• Car market rebounding on government support measures and strong economic growth
  • Car market forecast to grow 11% in 2011, reaches 2.2m units in 2012
  • Russia Government support measures likely to continue
  • A new industrial assembly regime is encouraging higher output commitments from foreign OEMs and their partners   
Russias government is introducing new rules for foreign OEMs in order to raise local content, locally developed automotive technology and output volumes

Russia's government is introducing new rules for foreign OEMs in order to raise local content, locally developed automotive technology and output volumes

The outlook remains very positive for the Russian car market as it benefits from a stronger economy and a domestic scrappage scheme, according to analysts at JD Power Automotive Forecasting.

Moreover, a positive market outlook is combining with new rules introduced by the Russian government for foreign investors to stimulate a new investment wave by OEMs.

JD Power analyst Carol Thomas told delegates at the firm's Global Outlook Conference in London last week that car demand is benefiting from stronger growth for the Russian economy underpinned by higher oil prices.

“Forecasts for GDP growth for the Russian economy are being raised to 5% plus due to higher energy prices and that is suggesting a net positive for vehicle demand in Russia,” Thomas maintained.

She also said that Russia's car scrappage scheme (dubbed 'roubles for wrecks') successfully added support for some 400,000 units of light vehicle sales in 2010 and that the scheme has been extended into 2011.

“Risks are on the upside that support for the market will continue further in 2011, despite the mixed messages that have come out from the government at times,” Thomas said.

“We also know that there will be continuing low-interest rate subsidy schemes targeted at helping domestic manufacturers into 2012 and beyond,” she added.

Thomas also believes that the Russian government will have one eye on prospects for local giant AvtoVAZ. “AvtoVAZ has a new – and critical - low-cost car coming out later this year and that would clearly potentially benefit from support aimed at that part of the market,” she said.

JD Power forecasts that the Russian car market will grow by 11% to 1.95m units in 2011 (compares with a 2.71m peak in 2008 and 50% crash in 2009 to 1.36m units). In 2012, the car market is projected to rise to 2.2m units.

Thomas also told just-auto that Russia's relatively low car ownership levels, in the context of a growing Russian economy and rising income levels, lessen the probability of a sharp post-incentive West European-style negative correction to the Russian car market in the medium-term. Indeed, JD Power forecasts that the Russian light vehicle market (ie including light commercial vehicles) will reach 3.6m units by 2016, which compares with 1.9m in 2010 (within that number, 1.76m were passenger cars).

On the production side, things are also looking very positive in Russia and a wave of new investments have been announced by foreign OEMs seeking to comply with Russian government rules on volumes, local content and import tariffs.

Revised Russian government industrial assembly rules have led to larger volume commitments from some OEMs and this, Thomas told delegates, raises questions about exports to Europe if the volumes cannot be met through local supply only.

Under the new rules OEMs must commit to:

  • produce over 300,000 units - at a new plant within 4 years of the agreement being signed - or build over 350,000 units for an existing plant within 3 years of the agreement being signed;
  • achieve 60% local content within 6 years (more rapid timetable for existing plants);
  • Carry out stampings within 4 years;
  • Equip at least 30% of vehicles with locally-sourced engines and/or transmissions within 4 years;
  • Establish an R&D centre in Russia

In return, they receive benefits:

  • Components to be imported on preferential terms for eight years (but no later than 2020);
  • SKD (semi-knock down kit assembly) can be carried out for 36 months following the signing of the new agreement (but kits should not account for more than 5% of total production)

Provisional signatories include:

  • Renault-Nissan/AvtoVAZ
  • KamAZ & Mercedes-Benz
  • Ford-Sollers
  • Volkswagen and GAZ
  • General Motors 
  • Fiat  
  • Magna

However, Thomas told delegates that the signatories may not all sign a final agreement by the May 31, 2011 deadline.

If they do, light vehicle production in Russia could be as high as 3.85m by 2016 with some 3.15m accounted for under the upcoming industrial assembly rules. If the Russian market is significantly under that level – as it is forecast to be – dealing with overcapacity in Russia may well be an issue for some by then.

See also: ANALYSIS: Russia to lead European production growth – report