Car prices keep growing

6 november 2018 | Rossiyskaya Gazeta

Six months ago a new strategy was adopted for the development of the automotive industry through 2025. The previous sup-program "Automotive Industry" of the state program "Development of Industry and Its Competitive Growth" has failed. Grigoriy Mikrukov, Head of the Department for Sectors of the Economy of the Analytical Center, told a Rossiyskaya Gazeta correspondent about the reasons of failure and the perspectives of the new targets implementation.

Grigoriy Mikryukov
Grigoriy Mikryukov
Department for Sectors of Economy

"At the time of the previous document development, the market was growing in double digits but after 2012 sales began to contract," the expert said. "As a result, few of the original targets of the Automotive Industry sub-program were reached, despite the fact that some serious funds were allocated to it."

Mr. Mikrukov also added that the share of locally manufactured cars in the Russian market grew from 64% to 81.2%. However, reducing the share of imports in money terms from 60% to 20% proved more difficult than expected. In 2017, the Russians spent on foreign cars some 700 billion, or more than a third of the total amount of money. The goal of increasing the share of new vehicles in use was not achieved because after the collapse of the ruble the average change period for a car went up from 3-5 years to 5-7 years.

The new strategy sets more realistic targets for the industry.  "The Analytical Center made some estimates based on the macroeconomic forecast scenarios of the Ministry of Economic Development of the Russian Federation and concluded that by 2025 the size of the Russian market for cars probably won't exceed 2 million units per year, " Grigoriy Mikrukov believes. "The main reason for that is that prices are growing faster than household income. For example, in 2014, the most popular car model in Russia, Kia Rio, was selling for about 18 times the average monthly pay in Russia but in 2017 it was already selling for 22 times the average monthly pay. Seeing how in 2019 the government is raising the VAT to 20% and how the ruble is expected to gradually depreciate relative to the dollar (once again according to the Ministry of Economic Development forecasts) over the next few years, it is reasonable to expect car prices to continue to grow."

Given the sustained demand for the imported cars and not many opportunities for the Russian exports, Mr. Mikrukov expects domestic output to not exceed 1.7 million vehicles per year by 2025.

Source: Rossiyskaya Gazeta

Photo: from open sources