Profile articles provide a concise overview of an industry in a particular country. They are designed to brief senior executives on key local players, on demand and consumption, and on supply and production.Â 2002(a)2003(a)2004(a)2005(a)2006(b)2007(b)
Passenger car registrations
Stock of passenger cars
(perÂ 1,000Â population)145161(b)168(b)172(b)178188
Retail sales of petrol (â000 tonnes)25,48526,01326,79127,46827,58527,802
(b) Economist Intelligence Unit estimates.
(c) includes imports of foreign used cars.
Source: Economist Intelligence Unit.OverviewRising incomes, the development of consumer credit and tax reforms have boosted car sales in recent years. Car sales in Russia are estimated to have increased by 22% in 2007, to more than 2.5m cars. The recent growth is owing to sales of foreign-made new cars; sales of Russian cars and imports of used cars have been declining.The production value of Russia's automotive sector is about 2% of GDP. It employs more than 1m people, 1.5% of the workforce. Russia has the sixth-largest car industry in Europe and the thirteenth-largest in the world. Car production fell in the first half of the 1990s, andâfollowing a brief recoveryâit plummeted again in 1998. It subsequently recovered slowly, before picking up pace in recent years with the help of increased assembly by foreign producers. As a result, the share of Russian cars in total sales fell to only just over one-quarter by 2007.Russian manufacturers have undergone some restructuring in recent years. However, despite a buoyant economy the fortunes of Russia's vehicle makers continue to look uncertain. Most domestic automotive makers do not have the means to invest in new product development and the upgrading of production facilities. They are also facing increasing competition from Western manufacturers, which despite their higher prices are establishing a strong foothold in the Russian market.The increases since 2002 in tariffs on the import of used cars were expected to curb sales in favour of domestic makers, but have instead shifted demand from used-car imports towards the cheap end of the range of foreign-made new cars.DemandRussia is still a relatively underdeveloped automotive market. Car penetration, estimated at around 185 cars per 1,000 people in 2007, is lower than in other emerging European markets, including Poland and Hungary, which have around 250 cars per 1,000 people.Russia is now the fifth-largest car market in Europeâafter Germany, France, the UK and Italy. Official Russian sources estimate that the passenger car market grew by 22% in 2007, reaching 2.5m units, a record high. The rapid growth reflects surging sales of foreign brands. According to disaggregated data available for January-November 2007, total sales of new foreign car were up by 63%, at 1.47m units.Foreign imports now account for around 44% of cars sold; domestically assembled foreign cars accounted for 16% of the market and used foreign cars account for an additional 14%. The market share of Russian cars is down to 26% (compared with 37% in 2006).Rising incomes, the development of consumer credit and tax reforms have boosted sales. In 2006 the average price of Russian domestic cars (US$7,200) was still less than one-third of the average price of imported new cars (US$25,000) and less than half of the price of foreign-made cars in Russia. However, owing to capacity constraints and foreign competition, the market share of Russian manufacturers has declined throughout the decade.Sales of lower-end new foreign cars (both imported and those produced in Russia) have benefited most from the sharp tariff increases since 2002 on second-hand car imports.Unlike the booming domestic market, Russiaâs car exports remain relatively stagnant at around 130,000 vehicles annually. Car exports in January-October 2007 were around 104,000 units (US$660m), up from 99,000 (US$550m) one year earlier. The vast majority of Russia's car exports go to the Commonwealth of Independent States (CIS); less than 11,000 car exports during the first ten months of 2007 went to other countries.Â 2002(a)2003(a)2004(a)2005(a)2006(a)2007(b)
Nominal GDP (US$ bn)345.1431.5591.7764.4984.61,236.3
GDP per head (US$ at PPP)8,2139,04210,01611,05512,21313,462
Private consumption per head (US$)1,2151,5092,0642,6593,3634,472
Number of households ('000)52,711(b)52,855(b)52,949(b)53,003(b)53,409(b)53,471
(b) Economist Intelligence Unit estimates.
Source: Economist Intelligence Unit.SupplyAfter dipping as a consequence of the 1998 financial crisis, production has recovered gradually in recent years, reaching some 1.2m units in 2006 (up 10% year on year). Production was up by 9.9% year on year in January-November 2007, when Russia produced 1.173m cars, 262,000 trucks and 72,000 buses.With production by domestic manufacturers in decline, all the recent growth has been the result of a rapid expansion in the production of foreign cars. That expansion has come from an extremely low base, with the production of foreign cars rising from only 11,000 in 2002 to some 280,000 units in 2006.In 2005 the Russian government proposed an âindustrial assemblyâ regime to encourage foreign carmakers to establish assembly plants in Russia. Under the regime, a declared amount of auto components can be imported at either zero or 3-5% import tariffs. To receive the dispensation, companies need to organise production of at least 25,000 units a year in Russia and reduce imports of components by 30% within seven or eight years.In 2002-03 import duties on used cars were raised to protect domestic manufacturers from cheap used-car imports. Imported cars older than seven years attract a 35% import duty. Tariffs on new-car imports have also been increased. The increases since 2002 in tariffs on the import of used cars were expected to curb sales in favour of domestic makers, but they have had the effect of shifting demand from used-car imports towards the cheap end of the range of new foreign cars.Consolidation and vertical integration have been trends in the Russian car industry since 2000. Severstal, Russia's leading steel producer, acquired a controlling stake in Ulyanovsky Avtomobilny Zavod (UAZ), and Siberian Aluminium (Sibal; now Basic Element) took over Pavlovo Bus, Gorky Avto-Zavod (GAZ) and several bus, truck and engine plants as part of an ambitious acquisition programme. In most cases the new owners have undertaken some restructuring; reduced debts; improved procurement and distribution; and eliminated barter schemes.Most Russian manufacturers source their automotive components from their own subsidiaries, but the increase in imported cars has led to growth in demand for foreign components and spare parts.Russiaâs automotive industry remains highly vertically integrated, with domestic manufacturers producing up to 60% of their components in-house. There are at present very few independent auto component manufacturers in Russia. This is in sharp contrast to the rise of the auto component sector in eastern Europe and China. Russian manufacturers have a strong position in the component market for domestic models, where they possess competitive advantages in price, location and customer relations, but the majority of them still fail to produce innovative products or meet required quality levels.With respect to the commercial vehicle market, the increase in sales of buses to municipal mass transit authorities in recent years has exceeded local production. The demand has been met by imports of used buses. Municipal authorities often prefer used imports to new domestically produced buses, because of the substandard quality of the latter and excessive maintenance costs.After the stagnation of the 1990s, Russian truck manufacturers are showing signs of recovery. In the first 11 months of 2007, Russian plants produced 259,000 trucksâa 16% year-on-year increase that reflects a boom in investment and construction. Domestic haulage is primarily serviced by locally manufactured lorries, whereas imported vehicles are predominantly used for international shipping.In the first 11 months of 2007, 78,000 buses were produced in Russia (4.8% less than in the same period of 2006).Car imports rose by 36% to reach 1.05m units in 2006. They were up by 56% year on year at 1.3m units in January-October 2007. In value terms this meant a rise from under US$10bn to over US$17bn. Truck imports during that period climbed from 43,000 units (US$790m) to 86,000 units (US$2bn).Key playersAvtoVAZ, the maker of the popular Lada, is Russia's largest automotive company, dwarfing the other makers. GAZ is the second-largest company, having a major presence in the commercial vehicles segment. KAMAZ and UAZ follow, with UAZ being strong in the bus segment.AvtoVAZ was established in 1970 in co-operation with Fiat (Italy). The 1998 financial crisis provided a sorely needed boost to AvtoVAZ sales, which had suffered in the 1990s, and the company was able to remain competitive in the immediate post-crisis years. However, the company now faces considerable pressure from low-cost foreign brands, with Russian consumers switching increasingly to the latter. With 12,000 employees and antiquated equipment, car assembly requires far more man-hours than the levels required in the West, and rising domestic costs and the rouble's appreciation have further added to AvtoVAZ's competitiveness problems.Despite its declining market share, AvtoVAZ remains the single most significant player in the market, and the company has ambitious plans to raise annual output from the current 770,000 to 1.3m by 2012. It currently accounts for the vast majority of domestically branded car sales. It also produces Chevrolet-branded cars through its joint venture with General Motors (GM; US). In December 2007 Renault (France) signed a memorandum of understanding to purchase a 25% stake in AvtoVaz; assuming that the deal is finalised this should lead the way for the production of Renault- and Nissan-branded cars at AvtoVAZ facilities. AvtoVAZ is currently owned by Rosoberonexport, Russia's arms export monopolist, and a Russian financial company, Troika Dialog. Rosoberonexport's securing of a controlling stake in the company suggested that the Kremlin was trying to build a ânational championâ in the automotive sector.In late 2007 AvtoVAZ announced that it was scrapping plans for a US$2bn plant, to be built with Magna International (Canada). The two companies had previously planned to begin production of a new low-cost vehicle at the proposed plant by 2011.GAZ, like other Russian vehicle producers, experienced hard times in the 1990s, but managed to recover in part because its production was more diversified than that of other manufacturers. The company received a large federal loan to modernise; and started to focus on marketing and creating a dealer network throughout Russia. In 2000 GAZ was acquired by Sibal (now Basic Element), the largest Russian aluminium manufacturing company. Sibal consolidated equities of several automotive and bus manufacturing firms under the RusPromAvto holding consortium. The new management team improved GAZ's financial position and improved distribution practices. In December 2007 it was announced that GM was negotiating possible co-operation with GAZ.UAZ is controlled by Severstal Group, the largest Russian steel manufacturing company, through its subsidiary Severstal-Avto. Approximately 20% of UAZ vehicles are exported. In recent years car production at UAZ has steadily increased, whereas production of light commercial vehicles has decreased.KAMAZ is Russia's largest heavy lorry manufacturer. The federal government and the government of Tatarstan control the company. KAMAZ employs 50,000 at its company headquarters in Kazan, and at 17 subsidiary firms. KAMAZ's share of the Russian lorry market amounts to about to 15%.In terms of sales of foreign cars, the best-selling marque is the Ford Focus, of which almost 80,000 units were sold in January-October 2007. The second-best-selling foreign car assembled in Russia is the Renault Logan (54,000 units), and then the Chevrolet Lanos (47,000 units). Hyundai (South Korea) sold 130,000 cars (up 44% year on year) in January-November 2007, placing it fourth in terms of market share.The list of foreign companies assembling cars in Russia is growing rapidly. In a joint venture with AvtoVAZ, GM produces the Niva sports utility vehicle (SUV) in Togliatti. GM and AvtoVAZ each own 41.5% stakes in the joint venture, with the European Bank for Reconstruction and Development (EBRD) owning the remainder. The Avtotor plant in Kaliningrad produces South Korean Kia, German BMW and US Hummer brands. The Taganrog car plant assembles vehicles for Hyundai, and Izhavto, at its plant near Izhevsk, assembles the Kia Spectra. Volkswagen (Germany) launched a â¬400m plant in the Kaluga region in late 2007. It is expected to produce 150,000 units annually by 2009.St Petersburg has emerged as the main location for foreign carmakers. Its location on the Gulf of Finland is convenient for importing parts, and it is near several EU countries, which helps exports. There are tax breaks for big investors. Local labour costs are only one-third of levels in Germany. St Petersburg is also the second-largest part of the Russian market, after Moscow. Toyota (Japan) is the latest arrival in the region, starting assembly at its new US$200m facility in St Petersburg in late 2007. Annual production is to be around 50,000, but will start at 20,000. GM plans to begin production at its St Petersburg plant in November 2008. Ford (US) assembles its Ford Focus near St Petersburg.Renault is a major player Russian car market, and will now increase its presence through its purchase of a blocking stake in AvtoVAZ. Since the late 1990s it has partnered with the Moscow city government, and since 2005 has been assembling cars in the Moscow region. Annual capacity at the plant is currently 80,000, but is due to double by 2009. The Logan marque accounts for more than two-thirds of Renault's sales in Russia.Useful web linksGAZ: www.gaz.ruUAZ: www.uaz.ruAvtoVAZ: www.vaz.ru
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
Have an account? Sign In