Russian market in free fall
Only a few years ago the Russian auto market seemed the land of milk and honey for the big car makers. For decades the Russians were limited to driving their Lada’s and other Eastern European cars, as the vast majority of them simply didn’t earn enough money to buy a foreign car. The opening of the borders changed everything, and as a result the big auto manufacturers discovered a market almost as promising as China Over the past decade the growth achieved on the Russian auto market has been enormous. But then something happened which nobody expected: the once so promising market is now in free fall as a logical consequence of the geopolitical situation.
The involvement of Russia in the war in Ukraine has led to Western sanctions, which have hit the fragile Russian economy hard. The ruble went into free fall, which means that the import of American, Japanese or European cars became far too expensive for the average citizen. On top of this, because of the weak economy, buyers began to delay the purchases of durable goods like cars. The market was also hit from both sides, which means most western auto companies are losing money. Opel Chief Executive Officer Karl-Thomas Neumann just recently announced the closing of the company’s plant in St. Petersburg.
The future doesn’t look bright
But it is not only GM feeling the pain, Ford and other competitors also admit to losing money on the Russian market. Most alarming of all is that the economy isn’t improving - quite the contrary. Neumann thinks the Russian market will not fail to improve in the months to come, he even has his doubts about the medium and even the long term. The fact that the conflict with Ukraine isn’t solved yet remains a clear obstacle to better times to come. An escalation of the war in the direction of the Baltic states is always possible and without lasting peace the chances are slim that the Russians will start to buy cars again. | 26/03/2015 | Jos Sterk