• Jan 21, 2009
Russia has long been included under the "emerging markets" umbrella that carmakers have been saying would lead to future industry growth. The economic fallout put an end to those predictions, with Russia suffering just as badly – and if you include the oil sector, some would say even worse – as any other economy. But even though sales are down, Frost & Sullivan predicts that Russia could rebound to be the world's 3rd largest auto market by 2012, behind the U.S. and China.
The prediction is based on steps Russia is taking to strengthen its automotive sector: it is increasing import tariffs and limiting the importation of used cars. The new importation law, similar to one recently passed by Bolivia, reduces the maximum allowable age of an imported car from 7 years to 5. Russia is also reviewing bank lending practices, since the money it flushed into the economy hasn't really had an effect on loan availability yet (not unlike the U.S.).

Lending and the size of the import tariff that Russia imposes seem to be the most important factors in making this prediction come true. But one thing not mentioned in Frost & Sullivan's forecast was oil. When the world economy gets off its knees, the price of oil is going to head for the moon again, and "expensive" oil means more Russians with money, and that could mean a return to more sales, provided the country's oil barons share the wealth. You can read the full press release after the jump.

[Source: Frost & Sullivan]

PRESS RELEASE

Despite Economic Recession - Russian Automobile Market Expected to Be Third Largest Globally by 2012

LONDON, Jan. 19, 2009 -- Despite the global concerns about the impact of the economic recession, Frost & Sullivan predicts that by the end of 2009 the Russian automobile industry will be stable and lucrative once again. By 2012 Russia's car market is even expected to be the third largest in the world, behind the US and China.

As experts predict a continuation of the economic recession into the beginning of 2009, industry stakeholders are watching the Russian automotive market's performance closely. On November 18th 2008, Dmitri Medwedew, the President of the Russian Federation, acknowledged that the crisis is spreading from the financial sector into other sectors, including the automotive industry. Recent analysis from October 2008 to November 2008 shows a 19.3 percent drop in sales of new foreign passenger cars. In response to this the government is re-thinking its lending policies, automobile import policies, and import tariffs, while major Russian manufacturers are restructuring the number of work days in a week and reducing its workforce.

"As soon as the Russian banking sector overcomes months of financial turmoil, and automotive loans are available again for Russians, then sales of passenger cars are expected to revive their growth, however, most likely, at a slower pace," points out Andriy Ivchenko, Industry Analyst at Frost & Sullivan.

Before the recession hit, the Russian economy was fertile for investment. By the end of 2007, Russia ended its ninth straight year of growth, averaging 6.9 per cent annually since the financial crisis of 1998. In 2007, foreign investments in the Russian economy amounted to $27.80 billion of which $353.0 million were invested in automotive and transportation machine-building sector.

The problem for the automobile industry is rooted in the lending policies of Russia's and the World's financial institutions and banks. These lending policies are being revived, but only after taking a toll on Russian and foreign automakers alike.

"Given the fact that more than 45 per cent of the passenger car sales in Russia were financed through bank loans, the financial crisis in Russia forced banking system to almost put on hold all new automotive loan applications for Russians," says Olha Kryvetska, Research Analyst with Automotive & Transportation Practise at Frost & Sullivan.

This new slump in demand for cars forced the hand of many Russian and foreign manufacturers, namely GAZ, AVTOVAZ, KAMAZ, the biggest Russian manufacturers. On the 19th of November GAZ announced its decision to install a three-day working week, in response to decreasing demand for vehicles. On the 9th of October KAMAZ, known for its heavy commercial vehicles, it was cutting down the work week to 32 hours, and also cutting its workforce by 10 per cent. Even though, most of 2008 showed a slight reduction in sales (only 2.6 percent compared to last year), AVTOVAZ's Lada Priora has shown positive tendency increasing its sales drastically in 2008. Foreign OEMs, such as Renault, Ford and GM are amending their production plans for January 2009 in Russia and delaying their production of new models.

Finally, the government is starting to act in an effort to keep the industry afloat. The main change is the restructuring of import policies of used vehicles, prohibiting the importation of cars older than 5 years. Currently the system allows for cars no older than 7 years. The other key adjustment is to increase import tariffs. Russia is hopeful that this move will reduce the volume of import and in the long term gradually accelerate the development of foreign assembly in Russia.

Once the Russian automotive industry is strengthened, through new lending policies, import tariffs and the stimulation of foreign assembly, the future of this industry looks bright.

For more information about the Russian automobile industry or the Russian economy as a whole, please contact Anna Anlauft at anna.anlauft@frost.com.

Frost & Sullivan, the Growth Partnership Company, partners with clients to accelerate their growth. The company's TEAM Research, Growth Consulting and Growth Team Membership(TM) empower clients to create a growth-focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 30 offices on six continents. For more information about Frost & Sullivan's Growth Partnerships, visit http://www.frost.com/.


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  • 18 Comments
      • 6 Years Ago
      What a joke... Russian cars are pieces of crap... that's why in the east (where they all buy used Japanese cars over the local product) there have been major riots do to an increase in the car import tariff... this forecast is a joke!
      • 6 Years Ago
      You are insane people. what do you know about Russia? you watch you crappy tv news and read idiotic newspapers that only show biased information? You are so naive... look, everyone here in Russia laughs at you...your like zombified kids: OBAMA OBAMA haha, i watched inauguration, your really funny.
      you think your politicianss are any better than Putin?
      Look, your politicians are pawns. pawns of your corporatocratic system. hungry financial elite. money made of nothing. Your idiotic economic system is what causing alot of people on the planet suffer today... and you dare criticize other countries politics..

      What do you know about war in georgia? what do you know about ukraine? read something besides newyork times and shut up. DO YOU KNOW what Youshenko made with Ukraine? He basically destroyed its economy, and hes only goal it to confront Russia. THIS is your stupid democracy. Look at estonia and latvia looks like those regimes put there by US are failing.
      Russia is not an aggresor. it is america who is trying to surrond Russia with aggresive regimes to weaken its economy.
      But your economy made of empty air will fall.
        • 6 Years Ago
        Oh and RT is such a non-biased source of news? Give me a break, they are controlled by the Kremlin... last month they were promoting some Russian professor predicting "the break-up of the US" in 2010... I think that speaks for itself that this rhetoric actually makes the Russian news! WE have a free press, YOU don't... simple as that!

        The rest of your comments are in line with a long history Russia's inferiority complex to the US.

        Focus on your own country's problems, dude, the US is going to turn out just fine :-)
      • 6 Years Ago
      so... should we bring back the Yugo now?
      • 6 Years Ago
      And in case you think it was evil plan of Putin to cease gaz transit to europe, just read about how much money has Gazprom lost during the Incident. so much money that it was about to accept any terms from ukraine just to resume transit.
      • 6 Years Ago
      I doubt it will happen.

      Russia needs $75 oil to balance its budget. Below that, the country will run deficit. The economy of Russia is dependent on the energy sector, for it is the main money makers for the country, while other sectors feed off the energy left-overs.

      Now, the oil is around $40, and Russia killed the remains of any trustworthiness as a business partner with the BP situation, war in Georgia and Ukraine gas dispute. Investors are pulling out from Russia, because of the political risk Russia has to pay a huge premium on its loans and the energy sectors isn't doing well at all. The country inevitably will fall back, and purchasing of the new cars will slow down and reversed.

      Also, consider the fact that Russia never had access to credit and suddenly all of its citizens got credit cars and lines of credit. That sudden spike in domestic consumption simulates the economy. However, now as everyone has credit and has some debt on it, there is no new waves of purchasers to be injecting money in the economy. So I'd say - nah, Russia would not become #3 in the world.
        • 6 Years Ago
        I totally agree. People are slowly living better than they did under the misimplementations of glasnost and perestroika, but they have serious problems with foreign investment. Corruption is rampant and the government is effectively slaughtering small business through their inefficiency at fixing Soviet-era regulations. There are seriously fire-safety laws on the books forbidding electrical outlets in warehouses!

        Yes, population is declining. The average lifespan for a male is 55 years. Family values are non-existent. Single mothers are all over the place and it's common for men to drink a bottle of $1 vodka a day. Insane.

        The energy dependence is totally true. I saw a statistic somewhere that said that something like 85% of Russia's economy is supported by oil and minerals(like nickel, etc).
        • 6 Years Ago
        Somewhat surprisingly, Russian people are very skeptical about credit. I won't go into details, but I met with several CEOs of various companies in Russia while I was there. Very few people are willing to get loans. It's a bit like the wild west there. All of these new Western things are becoming realities in their county, but they have some serious old-school Soviet-era ideals and influences that they're still motivated by. Very interesting country with serious capitalist possibilities. That's why they're the 'R' in BRIC.
        • 6 Years Ago
        Casey,

        Historically, Russian citizens never had access to any form of credit - all purchases were financed with the money stuffed under the mattress over the years. Suddenly, every citizen has credit money and things they want to buy, which they never had. Of course not everyone rushed immediately, but things like TVs, apartments and cars became within reach of an ordinary person. Now, forget about the rural areas - they are just as bad as they were. However, you have Moscow, St. Petersburg, Ekaterinburg and a handful of other big cities that represent, what 25-30% of the overall population. That is 30-40 million of people that suddenly start spending. 30-40 million buying a TV, some cloth, a DVD player, a computer. Then add 10-20 million people buying cars. Times a few thousands each you have a sudden spending spree greater than a stimulus plan of G.W.Bush. These money go back into the economy, feeding the feeling of being able and being rich.

        The problem is, at some point leveraging process will stop as everyone now has some debt to carry. Then the spending will slow. Given the external factors such as running investors and dirt-cheap oil, Russia is heading for a bigger shock than they anticipated.

        Putin and FSB is on stand-by, though, just in case someone decided to complain.
        • 6 Years Ago
        I agree with Soccer Mom. It just ain't gonna happen. First, Russia's economy depends far too heavily on energy exports. With the price of energy in the dumps, Russia's middle class is in deep trouble. Second, unlike India and China, Russia is rapidly losing population. Russia's population peaked in 1993 and is rapidly declining. Third, Putin's heavy-handed, corrupt, and brutal regime is effectively chasing out foreign investment.
      • 6 Years Ago
      This Russian reliance on the oil reserves and the price of fuel because of their corrupt government model doesn't mean they will fail at growing their domestic car market.
      I think it means serious problems for global security in the future as Russia will seek to align itself with America's and Israel's enemies in some future showdown instead of reforming it's corrupt political structure.
      • 6 Years Ago
      Funny comments guys, thanks 8)
      • 5 Years Ago
      Wow... did I hit a nerve fellas? ;-)

      Well, I do agree Fox News is crap, and for that matter most cable news in the US doesn't give much in the way of international news. But there's a big difference between that (having lots of opinions pro/anti-govt, left & right, etc) and having your news media controlled by the ruling government... which is what is meant by "Russia's state-run media"! If you don't see that, you're lost cause...

      Listen, if the US Economy is such "hot air" (although I think anyone with half a brain would admit it got too inflated/over-leveraged), then why are some many people around the world pouring their money into the US dollar? As opposed to (in Putin's words) "the safety of the ruble"? (what is that down 20% under a controlled de-val?) Hmmm, maybe there is a bit more to the US then you think? Maybe because it doesn't rely on 70% of its GDP from energy/commodities??? I'm sorry guys, you won't get this, you're obviously brain-washed by your fabulous dictator Putin... I'm gonna go watch Rocky 4 now ;-)

      And for your info, I've been to Russia twice, so I know how things go...
      • 6 Years Ago
      In SOVIET RUSSIA, road forks you !
      • 6 Years Ago
      I was in Russia in October. Moscow is insane. These people have not had personal property in so long that everyone buys the most expensive things they can find. Most housing is paid for by the gov., so lots of disposable income for frivolous things. Audis, Mercedes, BMWs, Bentleys are everywhere. Everywhere. In one hour in Moscow, you'll see more high end cars than you've seen in your whole life nearly anywhere else. On the flip side, the poor people drive some pretty messed up Russian cars. Old school Ladas can be seen all over too.
        • 6 Years Ago
        "everyone buys the most expensive things they can find. Most housing is paid for by the gov., so lots of disposable income for frivolous things."-------------Are you sure that wasn't in America?
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