Introduction

Russia is one of the fastest-growing automotive markets in the world and a hot-spot for foreign investments, across all sectors of the automotive industry. It is estimated that the production of foreign brands on the territory of Russia could increase three-fold by 2010.

Scope

Analyses investment opportunities arising from the projected growth of Russia's automotive market till 2011. Assesses market opportunities ranging from vehicle assembly and manufacturing of components, through to leasing and management of corporate fleets. Details the main drivers behind the market growth, including the government's strategy for the national auto industry. Reviews the localization of production by foreign manufacturers in Russia and the impact on domestic automotive manufacturers.

Highlights

Russia is one of the fastest-growing car markets in the world, recording an annual growth of nearly 30 percent, compared to 2005. The growth of the car market is still strong in a country that has nearly doubled the size of its car parc over the past decade. The volume of new cars sold to companies is set to increase by more than a third by 2011, creating opportunities for the relatively undeveloped fleet market.

Reasons to Purchase

Gives an introduction to the growth projections for Russia's automotive sector and the investment opportunities it provides. Details the prospects for one of the world's largest automotive markets, encompassing automotive production, sales, financing, fleet management.

INTRODUCTION

Russia - One of the World's Fastest Growing Car Markets
Factors Behind the Russian Automotive Expansion
Corporate Car Market in Russia
Russia Takes Advantage of Auto Boom to Lure Foreign Investments
Component Suppliers Follow Carmakers into Russia
Benefits of Vehicle Assembly in Russia
Ruling 166: Perceived Risks

Domestic Car Industry - Can Russian Brands Survive Competition from Abroad?
In order to answer this question, we have to consider some specifics of modern Russia - particularly the way she is governed. The economic strategy of the federal government is based on reinstating state control over key industry sectors, in order to execute consolidation of multiple companies into fewer or even a single national champion in their field. This is currently done in the strategic energy sector, as well as in the field of mineral resources, in defense and airspace engineering. When it comes to the automotive industry, it seems that the Russian government has similar plans. In 2005, the government took managerial control of the country's largest carmaker, Avtovaz, and this year a controling shareholding in the company was officialy acquired by the state-owned defense export agency, Rosoboronoexport. Potential consolidation of Avtovaz into a single entity with other vehicle manufacturers has been under consideration, but no definite decisions have been made as yet.

Russians can spend more on their cars as a growing number of• them are better off. Rather than just price, they are interested in build-quality, brand image, trim levels etc. Russian cars do not currently cater for these requrements. Instead, their products suffer from a bad image and low desirability - a direct consequence of perceived low quality and dated tehnology;
Car buyers in Russia can borrow more. The expansion of the• consumer finance sector is resulting in development of new products targetting an ever broader client base;
Chinese cars are penetrating the market, also betting on the• same advantage - low price. Their advance may be quicker than many are hoping for;
Co-operation with Foreign Carmakers is Essential

The room for manouvere is getting tighter for Russian carmakers. The market for cheap cars is growing more competitive, providing consumers with the opportunity and confidence to demand more. To adapt to the new climate, Russian manufacturers would need to raise the game and offer consumers what they expect from an affordable car, and eventually also move upmarket by offering more expensive products. These two solutions, particularly the latter seem out of reach for the Russian car industry as we have known it so far. Yet, many in Russia believe this can be done. If the domestic car industry is to attempt to do so, it has to address several key issues, which at the same time offer opportunity for global auto firms looking to invest in the market:

Foreign Car Makers Supply Engineering Know-How
Foreign Suppliers to Provide Quality Components
Management: Foreign vs Home-grown Executives
Exports in Retreat
Conclusion
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Datamonitor consulting
Disclaimer

List of Figures
Figure 1: It is forecast that by 2010, foreign car brands will account for two thirds of the new car market in Russia
Figure 2: Some of the best-selling brands in Russia have seen their sales rocket over the past four years.
Figure 3: The growing demand for cars in Russia is expected to be met mostly by foreign brands, with the number of those assembled locally quadrupling by 2010
Figure 4: Russia's car ownership rate is half that of Poland, although the national car parc has doubled over the past decade.
Figure 5: New car sales to companies and public sector Institutions in Russia are forecast to increase by a third over the next four years
Figure 6: Foreign brands have a higher market share of Russia's corporate car market, as higher prices are less of an obstacle for companies compared to private users.
Figure 7: Most of the foreign auto plants in Russia are concentrated in the region of St. Petersburg.
Figure 8: Asian carmakers, including those from China, are expected to assemble more than a half of all foreign cars in Russia by 2010.
Figure 9: Several manufacturers of automotive components have announced production in Russia by 2010.
Figure 10: Russia's strategy to develop the domestic auto industry is attracting foreign investments by major companies. The value of the initial investments are likely to increase in the future.
Figure 11: Russian Carmaker Sevestral Avto want half of the content built in UAZ Patriot to be foreign. Currently that share is 30%.