Russia's sickly car market and some "smart" predictions

Inquiring minds are reading The Economist's Russia's sickly car market:

A year ago Russia’s market for new cars was one of the fastest growing in the world. It had gone from annual sales of less than 1.5m in 2005 to nearly 3m and was poised to overtake Germany as the fourth-biggest car market in the world. Ernst & Young, a consultancy, forecast sales of 5m by 2012. Credit Suisse confidently predicted that sales would grow by at least 12% a year until 2012 and that by then the foreign car firms that had rushed to build factories in Russia would be producing more than 1.5m cars a year. How wrong they were.

There is no mystery about why Russia’s car market is reeling. Credit, which was used to finance the purchase of about half of all new cars, disappeared almost instantly because Russian banks were unusually dependent on shuttered wholesale markets. Thanks to the economy’s reliance on exports of oil and gas, slumping energy prices immediately hit both earnings and the rouble. The tumbling rouble also meant that foreign car brands suddenly became much less affordable, including those made in Russia, because most of their components are still imported. “We had to force through several price increases in a weakening market,” says Nigel Brackenbury, Ford’s senior executive in Russia.

“The market will come back—the wealth has not disappeared,” says Christian Estève, who runs Renault’s operations in Russia. Pointing to car-ownership levels that are still less than a third of Western Europe’s and the age of the Russian fleet, Mr Brackenbury agrees: “We still believe the market will eventually get back to 3m-4m a year.” However, neither expects a rapid bounce.

Mr Putin wants both AvtoVAZ and Gaz to survive, so they probably will. But although Russia’s car market will eventually recover, the same cannot confidently be said of its native carmakers.

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