Automotive industry

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Situation

The automotive industry has been and continues to be one of the core sectors of the Russian economy. In recent years the industry has shown phenomenal growth, exceeding the most optimistic forecasts.

A number of foreign companies established assembly plants in the country and concluded localisation agreements with the Russian government to receive tax and customs benefits. The car retail industry, which ten years ago was almost nonexistent, now makes up a vast dealer network that meets Western standards. A system for car loans was also quickly developing and significantly contributing to rapid growth in the Russian automotive market.

But the global financial crisis has had a major impact. In 2008, in Western Europe and in the US, car sales decreased in quantitative terms by 9% and 18% respectively as compared with 2007. The world’s largest car manufacturers had to seek help from their governments.

Russia could not evade the crisis, but here the situation was a little different. In 2008, the market grew by 29% in monetary terms and by 14% in quantitative terms. Whereas in the first half of the year the market showed steady growth (which even increased over that of 2007), in the second half of the year car sales began to decrease dramatically. In November and December the figures were even lower than these same months in 2007.

The results of the second half of 2008 were mostly affected by the following factors:

  • customers faced difficulties obtaining car loans (higher interest rates and bigger down payments);
  • dealers had problems finding funding and managing working capital;
  • the Russian rouble weakened compared with the US dollar and euro (the prices of foreign-brand cars are denominated in foreign currencies);
  • the unemployment rate grew, which lowered the index of customer confidence;
  • GDP growth slowed, decreasing disposable income.
All of this reduced demand among both individual and commercial buyers. To mitigate this negative trend the government is taking a number of steps (including tax and customs measures) aimed at supporting car manufacturers throughout Russia.

Close cooperation between all of the market players can be one way to survive the economic difficulties. For example, car manufacturers and dealers should find a common ground on payment schedules, whereas car dealers, insurance companies and banks should unite their efforts to maintain customer loyalty.

It is obvious that today it is more important than ever for automotive industry companies to place greater emphasis on internal business processes so as to do more than just survive, but weather the crisis with minimal losses and take advantage of all the opportunities presented by the market. This is true for both car and component manufacturers as well as car dealers.

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