The country’s relatively low car density offers good sales opportunities going forward.
2011 was an exceptionally good year for the Russian automotive industry with sales rising to 2.653 million units, up 39 percent on 2010.
This growth was largely driven by a robust increase in consumer and business confidence following the strong recovery in the Russian economy in 2011. Leading brands Lada, Chevrolet, Hyundai-Kia and Renault continued to be the best sellers. Due to the commissioning of new manufacturing facilities and increased utilisation of existing ones, 2011 was a record year for the production of light vehicles with output reaching 1.7 million vehicles, up 45 percent compared to 2010.
The competition is heating up as most OEMs (original equipment manufacturers) count on the huge growth potential of the Russian market as it continues to recover from the 2009 downturn. Several foreign automakers like Fiat and Mazda are planning investments in local assembly, while some OEMs are forming joint ventures with Russian producers. In addition, Chinese automakers, with their price-competitive products, are becoming increasingly successful in Russia. Russia and Ukraine now rank as two of the most strategically important export markets for Chinese OEMs.
Confronted with the aggressive strategies of foreign OEMs, Russian market leader AvtoVaz lost market share in 2011. Although Lada brand sales showed an 11 percent growth in 2011, the brand could not cope with total market growth. AvtoVaz’s partner Renault is planning a full takeover in 2012, creating expectations of a technological strengthening of the company. The French OEM is set to have a big influence on the Russian market in coming years and its own-brand sales are also expected to rise.Russia’s entrance into the WTO agreement in December 2011 will reduce import duties from 30 percent to 25 percent in 2012 followed by a stepwise reduction to 15 percent by 2020.
Although this is unlikely to affect prices and demand in 2012, imported cars will benefit from the agreement in the long run. Despite 2011 being a strong year, the activity level in 2012 is expected to be somewhat lower due to the uncertain macroeconomic situation and a decline in the forecasted GDP growth rate.
However, overall growth in Russia’s auto industry will continue as several foreign OEMs launch new models and expand production capacity. The country’s relatively low car density offers good sales opportunities going forward. This should particularly benefit AvtoVaz and locally produced brands as the lowest share of car ownership is currently in the economically weakest regions of Russia.