Russia Autos Report Q2 2010

The Russian automotive sector is still suffering from the effects of the country’s deep recession, though there are signs that recovery is within grasp. New car sales fell 49%, to 1.47mn, in 2009, worsening a crash that began in autumn 2008 as Russia stood on the cusp of becoming Europe’s largest vehicle market, according to a January 2010 report by Associated Press. This was despite the government introducing subsidised car loans – by the end of 2009, the loans had only been taken up by 70,000 people, according to the Association of European Businesses (AEB), barely affecting the market. The Russian economy returned to growth in the third quarter, and in the last quarter, consumer confidence hit a year-long high. However, both the economy and confidence levels – crucial to car sales – remain much lower than pre-crisis levels.

Manufacturing has also been hit hard. The Russian government will spend close to RUB33.5bn (US$1.1bn) on supporting the autos industry during 2010, Economic Development Minister Elvira Nabiullina revealed in January 2010. Estimates from the Federal State Statistics Service (Rosstat) show that car and truck production fell a staggering 60.4% year-on-year (y-o-y) and 67.3% y-o-y respectively during 11M09, despite the government's low-cost loan scheme and the 30% import duty on foreign car imports. The government's support and resumption of production by domestic automakers aims to prompt a recovery in the Russian automobile sector in the near future.

But there are signs the industry may have turned a corner. Russian carmakers have resumed normal production levels in the country. AvtoVAZ has restarted production after a suspension of two weeks at its Togliatti plant. Truck maker Kamaz has also resumed normal production after a 17-day suspension. Kamaz was planning to produce 1,785 vehicles and chassis by the end of January 2010 by operating a four-day week.

Despite this the government will introduce a scrappage scheme on March 8 2010 to boost the vehicle market, it was reported in January 2010. Under the RUB10bn (US$342mn) plan, the government will give RUB50,000 (US$1,750) to people scrapping a car at least 10 years old in favour of a new Russianassembled domestic or foreign brand vehicle. The scheme is expected to generate 200,000 new car sales in the country.

The announcement testifies BMI's view that it will take much stronger intervention on the part of the Russian government, or an overall improvement in credit conditions, to get a full recovery under way. To that, the government is likely to allocate close to RUB10.5bn (US$346.4mn) in total towards the 'cashfor- clunkers' programme. The government will be hoping to replicate the success of similar schemes introduced in the US and European markets such as the UK and Germany to kick start the recovery in its autos industry.

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