Increased Localisation to Moderate the Effects of Ruble Devaluation on the Russian Automotive Industry
Government supports localisation with subsidies, finds Frost & Sullivan
LONDON, Dec. 4, 2015 /PRNewswire/ -- The Russian automotive industry was hard hit by the economic downturn, with several automakers reducing their range of models and imports to the country. The eventual devaluation of the ruble has inflated production costs and rendered financing mechanism unfeasible, compelling buyers to defer purchases. Weaker brands have been exiting the market, while many original equipment manufacturers (OEMs) have been operating at less than half capacity. Foreign automakers are attempting to strategise their way out of this environment by raising the levels of manufacturing localization.
New analysis from Frost & Sullivan, Executive Analysis of Developments in the Russian Automotive Industry, finds that the sales of light vehicles (LVs) will have decreased by 36 percent to 1.6 million in 2015. Market recovery will be restrained to some extent by geopolitical tensions and sliding oil prices; however, the market will rebound in 2017 to register volume sales of 1.8 million units. By the end of the forecast period in 2021, it is expected to touch 2.8 million units.
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Foreign OEMs have to plan for the long term by evaluating the merits of local production as opposed to importing. Those with automotive production in Russia will do well to increase their reliance on locally supplied auto components.
"The auto market has been supported by state programs subsidizing auto credit/leasing and an extended scrappage scheme," said Frost & Sullivan Intelligent Mobility Consulting Analyst Anna Ozdelen. "Auto sales are anticipated to recover by 2017 as the economic situation stabilizes and customers go through with their deferred purchases."
Higher localisation will not only lower the fluctuation in vehicle prices caused by currency devaluation, but also offer OEMs the opportunity to use locally supplied sophisticated components such as engine or transmission. Currently, Renault-Nissan has the highest localization rate at 68 percent.
"In addition to the subsidies and impending economic recovery, the low vehicle density and aged vehicle fleet will create substantial opportunities for the sale of LVs in Russia," observed Ozdelen. "The construction of roads as part of Russia's infrastructure development program will further help improve vehicle density in the underserved regions, thus propelling the LV market."
Executive Analysis of Developments in the Russian Automotive Industry (MB99-18) is part of the Intelligent Mobility (http://ow.ly/V6ljv) Growth Partnership Service program. Frost & Sullivan's related studies include: Opportunity Analysis of eRetailing for Automotive Tyres in Europe, Executive Outlook of Health, Wellness, and Wellbeing Technologies in the Global Automotive Industry, Automotive Industry in -Stan and -Jan Countries, Turkish Rail Market and Key Focus Areas for Steering Technology Development. All studies included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.
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