Russia Country Market
Insights and Opportunities
Automotive Parts & Accessories Sector
Overview: Russia represents a large potential market for the U.S. automotive industry. Currently, the rate of car ownership in Russia is only 30% of the U.S. rate. The total Russian motor vehicle fleet is estimated at 38 million units, including 28 million (74%) cars.
During 2001-2008, the Russian automotive market was growing at an annual rate of 20-25% per year, and was the fastest growing automotive market in Europe. At that time, industry analysts believed that this market would become the largest in Europe by 2015. In 2008, many importing car dealers reported good results – new car sales grew by 24%, to 2.1 million from 1.7 million in 2007. The import of used cars and trucks was also growing strongly.
However, at the end of 2008, the Russian economy was severely affected by the world financial crisis. As a result, sales of new cars significantly dropped at the end of that year. This trend continued in 2009, when the sales of cars decreased 49% compared to 2008, and sales of trucks fell even more, by 70%. The sales of used vehicles also dropped as a result of the crisis and new, increased import duties.
It is hard to make predictions about the future motor vehicle market in Russia at this time. Nonetheless, all industry analysts agree that the market will stagnate in 2010, with signs of recovery expected in 2011.
As part of the automotive industry supply chain, components, aftermarket replacement parts and accessories were also greatly affected by this crisis. However, since Russian domestic manufacturers are not capable of producing the quality parts, accessories and equipment required by modern cars and trucks, this segment was not hurt as badly as vehicles.
The Russian auto industry is one of the domestic economy’s major sectors and the government is taking measures to support the market. Nonetheless Russian vehicle assembly and component manufacturing factories remain crippled by outdated equipment, lack of modern technologies and inadequate management. The major local automotive market players include: GAZ Group, a subsidiary of Basic Element, the largest Russian aluminum manufacturer; Sollers, a former subsidiary of the leading Russian steel producer Severstal, and AutoVAZ, currently controlled by state owned Rosvooruzhenie and by Renault (25% equity). The majority of component manufacturing assets are owned by the SOK Group, while others are represented by a number of independent manufacturers.
There are several projects underway to assemble foreign cars in Russia, including those of Ford, GM, Toyota, VW, Nissan and Renault. Ford’s plant began operation in July 2002 in a suburb of St. Petersburg. The high demand for the new Focus model made Ford one of the sales leaders in 2008 with almost 100,000 vehicles sold; this number dropped 48% to 52,000 in 2009. GM has two ventures in Russia: the GM-AvtoVAZ joint venture has manufactured the Chevrolet-Niva SUV since September 2002, and a new assembly plant in St. Petersburg is projected to make 70,000 Chevrolet and Opel crossovers annually.
In 2005, Renault started manufacturing its low-cost Logan vehicle at a Moscow-based facility; the factory’s current turnover is about 70,000 vehicles. In December 2007, Toyota launched an assembly facility in St. Petersburg to manufacture 50,000 Camry vehicles annually. Nissan opened its plant in St. Petersburg in 2009 to produce the Teana and X-Trail. Volkswagen/PSA’s plant was opened in Kaluga in 2008. There are also several other, less well-known projects: the Russian company SOK assembles 40,000 KIA Spectras in Izhevsk; Sollers set up Ssang Yong SUV assembly and Fiat low-cost sedans in Yelabuga; Hyundai has a joint venture to assemble several models with TagAZ. Other international projects are under construction including Nissan, Suzuki and Hyundai plants in St. Petersburg. There are also truck and bus assembly projects in Russia being developed by Volvo and Scania.
The key point, however, is that the major obstacle to successful development of foreign assembly projects in Russia is the lack of local component suppliers. Thus, the opportunity for U.S. exporters in this industry is substantial.
Opportunities: The best opportunities for U.S. firms are sales of components to foreign vehicle assembly projects in Russia and, longer term, the establishment of local manufacturing facilities or joint ventures. Foreign operators face increasing “local content” requirements and are interested in developing a supply chain for local components. They may even be prepared financially to support interesting projects. Although the local automotive industry is significantly affected by the current recession, industry analysts believe that it will recover in 2011, since demand remains considerable.
Another good prospect is to supply upgraded equipment and technology to Russian manufacturers. Opportunities also exist in the licensing and transferring of modern technology to Russian component manufacturers.
Aftermarket sales of replacement parts and accessories are dynamic, with high customer receptivity to U.S. products. Many U.S. brand names are very well known and sell strongly in Russia. Some of the “Made in the USA” products that Russian motorists seem to favor are lubricants, automotive chemicals and off-road accessories.
There are no significant trade barriers affecting imports of U.S. automotive parts and accessories; tariffs for many of these products are between 5% and 15%. The most important factor affecting sales growth of U.S. aftermarket products in Russia is U.S. exporters’ concerns regarding sharing brand building risks with local distributors. In this crisis-affected market, small and mid-size suppliers of specialty equipment for cars can be competitive if they are aggressive in their market entry, brand-building and advertising/promotion actions.