LLK, Russia’s biggest lubes manufacturer, is the lube arm of Lukoil, the countrys oil major.

Togliatti-based AvtoVAZ is Russias largest automaker with an estimated capacity to build 950,000 cars annually. Gaz Group from Nizhny Novgorod is second with a capacity to make 265,000 cars annually and Izhevsk-based IzhAvto is third with a capacity to build 220,000 cars annually, according to Yasnovskiy, who cited data from the Russian Ministry of Industry and Trade. Japan’s Toyota has an assembly plant located in Shushary in the outskirts of St. Petersburg that can build 200,000 cars annually. All other car maker-such as Nissan, Avtotor, PSA Peugeot Citroen, Ford, Hyundai and Mazda-have capacity to make from 50,000 cars (Nissan) to 170,000 cars (Avtotor) annually.

LLK found that estimated car sales in Russia will increase proportionally with the growing quality and better performance of new car models. “In the basic $20,000 to $50,000 segment there were slightly more than 1 million cars sold in Russia last year. In this segment we expect sales to soar to almost 2 million by 2020,” Yasnovskiy observed.

Total vehicle sales in Russia in 2012 amounted to 2.66 million units. LLK expects the country’s vehicle market to grow to 4.22 million units by 2020. According to various estimates, car sales will grow to around 3 million units this year. If that happens, Russia could bypass Germany to become Europes biggest car market in 2013. Russia would become the fifth automotive market in the world, and some analysts believe it will retain that status in the years to come.

At the moment Russia is way behind the developed countries in cars per capita. There are only 250 cars per 1,000 people in Russia today, compared with the United States (780), Italy (660 cars), Germany (580), France (498) and Japan (465). “We expect car ownership to grow by 2020 to somewhere between 300 and 390 cars per 1,000 Russians,” Yasnovskiy said, citing data from Rosstat, the national statistics agency.

German manufacturer Volkswagen has seen the biggest car sales growth in Russia in the first six months of 2012, according to LLK. From January to June, its sales grew 78 percent, to 81,050 vehicles or around 35,000 more than the first six months of 2011. Czech car manufacturer Skoda (41 percent), Japan’s Nissan and Toyota (34 and 33 percent, respectively) and French Renault and Korean Kia (29 and 25 percent, respectively) also reported good sales growth for the first six months of 2012. “Such positive sales and growing car market haven’t been seen anywhere else in Europe in the last few years,” Yasnovskiy declared.

Russia is launching new car plants, while Europe transfers production to Asia, he continued. “The Ford plant in Southampton, England, is scheduled to close by early 2013. PSA has announced a factory closure in the Paris suburbs of Aulnay-sous-Bois and an 8,000 reduction in the workforce,” Yanovskiy said, and noted other closings in Germany, the United Kingdom and Belgium.

On the other hand, Ford, Toyota and Volkswagen announced plans to increase assembly capacities of their Russian car plants. “Renault plans full repayment of Moscows share in the Avtoframos plants. In 2011, Ford opened its second car factory in Yelabuga, Tatarstan, and GM pledged a $1 billion investment in its Russian production by 2018. [Toyota’s] plant capacity in Shushary is poised to increase from 98,000 to 230,000 cars per year, Yasnovskiy said.

Furthermore, Mitsubishi of Japan plans to double its sales in Russia, the company’s second market after the United States, to 150,000 cars per year by 2015. Mazda has recently opened a plant in Vladivostok, Russia’s Far East, to produce 100,000 cars per year. For Mazda, the Russian market is third after the United States and Germany. Also, Volkswagen is building an automobile engines plant in Kaluga oblast, which it plans to open by 2015. “The plant will produce the new EA211 engine series with a capacity to build up to 150,000 engines annually,” Yanovskiy said.

However, sales for Russias biggest car manufacturer, AvtoVAZ, has dropped 14 percent drop for the first six months of 2012, compared to the same period in 2011. “It shows that if a company cannot introduce qualitative and functional new technologies, compared to those of the leading international car brands, it cannot be protected by any government measure such as increasing import tax duties,” Yasnovskiy said. In 2012, AvtoVAZ allied with Renault-Nissan hoping to resume positive sales after launching the Lada Largus compact passenger car, a project developed with the Franco-Japanese JV.

In 2011 the Ministry of Industry and Trade and the Ministry of Economic Development signed agreements with AvtoVAZ, Renault-Nissan, Izh-Avto, KAMAZ and Mercedes-Benz Trucks Vostok, as well as Sollers-Ford, GM and Volkswagen, Yasnovskiy said. Under them, automakers in Russia must have capacity to produce more than 350,000 cars annually by 2016; ensure 60 percent localization of production before 2015; ensure by 2016 that 30 percent of cars built in Russia have Russian made engines; and create a national research and development center.

When Russia joined the World Trade Organization, the state imposed several temporary measures to support domestic automakers but will gradually reduce taxes on the imported cars from 30 to 15 percents by 2018, Yasnovskiy said.

He said the projected expansion of domestic and international automakers and the government measures will significantly change the landscape of Russia’s automotive lubricants market by 2020.

Lukoil is Russias biggest lubricants producer and holds a 30 percent share of the countrys automotive lubricants market. In 2011 the company produced 1.2 million tons of base oils and finished lubricants or 45 percent of the countrys total lubricants output. The production is coming from seven base oil and lubricants blending plants located in the country and abroad.

The changing car market will affect consumer lube shopping habits, Yasnovskiy said. More and more owners would buy motor oils in specialty stores, petrol stations and supermarkets, and less car owners would buy motor oils in service stations and hypermarkets, according to LLK. In 2012, 48 percent of Russian car owners bought motor oil in specialty stores, 20 percent in service stations, 13 percent in petrol stations, and 9 percent in auto parts stores. Nine percent bought motor oil in hypermarkets and department stores, and only 1 percent bought over the counter, Yasnovskiy said, referring to a Synovate agency marketing study.

One after-effect of the changing car market in some developing countries is that OEMs are developing their own labels of motor oils. In Russia, more and more service stations are featuring them. “Many stations are not only selling private labelled oils, such as Mercedes-Benz, Alfa-Romeo, Toyota or GM branded lubes, but the staff is recommending the use of private labelled oils and would provide car owners technical manuals with relevant information,” Yasnovskiy said.

LLK believes this trend will continue to grow in the future because “motor oil today is considered to be an engine part. LLK knows this and is working to adapt in the fast changing market conditions,” Yasnovskiy added.