Small and Toxic: Why Russians’ income growth is not translating into wealth, and why the Russian automotive industry will not recover
Despite continued growth in wages and incomes, Russians have not become significantly wealthier, and in particular, the affordability of a new car has declined compared with 2021. On the eve of the war, the price of a new car equalled 35 average monthly salaries; by 2024, it had risen to 38. This pattern has, however, been characteristic of the Russian car market over the past 15 years. As a result, the rate of motorisation (measured as the number of cars per 1,000 people) remains relatively low, averaging +2% per year.
The key factor behind the collapse in demand in 2025 was the high key interest rate, which led to a sharp contraction in auto lending. In the longer term, however, the growth of the car market is more likely hindered by the fiscal burden on the sector. Analysts estimate that the share of various taxes and fees in the price of a car has risen from 28% in 2012 to 40% in 2025, and after the indexation of the scrappage fee, it is expected to reach 44%. This prevents cars from becoming more affordable, even against the backdrop of rising incomes.
As a result, the Russian car market remains small and continues to shrink. The Russian automotive industry, which collapsed in 2022 following the start of the war, is unlikely to recover even with the support of Chinese brands and manufacturers. Beyond its small size, the market remains toxic due to sanctions and unpromising in terms of declining Russian export revenues, as well as political and fiscal instability. None of this encourages investment decisions.
Automotive poverty: Measured in cars, Russians' income is not growing
The rapid growth of wages and incomes appears as one of the most striking features of Russia’s wartime economy. This growth, however, has been driven not by a sharp rise in productivity, but by structural economic adjustments and a severe labour shortage. Nominal wages grew by an average of 15% per year between 2022 and 2025, while in real terms, average growth was around 6% per year. In 2025, growth slowed slightly, but rates remain relatively high. According to Rosstat, the average nominal wage for January–November increased by 14.4% compared to last year, and the real wage grew by 4.7% (compared with 17.9% and 8.9% in 2024). By the end of the year, with slowing inflation and bonus payments, these figures are likely to rise further.
However, this impressive wage growth translates into real wealth gains in an extremely non-linear way. A striking example of this is the dynamics of car purchases, which are typically an important indicator of the expansion of the middle class. Despite continued growth in wages and incomes, according to estimates by the Russian Automotive Dealers Association (ROAD), sales of new passenger and light commercial vehicles (LCVs) fell by 16% in 2025 to 1.4 million units, while sales of used cars increased by a modest 2%.
As can be seen in Figure 1, sales of new cars collapsed by 60% in 2022, following the exit of Western brands and the halt of local production, while sales of used cars fell by 7%. In 2023–2024, new car sales recovered rapidly. However, by the end of 2024, sales of new vehicles had returned to pre-war levels, whereas used car sales had risen by a modest 7% over the same period, despite real wages growing by 19% and real disposable incomes increasing by 20% over three years. This is unsurprising, as the real price of cars outpaced wage growth. According to calculations by Re:Russia, the average price of a new car (total revenue in roubles divided by the number of vehicles sold, based on ROAD data) was equivalent to 35 average monthly salaries in 2021 and nearly 38 in 2024.
Figure 1. Car sales in Russia, 2012–2025, million units
Figure 2. Car sales in Russia, 2012–2025, trillion roubles
This trend is not unique to wartime. It reflects, more broadly, the trajectory of the Russian car market over the past fifteen years. New car sales last year were half the level of the 2012 peak, when almost 3 million new vehicles were sold and the Russian market was comparable in size to Europe’s largest, Germany, whose population is about 83.5 million people. Today, the capacity of the Russian car market, at 1.4 million new vehicles, is close to that of Australia, which has a population of just 27.6 million.
According to calculations by ROAD, in 2012 the price of a new car was equivalent to 30 average monthly salaries, rising to 36 in 2025. The relative price of a used car also increased, though much more slowly, from 13 average monthly salaries in 2012 to 14 in 2021 and 15 in 2024, according to calculations by Re:Russia. In other words, for the average Russian earner, car affordability has declined, especially for new vehicles. As a result, the share of new cars in total vehicle sales fell from 30% in 2012 to 2015 to 15% in 2022 to 2025. The average age of vehicles has risen accordingly. ROAD estimates that in 2015 cars more than ten years old accounted for less than 50% of the fleet, whereas by December 2025 this share had exceeded 70%.
As a result, the rate of motorisation (measured as the number of cars per 1,000 people) has remained fairly modest: 250 cars in 2012, 313 in 2021 and 331 in 2025, according to Autostat. The average annual growth rate was about 2%. However, between 2017 and 2021 the increase over four years was 9%, whereas by 2025 the four year increase was only 6%, one and a half times lower.
Caught between credit and prices
In addition to income dynamics, the primary factors affecting car affordability are the cost of car loans and the rouble exchange rate, given the significant share of imported components even in domestically produced vehicles. The US dollar fell sharply in 2025, which under normal circumstances would have improved affordability. However, the decisive factor behind the collapse in demand was the contraction of car lending, itself a consequence of the high key rate.
In the fourth quarter of 2024,growth in the car loan portfolio slowed almost fivefold, while new lending fell by half to 315 billion roubles. In the first half of 2025, car loan interest rates reached a peak of 27.3% per annum and only eased slightly in the third quarter, according to a review by the Central Bank. As a result, lending in January to March fell by almost another 50% to 250 billion roubles, and only after that did a modest recovery begin. By the end of the third quarter, car loans totalling 474 billion roubles had been issued, 20% below the level of the same period a year earlier. High interest rates on loans and leasing are, according to car dealers, the main reason for the market downturn, as well as for the fact that 19 car plants that operated in Russia before the war are now either closed or running at half capacity.
The severity of the situation is compounded by high interest rates on deposits. This is not only a problem for the car market but for the entire durable goods sector. Consumers can spend money on household appliances or postpone purchases and place the funds in a bank at 2% a month, as the president of one of the largest retail chains, DNS, has complained. As a result, we are witnessing the paradox of 2025: strong wartime income growth is providing only weak support to production through demand.
Figure 3. Car loans in Russia, 2024–2025
However, car loans are not the only factor shaping sales dynamics. Notably, the revival of the car lending market in the second half of 2025 was driven less by lower interest rates than by buyers’ fears that car prices would surge following a sharp increase in the scrappage fee after changes to the method of calculation. Indeed, the scrappage fee for an average Chinese Jetta VA3 car with less than 160 horsepower (such cars account for about 90% of the Russian car fleet) rose from under 700,000 roubles to 800,000.
This is part of a broader issue. According to ROAD analysts' calculations, the share of official charges in the final price of an imported car, including customs fees and duties, VAT and excise, increased from 28% in 2012, about 200,000 of a 725,000 rouble Volkswagen Polo used as an example, to 40% in 2025, more than 1 million of the 2.6 million rouble price of the Jetta VA3, which is comparable to the Polo in specifications. For this reason, among others, ROAD estimates that between 2012 and 2025 the average price of a new car rose 4.3 times, and nearly doubled compared with the last pre war year of 2021. In 2026, as a result of indexation of the scrappage fee and an increase in the VAT rate, the share of official charges will rise to 44%, coming close to half of the total price. This is a key factor behind the rising relative price of cars and their declining affordability in terms of the average salary. In effect, the government’s fiscal appetite imposes an additional hidden tax on middle class consumption, restraining the growth of the car market.
Small and toxic: why the Russian automotive industry will not recover
Before the war, the Russian car market was deeply integrated into the global system. Renault, Volkswagen and Nissan built plants in Russia and even exported some of the cars produced there to other countries. Supply chains for components from the world’s largest manufacturers were well established. In 2022, this segment of the Russian economy, built up over fifteen years, collapsed. According to Rosstat, car production fell threefold, from 1.36 million units to 450,000, the worst result since the collapse of the Soviet Union. New car sales also fell to post Soviet lows, below 700,000 units. Western plants closed, and domestic producers were left without components. AvtoVAZ, for example, sold Lada models for several months without airbags and anti-lock braking systems (ABS) for several months.
In 2023–2024, production and sales began to recover, largely thanks to Chinese brands replacing Western marques and the establishment of new supply chains for components. Last year, however, this recovery stalled and reversed as demand collapsed. AvtoVAZ was forced to cut its production plans for 2025 from 500,000 cars to almost 300,000, and then switch to a four-day working week. According to Rosstat data, passenger car production in January to November 2025 fell by 13% to 590,000 units. This is better than the disastrous 2022 outcome but comparable to 2009, the second worst year in the history of Russian car manufacturing.
As shown above, the short term driver of weak demand is the cost of car loans, while the long term factor is the fiscal burden on the sector, which keeps car prices elevated. Put simply, as Russians’ incomes rise, so too do the levies the state imposes on cars. As a result, market capacity does not expand.
According to Autostat estimates, in 2024 Russia came close to entering the world’s top ten car markets, narrowly trailing South Korea by sales volume. By the end of last year, however, it had slipped to the lower end of the top 15, alongside Australia, behind countries such as Mexico and Turkey. As Alexei Podshchekoldin, head of ROAD, has noted, a relatively small market does not justify building new plants or developing existing ones. The hopes of the late 2000s and early 2010s for rapid market growth have faded. Under ROAD’s baseline forecast, new car sales in 2026 will remain at last year’s level, while the pessimistic scenario envisages a further 10% decline. At the same time, the average car price is expected to rise by about 10% to 3.85 million roubles. As a result, Podshchekoldin predicts that around one third of Chinese brands, about 20 out of 66, may leave the market because of low profitability.
The decision to ‘exit’ is also supported by the ‘toxicity’ of the market. In September 2025, the Japanese publication Nikkei reported that the Chinese company Chery, which became the second most popular brand in Russia after the start of the war in Ukraine, was planning to leave the Russian market in 2027. Company documents prepared for a Hong Kong stock exchange listing state that a full withdrawal from Russia ‘demonstrates compliance with sanctions and export controls’. Although the brand's Russian representative denied this report, Autostat data shows that Chery's sales fell by 36% to fewer than 100,000 vehicles at the end of the year.
In essence, this suggests that the recovery of the Russian car industry, which collapsed in 2022, is unlikely even with reliance on Chinese manufacturers. A small and toxic market does not appear attractive or stable, especially in the context of an expected period of low oil prices. A possible easing of sanctions is unlikely to change the situation fundamentally. A high fiscal burden, expected stagnation of incomes and long term political uncertainty do not encourage long term investment decisions.