Sales of new passenger cars in Russia are expected to plummet to about 454,000 vehicles in 2022, a 67% decline from the 1.5 million units sold last year, according to a consulting firm that cited Western sanctions in response to the invasion of Ukraine.
The country’s sales of new light commercial vehicle are expected to decline by up to 46% in 2022 to 69,000 units, compared with 127,000 units sold in 2021, predicted Moscow-based Russian Automotive Market Research, a consultancy in the Russian automotive sector.
The consultancy offers three scenarios on how the market might react to the sanctions, the impending economic recession and such factors as COVID-19 lockdowns in China. The scenarios are basic, optimistic and pessimistic, but they do not differ significantly. The numbers represented here are from the basic scenario.
Western sanctions against Russian banks and other industry sectors are the No. 1 factor slowing the country’s economy, and this affects the automotive market.
The Russian Central Bank has forecast a decline in gross domestic product of 8% to 10% in 2022. The Ministry of Economics and Development projects an inflation rate of 17.5% this year.
The movement of bulk and retail goods is expected to decrease, which will trigger financial difficulties for long haulers and companies that use light commercial vehicles. Therefore, the LCV corporate fleet renewal will be significantly slowed, RAMR found.
The sanctions include prohibitions on imports of microchips and car components into Russia from technology companies in the United States, Canada, the European Union, Japan and Australia.
“Russian plants of UAZ and AvtoVaz in Ulyanovsk, Izhevsk and Togliatti; the plants of Renault and Nissan in Moscow; Hyundai, Kia and Toyota in St. Petersburg; Autotor in Kaliningrad; Mazda in Vladivostok; Peugeot-Citroen and Volkswagen in Kaluga and Nizhny Novgorod, and several other manufacturers all suspended their work in the last few months because of delays in auto component supplies,” RAMR said in a recent news release.
AvtoVaz, which produces the top-selling Lada brand, resumed production on June 8, after changing ownership at the end of May, when French Renault sold its controlling stake in the automaker to the state-run automobile research institute known as NAMI.
The steep decline in Russian sales of new passenger and light commercial vehicles is also affected by the decision of many foreign car brands, including Nissan, Toyota, Mitsubishi, Volkswagen, Mazda, Skoda, BMW, Mercedes-Benz, Audi, Jaguar, Land Rover and Lexus, to halt exports to Russia of new cars. In the middle of March, the European Union and the United States imposed restrictions on luxury products for Russia, including expensive cars. Japan imposed a similar restriction in April.
RAMR expects that the restrictive measures caused by the COVID-19 pandemic in China in 2022 will lead to delays in the supply of car parts for Haval, which has a plant in Russia’s Tula region, and for other OEMs in the country that use Chinese components.
“The import of Chinese vehicles into Russia will be inevitably reduced,” RAMR said. “All these factors will provoke new manufacturing outages and vehicle shortages on the Russian market.”
The firm also expects spikes in new car prices, related to supply chain problems and vehicle production spare parts shortages. “Considering the decline of the real income of the population, this will lead to a further lowered demand for new cars in the country,” RAMR added.
In the last few years, a diversified used vehicle market has emerged in Russia, RAMR said.
“We expect the used-vehicle supply on the market to gradually decrease, because ex-owners of used cars can face many difficulties if they choose to replace their used vehicles with new,” RAMR said.
The firm identified a couple of government measures aimed at mitigating the effects of the sanctions and the economic isolation by the West.
The “parallel import” scheme introduced by the authorities in May gives a list of many cars, lubricants or spare parts that are available for import without showing customs officials documentation for trademark and copyright provisions.
The parallel import list includes such brands as Land Rover, Jaguar, Bentley, Hummer, Tesla, Mercedes-Benz, Maybach, Lexus, Infiniti, Lamborghini, Ferrari, Aston Martin, Porsche, Rolls-Royce, Maserati, Bugatti, Toyota, Volkswagen, Skoda, BMW, Renault, Audi, Mini and Nissan.
“The parallel import can enable foreign vehicles inflow in the Russian market,” RAMR said. “However, related to the logistics problems, supply volumes do not tend to be significant currently and we are not expecting it to lead to significant market growth.”
Other measures are state interventions, including credits for buying new cars, discounts for buying electric vehicles and beneficial leasing programs. RAMR found that in 2022, the Russian government is planning to provide subsidies of 20.7 billion rubles (U.S. $390 million) for the support of the automotive market. Subsidies will include 10.2 billion rubles for car credits, 4.9 billion rubles for beneficial leasing, 2.6 billion rubles for discounts on electric vehicles and 3.3 billion rubles for natural gas vehicles.
The consultancy expects Russian, South Korean and Chinese vehicle brands to dominate the market.
“South Korean and Chinese makers plan to continue vehicle manufacturing and supply in Russia,” RAMR said. “Despite logistical problems with transportation of vehicles and spare parts, these companies intend to stay in the country and continue sales.” It added that AvtoVaz will continue production of the popular Renault Duster sport utility vehicle, now under the Lada label and will make its own model range with basic modifications. UAZ will launch its new Patriot and Hunter models in standard versions.