[Biz View] Russian Car Market Showing Signs of Rebound, Falling Again

Volatility Driven by External Factors Like Oil Prices
2.6 Million Units in 2014, Decreased by 1 Million Units Next Year
Western Economic Sanctions in Sight After Ukraine Invasion
Market Contraction and Production Disruptions at Car Companies Inevitable

Assembly line of finished vehicles at Lada's Izhevsk plant, a Russian complete car brand

[Asia Economy Reporter Choi Dae-yeol] Approximately 1.67 million new cars were sold in Russia last year. Considering the vast land and a population of about 140 million, this is not a very large number. South Korea's new car sales last year were around 1.73 million units.

The characteristic of the Russian automobile sales market is the high proportion of used cars compared to new cars due to low purchasing power. The national economy's heavy dependence on natural resources such as oil and gas causes sales volume to fluctuate significantly depending on external conditions. In 2014, when oil prices were at their peak, new car sales exceeded 2.6 million units. The following year, when oil prices declined, sales dropped by about 1 million units to approximately 1.68 million. The market hit bottom in 2020 due to the direct impact of COVID-19 but showed signs of some recovery last year.

Ford and General Motors (GM) previously operated local factories but have since withdrawn. However, some foreign brands such as Hyundai, Toyota, and Nissan still operate local plants. AvtoVAZ, established in the 1970s, was acquired by Renault about a decade ago but is still considered a local company. To encourage local production, higher tariffs are imposed on complete vehicles than on vehicle parts.

Last Year's Sales Status of Russian Passenger Cars and Light Commercial Vehicles

Cars produced in local factories are also exported to nearby Belarus, Kazakhstan, and Uzbekistan, but imports are five to six times greater. Most imports come from Japan, the United States, and Germany. Among consumers, foreign brands tend to be preferred. Alongside AvtoVAZ's Lada, Hyundai, Kia, Renault, and Volkswagen are among the top sellers.

In 2020, the central government established low-interest loan funds to support vehicle purchases, which will operate until next year. Buyers can purchase cars at low interest rates and receive about a 10% discount. In the Far East region, classified as a remote area, discounts of up to 25% are reportedly available. Various tax benefits are provided to foreign companies meeting local production standards as part of efforts to foster the automobile industry.

Following the global economic recovery after COVID-19, the Russian economy was expected to continue moderate growth this year. Demand for raw materials increased, and oil prices showed an upward trend early this year. However, if Western economic sanctions due to the Ukraine invasion fully take effect, the economy is bound to contract. The ruble's value has plummeted, significantly increasing inflationary pressures. Given that the public economy was already struggling with high prices due to the COVID-19 aftermath, the actual impact is expected to be even more severe locally. The automobile sales market, which had somewhat recovered this year, is expected to shrink again.

At the inauguration ceremony of Hyundai Motor Company's Saint Petersburg plant in Russia in 2010, Chung Mong-koo, Chairman of Hyundai Motor Group (left), and Vladimir Putin, then Prime Minister of Russia, are test-driving the Solaris compact sedan developed as a locally customized model.

Production disruptions at automobile factories are also beginning to surface one by one. According to foreign media, AvtoVAZ has decided to halt factory operations temporarily. The company cited supply issues with vehicle semiconductors and other parts but made no mention of the Ukraine situation. Volkswagen has shut down some factories in Germany due to difficulties in sourcing parts from Ukraine.

Hyundai and Kia, operating a factory with an annual capacity of 200,000 units, are currently monitoring the situation without significant changes. Since they have entered the local market with many parts suppliers and partners and have stockpiled some inventory since risks emerged, there are no immediate production disruptions. However, if the situation prolongs, it will be difficult to avoid impacts. Although they have established local production systems, a considerable number of parts still need to be procured from South Korea. Local logistics systems are reportedly strained, causing sharp increases in both maritime and land transportation costs. As the Russian market became more important, Hyundai Motor Group has managed it as a separate region from Europe since 2018 when publicly reporting performance.

This content was produced with the assistance of AI translation services.