Translated material
Everything in the auto industry
The Russian car fleet will grow with foreign cars
One of the main trends in the Russian automobile market in the first half of the year is a noticeable increase in sales of new foreign cars and a decrease in the import of used cars, according to a review published yesterday by the consulting group PricewaterhouseCoopers. Imports of used foreign cars decreased in physical terms by 36%, to 103 thousand cars, and in monetary terms - by 33%, to $1.4 billion. PWC explains this primarily by the introduction of restrictions under the Euro-2 standard and the effect of prohibitive duties for the import of old cars. The company does not rule out that the situation may change after Russia joins the WTO and the abolition of a number of duties, but they still predict a noticeable decrease in the share of used cars on the market.The physical volume of car sales in Russia increased in the first half of the year by 12%, to 910 thousand; in monetary terms, the increase was 14%, to $12.1 billion. Moreover, foreign cars assembled in Russia, according to PWC, were sold by 39 % more than in the first half of 2005: 102 thousand cars for $1.6 billion (in monetary terms the increase was 53%). However, so far these cars account for only 11.2% of the total number of cars sold in Russia, although last year they occupied less than 9% of the market. PWC expert Stanley Ruth notes that the growth in sales of Russian-made foreign cars is the most striking feature of the Russian automobile industry. He is confident that the growth trend in this segment will continue.
The volume of sales of new foreign cars imported to Russia has increased significantly - by 61%, to 318 thousand cars, which is more than a third of the market. In monetary terms, imports increased by 29%, to $6.4 billion.
In terms of the number of cars sold, domestic brands are still in the lead - 42.4% of the total market volume, but their sales in the first half of the year increased only by 1%, to 386 thousand units, and in monetary terms - by 4%, to $2.6 billion (but this could, in particular, be due to inflation). Mr. Root notes that their production is stagnating.
PWC believes that the potential of the Russian automobile market is far from being exhausted: by 2010, growth will be almost twice as much as last year, and will reach 2.5 million cars. The Russian car fleet during this period may increase to 30 million cars (currently 5 million less).
PWC notes that in the Russian market demand is shifting towards more expensive cars. This is happening, in particular, due to the growth of household incomes (over the next five years they will rise by 8.5-10.2% per year), as well as the fact that car loans have become more accessible. The company plans that by 2010 the share of car sales on credit will increase from 25 to 60%.
The company predicts that market development in the medium term will be driven mainly by new foreign cars - both imported from abroad and assembled in Russia at enterprises or joint ventures of global automakers. PWC assumes that by 2010 the total sales of foreign cars imported and assembled in Russia will double the volume of production of domestic cars. And the import of used foreign cars, already rapidly declining, will be reduced to a minimum and by 2010 will hardly exceed 2%. As a result, in the coming years the share of new foreign cars in the Russian vehicle fleet will increase to 30% (currently it does not exceed 20%).
The report notes that rising incomes of the middle class and a shift in demand towards new foreign cars open up broad opportunities for international automakers. And the main increase in production capacity in the Russian automobile industry, which, according to PWC forecast, will amount to 31% in 2006-2010, will be provided by foreign companies. The share of foreign brands in the total volume of Russian production over this period will increase from 13 to 39%. This will be facilitated by the significant potential of the domestic market, relatively low production costs (compared to those in European countries), and state policy to encourage investment, including in technology-intensive and knowledge-intensive industries, such as the auto industry. In addition, Russia as an exporter has great opportunities: these are extensive borders, connections with the former Soviet republics, and good relations with the countries of the Middle East and the Asia-Pacific region.
PWC also points out the disadvantages of locating production facilities of foreign companies in Russia: first of all, the distance from the main suppliers of components and their narrow base. PWC notes that for successful business in Russia, the logistics and communications system is not sufficiently developed, and production efficiency remains low. The company fears that widespread fraud and corruption will play a negative role in the development of the auto industry in the country, as well as an insufficient legal framework to combat these phenomena, and the low reputation of local production, which may scare off consumers. State support for domestic manufacturers, which PWC believes is not entirely justified, can also be a disservice to the development of the automobile industry.
So, in the medium term, the domestic Russian auto industry, according to the PWC review, will stagnate. The market will be developed mainly by large foreign automakers, increasing the production of foreign cars and the import of new cars.