Russia's ballooning car market promises rich returns, but analysts say foreign competitors are muscling in and threaten to leave local players empty-handed. Real wages are rising fast and people are eager to buy all the consumer goods that were once too expensive or simply not available rather than watch their savings get gobbled up by double-digit inflation.
"No question about it. The situation is simply first-rate," said Uralsib autos analyst Vyacheslav Smolyaninov.
But where once it was oligarchs who swanned around in shiny black German cars while everyone else had to make to do with hand-me-down Ladas, now more and more people can afford a classier foreign set of wheels.
So while overall car production shrank by 6 percent in the first five months of the year in Russia, production of foreign cars jumped 23 percent, according to ASM-Holding.
And imports of new and second-hand cars also shot higher in the first half - by 80 and 10 percent.
"We are undergoing a redistribution of market share in favour of foreign brands," said Valery Tarakanov, a senior manager with car dealership Rolf, which had turnover of more than $1 billion last year. US car giant Ford and France's Renault already run their own plants in Russia and last month Japan's Toyota unveiled plans for a major factory.
Russia has been courting foreign investors assiduously, slashing import duties on car components earlier this year, with President Vladimir Putin even attending the Toyota ceremony.
But what officials characterise as "investment in the Russian car industry" could also be its death knell. Russian Economy Ministry forecasts are bleak.
By 2010, it calculates foreign companies will make 900,000 cars in Russia annually, up from 180,000 this year. Over the same period, domestic producers will struggle to raise output above one million from today's 900,000.
Russian producers used to have a massive cost advantage, especially in the wake of the rouble crash of 1998.
But PricewaterhouseCoopers says the average price of Russian cars rose 11 percent year-on-year in the first half of 2005 to $6,400. That means many Russian brands will cost as much as the Daewoo Nexia, Hyundai Accent and VW Pointer.
And analysts warn that Russian cars will face greater difficulties when Renault starts sales of its locally-produced Logan model for between $8,000 and $12,000 later this year.
"Domestic cars are getting more expensive on account of rising prices for raw materials and electricity and inflation. And foreign brands are starting to delve into a lower price bracket," Tarakanov said.
Russians, still largely strangers to mortgages, are also starting to use car loans, allowing them to set their sights on more expensive, more desirable models.
"Buyers have become more pernickety," said Sergey Suverov, head of market analysis at Gazprombank, adding local manufacturers needed to cut costs and market more aggressively.
"Otherwise they could find themselves in the grip of a financial crisis," he said.
Comments
Comments are closed.