Demand for Cars is Expected to Stagnate over the Next Few Years

10 june 2016

Buying new cars was an important part of the consumer boom in Russia in 2010-2014: the number of privately owned cars went up several-fold during that period, people were also buying new cars to replace old ones, write Analytical Center experts in their bulletin of the socio-economic crisis in Russia devoted to the automotive market. In their opinion, the surge in the size of the Russian automotive market also led to a surge in production, including domestic production as well as a spike in imports.

However, in 2015-2016 the demand in the automotive market in Russia collapsed. Experts note that demand for Russia is falling from a very high level that was achieved primarily as a result of high oil exports revenue rather than real economic growth.

Prosperity in Russia was boosted by high oil prices in 2010-2014 and now the falling energy prices have impacted not just the imports and assembly of foreign cars but domestic automotive manufacturing as well, the specialists believe. In their opinion, under the current conditions with the real household income plummeting and seeing how a few years ago Russia’s automotive market was booming, the rapid decline in car sales has been pretty much inevitable. Over the next few years, demand in the automotive market is bound to stagnate, the analysts believe.

The situation in the regions is the same: sales of new cars are falling. The only exception is the Far Eastern Federal District where car sales are not falling quite as fast as in the rest of Russia.

The state’s job in this situation is to try and support the sales of domestically manufactured cars and prevent major job losses in the car industry, the experts believe. “AVTOVAZ and all the associated infrastructure for the manufacturing of spare parts are still very important for the Russian economy,” the specialists note. “The automotive giant still needs financial support just like it did during the previous economic downturns.”

The experts believe that in order to boost the growth of automotive production in Russia and revive the automotive market and the country’s economy as a whole, it is important to support demand for cars. Demand for cheap cars (in addition to the need to buy replacements for old vehicles) could be stimulated, for example, by introducing a program to promote the sales of domestically manufactured vehicles to young people willing to buy their first car. It is also important to finance the construction of roads and other infrastructure to promote domestic tourism among owners of cheap vehicles.

For more see the bulletin on the Automotive Market.

Other issues of the bulletin on the social and economic crisis are available under Publications.