Top Margin Menu

Russia Sales Rocked By Crimea Troubles, Support Withdrawal

Sales Could Fall By Up To Eight Per Cent In 2014.
20 Per Cent Plunge On Cards If Sanctions Ramped Up.

Political troubles in Crimea lopped between two and four per cent from likely Russian car sales estimates for 2014, but recent action by the government to scrap support for car loans will mean sales falling by at least eight per cent for the year, according to LMC Automotive.

The Russian economy is threatened with a return to stagnation.

If sanctions by the West are ramped up, this could make conditions even worse with sales declining by between 10 and 15 per cent, and possibly by as much as 20 per cent in 2014, LMC Automotive said.

“Hopes that Russia might overtake Germany in 2014 have long since evaporated and the latest cut to our forecast means that the timetable for Russia to become Europe’s largest car market has already slipped to the end of the decade at best,” the report said.

Russian new car sales declined 5.5 per cent in 2013 to 2.6 million. Sales in Germany, Europe’s biggest car market, last year were just under three million.

LMC Automotive said the Russian currency, the rouble, has weakened by 10 per cent against the euro this year, making imported goods more expensive and exposing component suppliers selling into Russia as well as companies producing in Russia who rely heavily on imported components.

In spite of increased Russian car production, imports still account for almost 36 per cent of the market, with 46 per cent of sales from producers building foreign-branded cars in Russian plants. For some of these vehicles, local content is still relatively low, LMC Automotive said.

Renault most to lose
The Renault-Nissan alliance, General Motors and Ford have the most to lose among global car manufacturers operating in Russia. Hyundai-Kia of Korea is also a big player. But none of these companies exports cars from Russia yet, or uses a big amount of components for its global operations. So if the worst-case economic scenario developed, the closure of Russia would not be a big deal for their global operations.

Renault-Nissan plans to take a big stake in Russia’s largest car maker AvtoVAZ by mid-2014. Ford is a big player, while GM has its own factory in St Petersburg and a joint venture with AvtoVAZ at its Togliatti base, according to an earlier IHS Automotive report.

During the Geneva Car Show, Ford Europe said it hopes business there won’t be jeopardised by the spat between Russia and the West over Ukraine and Crimea.

Ford of Europe’s chief operating officer Barb Samardzich said its factory in St Petersburg makes Focus and Mondeo cars with its 50-50 joint partner Sollers, for sale in Russia. The venture also makes other vehicles from imported parts.

“We don’t export from Russia; we import knock down kits where you build up parts to build a vehicle, and fully integrated manufacturing. We’ve been in this joint venture for four years,” Samardzich said.

Renault Nissan has the biggest stake in Russia.

“With its planned takeover of AvtoVAZ and associated shared production operations with the company, as well as standalone production operations in Russia, Renault-Nissan has the most to lose if the situation deteriorates,” said IHS Automotive analyst Tim Urquhart.

Renault-Nissan AvtoVAZ is preparing to start production of the little Logan.

“Renault-Nissan is also planning a full takeover and integration of AvtoVAZ into its own operations by mid-2014 with the company planning to complete a complex takeover process through the acquisition of a 74.5 per cent stake in AvtoVAZ,” Urquhart said.

According to Ernst & Young, since 2011 more than $6 billion has been invested in Russia’s car market by foreign companies.

In 2012, AvtoVAZ had 29 per cent of the market, Hyundia-Kia had 12 per cent, General Motors seven per cent and Volkswagen six per cent.

But few expect the situation to spiral out of control, not least because Russia has bigger economic stake at risk than the West.

According to German defense minister Ursula von der Leyen, Russia has 15 per cent of its GDP depending on Europe, while Europe has only one per cent depending on Russia. Russian gas exports though are important for big markets like Germany.

Worst case scenario
Professor Ferdinand Dudenhoeffer of the Center for Automotive Research (CAR) at Germany’s University of Duisberg-Essen doesn’t see the issue getting out of control.

“The worst case scenario would possibly bring strong embargoes that would hurt Russia and the European Union, but I don’t think at the moment anybody thinks that will happen. Russia’s Putin has no interest in bringing the economy down. The same applies to the European Union,” Dudenhoeffer said.

Tensions have been rising recently though and the prospects for the economy generally are deteriorating, according to LMC Automotive.

“The outlook for the Russian economy was already slowing prior to the annexation of Crimea but recent developments mean that there is now a very real chance that in the short-term Russia could be plunged into yet another serious financial crisis. Longer term, Russia could face the dual risks of isolation and economic stagnation,” the report said.

Print Friendly, PDF & Email

No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Site Designed and Administered By Paul Cox Photographic