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Russian car market continues to contract

June 10, 2014, 19:00 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Sergei Bobylev

MOSCOW, June 10. /ITAR-TASS/. The Russian car market continues shrinking — amid the economic instability many Russians prefer used cars. The sales decline first of all affected domestic car manufacturers that started to cut output. Experts fear Russian car producers’ position can deteriorate even more as Chinese cars are penetrating the Russian market.

In May, car sales in Russia dropped 12% year-on-year, reported committee of car producers at the Association of European Businesses (AEB). A total of 201,487 new cars was sold in the country over the previous month. Since the year-start, the market dropped 6% AEB head Jorg Schreiber believes there are no prospects for the trend to be reversed over the short term.

PricewaterhouseCoopers has already revised the forecast for the Russian car market slump downwards from 3 to 8%. The chief executive of Russia’s major car producer AvtoVAZ Bo Andersson has recently voiced the view the car market would have dropped 10-20% in 2014, while the company’s sales would have slid 15%

The car manufacturer has already cut personnel by 5,100 and is planning to fire up to 8,500 jobs more by the year-end.

Ford Sollers in Vsevolzhsk is the first plant that started massive dismissals. In April, the facility announced assembly line halt for almost two months and fired 700, about a third of personnel as sales plummeted 30% in January-April 2014.

Other companies are not going to follow in Ford’s and AvtoVAZ’s footsteps so far.

“The economy as a whole hardly shows any growth, and this has a direct effect on the car market,” executive director of the Union of Russian Car Manufacturers, Igor Korovkin, is quoted by Nezavisimaya Gazeta daily.

Russian car industry previously enjoyed solid state support within various programmes aimed to stimulate consumer demand but no such support is provided this year. Revival of the utilization or easy-term lending programs is being discussed but the market desperately needs such support mechanisms, Korovkin believes.

“Customers are drifting towards the used car segment,” said the representative of a car dealer in the city Vologda, Ivan Ukhachyov. “People prefer to postpone purchases of new cars as the economic situation is highly unpredictable. But they need a means of transport! So many think to themselves — “instead of a new model for 400,000 I will buy a used car for 200,000”.”

As a result, used car sales are on the rise. By the start of May, they had increased 16.4% in year-on-year comparison.

Russian car market pundits see another threat posed by Chinese brands. The analytical agency Autostat has conducted a poll among heads of car companies, marketing consultants and independent experts to find out how they assess Chinese producers’ chances to gain a foothold in the Russian market.

Forty-seven percent confirmed Chinese cars were a threat to the Russian car sector. Another ten percent was less judgmental but said there was a risk.

Experts believe Chinese cars have a favorable environment in Russia as most Chinese models are positioned in the same price segment as Russian cars. Moreover, many say Chinese cars have already surpassed Russian models in terms of design, comfort and quality.

The major Chinese brand BYD returned to the Russian market with a budget crossover S6 to conquer customers last spring. The first attempt to realize Russian dream of a high-quality budget car was made in 2005 but then sales were wound up due to low demand and expansion failed on poor marketing policy.

Another manufacturer followed the same scenario — Haima came back to Russia in 2013 with a budget crossover. FAW is also trying to have a bash at conquering the Russian market.

Development director of auto-dealer.ru, Oleg Datskiv, is sure that Chinese cars’ success on the Russian market will depend on political relations between the two countries.

“Before the situation in Ukraine aggravated, the Russian government and the Ministry of Industry and Commerce said we do not need Chinese cars and provided no preferences for Chinese car producers,” Datskiv told Gazeta.Ru. “But given the recent events, we need to speak about a political aspect. Now everything can change overnight.

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