Hard times are predicted for the Russian car market: poor choice and high prices

Chinese and domestic cars will displace other manufacturers

Car dealers assume that the rise in prices for passenger cars in Russia will reach 30% in annual terms. The rise in price was caused by an increase in recycling fees and negative dynamics of the ruble exchange rate. What future awaits the Russian automobile market? What is the situation with imports in this segment? How exactly will car prices change? Raisa Donskaya, an expert on international trade and foreign economic activity, told MK about this.

– Let’s start with a general assessment of Russia’s foreign trade relations with other countries? What and how much has changed in the directions of goods supply?

– The leading role in the supply of a wide range of goods not produced in Russia is played by such friendly countries as China, Turkey, Kazakhstan, India, the UAE and a number of other states. Trade turnover with China in the first half of 2023 increased by 40.6% to $114.54 billion. Supplies from the Middle Kingdom to Russia amounted to $52.3 billion (+78.1% compared to January – June 2022), and in the opposite direction by $62.3 billion (+19.4%). Trade turnover with India increased almost 3 times to $33.5 billion. Russia mainly supplies hydrocarbons for export and purchases equipment, medicines, cars, agricultural machinery, clothing, etc. Increasing the production of goods in our country will make it possible to offer friendly countries a greater choice of trade options in the future, but this process still needs to be established, and the help of foreign specialists may be needed.

– Now let’s turn directly to the car market. What can you say about the situation there in terms of foreign trade?

– If we talk about the production of cars in Russia, then we must admit that it will not be possible to replace it with imports “at the snap of a finger.” Until 2022, cars were either imported or produced (mainly by foreign companies) using foreign equipment and imported spare parts. Therefore, after many foreign players left our market, the number of passenger cars produced fell by 67% in 2022 and other categories of cars by an average of 60%. Today, it is necessary to organize new joint productions of passenger cars with brands from friendly countries, otherwise Russia may face new problems. After all, almost 90% of passenger car supplies now come from China, so the introduction of a new quarantine, logistics difficulties or other reasons could lead to a significant shortage of cars for sale. It is also necessary to increase the supply of quality cars from Europe, Japan and the USA through third countries, as well as to increase the demand for domestic cars. However, there are also external factors that our country is unlikely to be able to influence – the difficulty lies in the fall in consumer demand around the world.

– What is the reason for the rise in prices for certain cars?

– Let us note four key reasons for the increase in car prices. The first is inflation, which, since the beginning of the pandemic and the events in Ukraine, has led to a rise in prices for car production. The cost of raw materials and machine repairs has increased, worker salaries have risen, and machine repair itself has become more expensive due to soaring prices for spare parts. Rising prices after the pandemic coupled with low household incomes have led to a reduction in car purchases. The second reason is difficulties in logistics, which led to disruption of the supply of goods from unfriendly countries. Thus, cars are not delivered to our country by sea or air. Therefore, the import of cars, like other goods, now occurs through third countries, such as Armenia and Kazakhstan, which are part of the EAEU free trade zone. The third reason is the depreciation of the ruble. Since the beginning of the year, the dollar has increased by 33%, and this trend continues. With a delay of 1-2 months, this is also reflected in the change in the cost of goods ordered from abroad, including cars. The fourth, but not least important, factor is the increase in the recycling fee by 70% from August 1, which has become the strongest obstacle to the supply of foreign cars. It became simply unprofitable for distributors to import cars into Russia, which, according to the authorities, was supposed to complicate the access of foreign cars to the domestic market.

– How will the situation in our car market develop until the end of the year?

– The increase in car prices will obviously continue. Unfortunately, it is not yet possible to slow down the process of rising prices for passenger cars; even gray imports do not help. So far it is only possible to import one car at a time for personal purposes, due to difficulties with paperwork at customs, and today the demand is hundreds of times higher. If we talk about structural changes in this market, then by the end of 2023 we expect an increase in the shares of domestic and Chinese brands. The latter had an 18% share at the end of 2022 versus 7% at the beginning. The picture is similar with Russian cars, 27% versus 21% at the beginning of last year. Thus, the trend has been set – Chinese and Russian cars will gradually displace other manufacturers.