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Russia may become Europe's biggest car market in 2011 but there will be little place there for outmoded Ladas and Volgas, once the pride of the Soviet car industry. A PricewaterhouseCoopers report says that imports of new foreign cars grew by 60 per cent in the first half of this year and used cars by 46 per cent. Sales of foreign cars assembled in Russia grew by 100 per cent while sales of Russian brands fell by 23 per cent.
"For the first time in modern history sales of Russian car brands fell dramatically," said Stanley Root, author of the research, which projected car sales worth $96 billion in 2011, half financed though loans.
The decline coincides with a Government drive to breathe new life into ailing carmaker AvtoVAZ. The Kremlin has brought in managers from state arms trader Rosoboronexport to clean up the company's muddled ownership structure.
"What the Government appears to be doing is making a sensible step to create a partnership with a foreign company to design a car at a right price level for Russia," Root said.
AvtoVAZ, a flagship of the Russian car industry, still makes about 750,000 cars a year and employs 150,000 people.
After the collapse of communism, AvtoVAZ, which has produced basically the same model since its launch in 1970, fell under the control of criminal gangs. It was later taken over by tycoon Boris Beresovsky, now living in exile in Britain.
Throughout the 1990s, Russians kept buying Ladas despite their notoriously bad quality because of low price, tradition and developed dealership and service networks. But surging incomes and the strengthening rouble finally made them shun the car.
Top international carmakers including Ford, Toyota and Volkswagen have rushed to open assembly lines in Russia or create partnerships with local producers already investing more than $2 billion in the economy.
Root said political risks, a potential bad loans crisis in the banking sector and lack of investment in roads and parking space could still hamper the Russian car market growth. "Who wants to buy a car to sit in a traffic jam?" he said.
- Reuters
