While all eyes are on Russia, neighbouring Ukraine is also recording high vehicle market growth.

In 2006 the Ukrainian vehicle market grew 36% to around 400,000 units, according to Andriy Ivchenko, a Ukrainian national currently employed as an analyst with Frost & Sullivan in London. This compares with 25% growth in Russia last year.

Lack of reliable statistics is a problem in the Ukraine, but Ivchenko estimates that the vehicle parc is currently around 5.5m units. Used vehicle imports are contributing to strong parc growth.

Strong vehicle market growth is attributable to stable and high economic growth. GDP is forecast to grow between 7.5 and 8.5% a year on average for the next eight years. Another factor is high rises in property prices, according to Ivchenko. “Consumers could not longer afford to buy houses so they switched to buying cars instead.” There is also increased availability of different financing options. “A few years ago there was limited availability of financing but the financial sector is growing fast.”

“Salaries are rising, but they are still very low on average. People cannot afford to buy cars without credit,” said Ivchenko.

Per capita income is currently around US$4-5,000 and income distribution follows the same pattern as Russia with a small number of very wealthy people, virtually no middle, and a very large low income group. However a middle class is emerging made up of office workers, bankers, real estate agents, IT and electronics engineers, for examples. “Earnings are still very low but they can afford to substitute spending from food.”

As a result car ownership is increasing. In 2002 there were 114 cars in circulation per thousand population and by 2005 this had risen to 146/1,000. By 2010 Frost & Sullivan is forecasting that car density will exceed 200 cars/1,000 population.

By 2010 the parc is forecast to have reached around nine million units. It should be borne in mind, however, that car density is partly increasing because the population is declining. Before the collapse of the Soviet Union the Ukraine was a region that people retired to so it had a higher proportion of elderly than the Soviet Union as a whole.

The Ukrainian market is traditionally dominated by AvtoVAZ. Around 40% of cars in cars in circulation are AvtoVAZ cars. Around 12% are from Ukrainian producer ZAZ and 11% are branded Moskvich. “60% of vehicles are older than eleven years old,” explained Ivchenko.

Some foreign makes are exploiting the market. ZAZ assembles the Daewoo Lanos which is also exported to Russia. It also assembles some Skoda and other GM models. But companies based in Russia such as Ford and Renault are not exporting the Ukraine, partly because their plants are already fully occupied supplying the Russian market.

To meet demand from the growing middle class, the Ukrainian market is likely to demand lower cost cars than western makes can supply. Chinese manufacturers are eyeing the market and they are already gaining a growing share of the commercial vehicle market. “Western manufacturers are at risk of missing an opportunity that will otherwise be seized by Chinese manufacturers,” said Ivchenko.

On the downside Ivchenko acknowledges that political uncertainty has slowed foreign investment. The import tariff is currently 25% but as Ukraine seeks to join the World Trade Organisation and imports are lowered it is not clear whether local conditions will support a supply industry long-term.