his concern echoing industry insiders who say the country relies too heavily on imports and that inflation is pricing out too many consumers.

After a decade of growth, 2015 sales are expected to drop from 2013 levels, from 3 million cars a year to half that number, as the economy suffers under flagging oil prices and Western sanctions.

Despite the downturn, hundreds of auto parts makers set up booths promoting their products at the forum, where scantily clad models pranced to drum up crowds of gawkers, along with what appeared to be a talking robot at a Czech company’s display.

“There is no growth here in Russia,” Frank Schauf, CEO of the European Association of Businesses (EAB), said. “We see rather a contraction of the economy this year. Then it’s a question of the consumer expectations, which don’t seem to be very positive at the moment.”

The high-tech imports that Russia relies on became costlier with the ruble losing more than half its value in the past year. Price increases trickled down to consumers as car dealers were forced to raise their prices by as much as 20 percent.

Russian carmakers aren’t the only ones suffering. At Genser auto dealership in Moscow, business has slowed despite a temporary boost from heavily reduced clearance model pricing.

General Motors is clearing out its Chevrolet Captiva and Cruze models on discount as the U.S. automaker is closing its plant in Russia. According to Andrey Belyaev, Genser’s head of sales, business jumped after some models were marked down by as much as 40 percent, but sales are still half of what they once were.

“If we compare today’s sales to the sales before their decision to leave the market, the drop is 50 percent,” he said.

Government loan subsidies and a scrappage scheme have done little to boost consumer demand as sales nationwide dropped 35 percent in the first seven months of the year.

Alexander Borisov, general director of the Moscow International Business Association, called it difficult to predict when the market will recover.

“Much will depend on the state of economy in the world, on the oil price,” said Borisov, who also chairs the Consumer Market Development Committee at the Russian Chamber of Commerce and Industry. “It is not by chance that I have talked about the uncertainty that influences the leadership of the country and consumer behavior.”

Russia’s Interfax news agency on Friday reported the government will allocate an additional $106 million to support the auto industry before the end of the year. Interfax quoted Industry and Trade Minister Denis Manturov as saying the auto sector could begin a gradual market recovery by the end of 2015.

Schauf of the EAB optimistically noted that Russia’s auto market has historically managed to recover from even worse times.

“The people working here on the Russian car market are certainly experienced with regards to … quite dramatic changes,” he said. “And everybody is very optimistic that in the coming year the car market is going to grow again — hopefully.”

Courtesy of VOA


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