Russia represents a large potential market for new cars as well as automotive and aftermarket parts, equipment, supplies and services. The current rate of car ownership in Russia is 180 per 1000, only 25% of the U.S. rate. The total Russian motor vehicle fleet is estimated at 38 million units, including 28 million cars.
For the past few years, Russia has been Europe’s fastest growing automotive market and one of the fastest in the world growing at an annual rate of 20% to 25%. In 2008, ahead of automotive analysts’ projections, Russia surpassed Germany to become the largest market in Europe. By 2012, analysts project that Russia’s car market will be the third largest in the world, after the United States and China. New car sales increased from 1.7 million in 2007 to 2.1 million in 2008. The import market for used cars and trucks is also growing.
At the end of 2008, the pace of new car sales began to slow as a consequence of uncertainty related to the global economic crisis. Even if the market slows in 2009, the market for car components and aftermarket replacement parts will remain favorable as domestic manufacturers cannot produce the quality parts required by modern cars. In January 2009, the Russian government introduced increased import tariffs on used cars in order to support the domestic automotive industry and foreign assembly projects in Russia. It is expected that sales of used cars will decrease considerably in 2009; however, the higher tariff is due to expire after nine months.
The Russian auto industry represents a major force in the domestic economy. Russian vehicle assembly and component manufacturing factories remain plagued by outdated equipment, lack of modern technology and inadequate management. The major local automotive market players include: GAZ Group; Sollers, a former subsidiary of the leading Russian steel producer Severstal; and AutoVAZ, currently controlled by the state-owned Rosvooruzhenie and Renault (25% equity). The majority of component manufacturing assets are owned by SOK Group.
There are several projects underway to assemble foreign cars in Russia; these involve Ford, GM, Toyota, VW and Renault. Ford’s plant commenced operations in July 2002 in a suburb of St. Petersburg. High demand for the new Ford Focus made Ford one of the sales leaders in 2008 with almost 100,000 vehicles sold. The GM-AvtoVAZ joint venture manufactures the Chevrolet-Niva SUV in Togliatti. In November 2008, GM opened a $300 million assembly plant in St. Petersburg which is projected to make 70,000 Chevrolet and Opel crossovers annually. In 2005, Renault started manufacturing 70,000 Logan vehicles at a Moscow-based facility. In December 2007, Toyota launched an assembly facility in St. Petersburg to manufacture 50,000 Camry vehicles annually. Volkswagen/PSA opened a plant in Kaluga in 2008. There are also several other less well-known projects: the Russian company SOK assembles 40,000 KIA Spectra in Izhevsk; Sollers set up assembly of Ssang Yong SUVs and Fiat low-cost sedans in Yelabuga; Hyundai has a joint venture to assemble several models with TagAZ. Several other international projects are under construction, including Nissan, Suzuki and Hyundai plants in St. Petersburg.
There are also truck and bus assembly projects in Russia developed by Scania and Volvo. International Truck and Engine Corporation assembles trucks in St. Petersburg. The major obstacle to successful development of foreign assembly projects in Russia is the lack of local component suppliers.
Components for engines, steering, brake systems, power trains, and interiors; engines themselves, seats, tires, specialty equipment for cars, aftermarket parts, supplies, services, and tuning.
Local manufacturers of automobiles and trucks often seek qualified local vehicle part suppliers as several government decrees have mandated an increase in foreign investors’ local content within a set time period. This presents opportunities for lower tier U.S. automotive component manufacturers able to supply upper tier manufacturers with the parts required by international firms with high quality control standards. Local automobile manufacturers will still need to source much of their parts and equipment from outside Russia due to a lack of local production or insufficient quality of locally made products. This too may present opportunities for U.S. exporters, keeping in mind that there is significant competition from European and Asian suppliers.
Another good prospect is to supply upgraded equipment and technology to Russian manufacturers. Opportunities also exist in the licensing and transfer of modern technology to Russian component manufacturers.
Aftermarket sales of replacement parts and accessories are dynamic, with high customer receptivity to U.S. products. Many U.S. brand names are very well known and have strong sales in Russia. Some of the “Made in the USA” products, which Russian motorists seem to favor, are lubricants, automotive chemicals and off-road accessories. There are no known trade barriers affecting imports of U.S. automotive products; tariffs for many imported spare parts are a relatively low 5%. The most important factor affecting the sales growth of U.S. aftermarket products in Russia is the need for U.S. exporters to share brand-building risks with local distributors. Small and mid-size suppliers of specialty equipment for cars will be competitive if they are aggressive in their market entry and brand-building actions. The U.S. Commercial Service assists U.S. companies with market entry and accompanies Russian buyers to U.S. trade shows including the SEMA Show and The Automotive Aftermarket Products Expo to meet with U.S. exporters.