After almost a decade of economic stagnation that began with the oil price crash in 2008 and deepened with international sanctions after Russias invasion of Ukraine in 2014, motorists are holding on to new vehicles twice as long. They are also more inclined to use original equipment manufacturers recommended parts, including oils and fluids, instead of cheaper aftermarket alternatives, according to Artem Mazaev, an independent automotive sales and marketing consultant based in Moscow.

As our research reveals, they tend to maintain their cars more thoroughly, which in turn increases the demand for genuine parts, including oils, Mazaev told LubesnGreases. This reverses the trend seen at the turn of the last decade, when drivers bought new cars every two to three years in an economy flush with crude oil money and where consumer confidence was higher.

Sales Force

New car and light commercial vehicle sales in Russia have more than halved since a peak 3 million units in 2012, according to the Association of European Businesses, a Moscow-based business-lobbying group that monitors the car market. Car sales fell to 1.4 million units in 2016 and recovered slightly by 100,000 units in 2017, AEB reported.

Russia consumes an average of 40,000 metric tons of OEM-recommended oils per year, including oils passenger car, light commercial, heavy vehicle and off-road vehicle lubricants, which is expected to grow by 3 to 5 percent this year, Mazaev forecast. He believed this is a conservative figure and that the actual volume could be 15 to 20 percent greater, because car owners often buy genuine oils after their vehicles pass the warranty period. They buy genuine oils and spare parts to avoid the risk of purchasing counterfeit products that could inflict serious damage to their cars, Mazaev said.

The consultant estimated that while the population of passenger cars and light commercial vehicles within the warranty period has dropped by 38 percent over the past three years, consumption of genuine oils could increase, as the economy is predicted to recover and in turn improve new car sales. Drivers tend to buy cheaper aftermarket oils after the warranty period has expired, which would normally be invalidated unless an OEM-approved oil is used.

Even within the warranty period, many Russian motorists choose to buy OEM genuine oils themselves and go to a small independent garages for maintenance, where they pay much less for labor instead of using authorized dealerships. Car owners tend to sacrifice warranty in order to save money. Mazaev said, adding that online sales channels for consumers to purchase engine oils are showing gradual growth in recent months.

Parallel Lines

Before the fall of the Soviet Union in the early 1990s, no foreign automotive lubricants were imported into Russia. Only local lubricants were used in cars produced in the Eastern Bloc. Starting that same decade, Vladivostok, located in the countrys far east, became a hub for imported Japanese and Korean pre-owned cars – attractive for their reliability and more advanced features – and with them came spares and metal cans of OEM-approved oils sold in open markets, Mazaev said.

Unauthorized Russian dealers bought these lubricants from trade houses, mostly in Japan. It was a lucrative business for unauthorized importers. They purchased genuine oils due to end users being afraid of multiple counterfeit products available in the market, Mazaev said.

By 2017, OEMs such as Daewoo and Hyundai had taken control of car imports, which led to a steady reduction of this legal yet informal trade.

All That Glisters Is Not Oil

With average salaries of around U.S. $690 per month at the start of 2018, the Russian auto lubricants market is very price sensitive. People are looking for price-competitive solution for everything, Denis Varaksin, director of base oils and slack wax for Berlin-based niche products supplier DYM Resources, told LubesnGreases. The Russian customer does not always check if the product is genuine or not. That
is a part of the mentality – hoping for the best and not taking responsibility.

Before the international sanctions, criminal enterprises faked imported brands that commanded a premium price. The sanctions gave rise to the import replacement program and bootleg products began competing more with local players such as Lukoil and Gazprom Neft. But with a stronger presence in the market, their response was swift.

Local players know how to fight back aggressively to get their market share and to make sure it is harder to sell fakes. When Russian lube majors started to compete with fake products, it became a holy war, so to say, Varaksin said.

The profits of counterfeiting are potentially huge, and law enforcement has been actively shutting down operations. One such, busted in 2016, was estimated to be earning $164 million a year, according to a Russian anti-commercial crime agency. Another enterprise in Siberia discovered in March this year was said to have made $200,000.

Brand was the key factor that influenced the choice of motor oil purchase before the sanctions. Now the price of genuine lubes is a key factor in motorists decisions, Mazaev found. But the ease of how authentic-looking counterfeit products access the market increases the risk of buying them unwittingly and motivates new vehicle owners to purchase genuine oils, he said.

Consumers are ready to consider purchasing genuine oils instead of independent lube brand motor oils if shelf price for genuine oil is affordable, while before, the lubricant brand was the key factor that influenced the choice of oil purchase, Mazaev explained.

Local Players

Russian lubricant makers such as Lukoil and Gazprom Neft work hand in hand with the governments import substitution policy and are the primary suppliers to Russian automotive OEMs, such as Gaz, Avtovaz or Uaz. Meanwhile, foreign OEMs that operate in Russia, such as Ford, Toyota, Mazda, Renault-Nissan or Hyundai, prefer owners use approved imported lubricants, Mazaev observed. Among the top 10 foreign lubricant brands imported into Russia are Shell, ExxonMobil, BP, Total, Idemitsu and JX Nippon.

He pointed out that in the long-term, international lube marketers may follow suit with major lube manufacturers and blend genuine oils locally using imported base stock and additive packages. This year, Total expects to open its first blending plant in the country, joining fellow lube manufacturers Shell and Fuchs that have also opened production facilities in recent years.

But there are downsides. The cost to blend in Russia in comparison to the cost of blending in Europe is similar, but quality risks and brand image risks for products blended in Russia are very high, Mazaev said.