Publication: Monitor Volume: 7 Issue: 18

The automotive sector was one of the most dynamic parts of Russia’s industrial sector in 1999, when car and truck production grew 12 and 22 percent, respectively. Growth seems to have continued in 2000, but did slow sharply. This suggests that Russian industry in 2001 may have trouble regaining the dynamism it showed two years ago.

In 1999, following the sharp devaluation of the ruble in August 1998, Russian consumers strongly favored new domestically manufactured vehicles. Thanks to the devaluation of the ruble, the dollar prices of new Russian cars fell sharply, dropping to US$900-$4,000. While import sales collapsed, Russian-made cars moved briskly. In 2000, by contrast, a firmer ruble halted the decline in dollar prices and costs of production. Russian automakers struggled with rising production costs and slowing sales in response to increases in factory gate prices. Over the course of 2000, the Samara-based AvtoVAZ company increased prices on all models by some 18 percent (in ruble terms), with the largest increases set for the more “classic” AvtoVAZ models. The sale price of the GAZ-3110 Volga (produced in Nizhny Novgorod) also rose sharply, from US$2,840 to US$3,950. While these prices remain well below the costs of imported cars, they have slowed sales of new Russian vehicles as car buyers seem to have increasingly switched to used cars.

Despite slowing sales growth, Russian car manufacturers reported positive overall results in 2000, because output was up some 6 percent during the first eleven months of the year. Truck producers did even better, as strong export growth boosted demand for heavy trucks. Production results for all major manufacturers were on par with last year, while some posted substantial gains. Output at the KamAZ plant in Tatarstan was up 77 percent in the third quarter of 2000, while production at UralAZ in Western Siberia rose 68 percent.

Russian truck production rose overall by 10 percent in the first nine months of 2000. Compared to 1999, however, this was still a sharp slowdown. Because inflation is unlikely to fall much in 2001 while high oil prices keep the ruble strong, Russian carmakers could find themselves losing market share to both imports and used cars this year (Russian and international agencies, January 10-19).