The demand for cars in Russia: before and after recession

Type de publication:

Conference Paper


Gerpisa colloquium, Paris (2011)


car loans, custom duties, household incomes, Russian car market, scrappage program


The demand for cars in Russia was growing rapidly during pre-recession years (2005-2008). This could be partially explained by the fact that household incomes and wages were rising faster than productivity. However, in general, the share of wages in GDP remained lower than in developed market economies, as well as Brazil and China.

Income growth and expansion of car loans (up to 50% of the total sales volume) were the main drivers of the sales growth in all segments of the Russian car market. The period between 2005 and 2008 was called “the consumption boom”. To some extent, this was really so. Rosstat (the Russian statistical agency) reported some reduction of the share of savings and, consequently, an increase in the share of consumer’s expenditures of Russian households. Growing consumer confidence was mirrored by various opinion polls. The level of indebtedness remained low - it didn’t exceed 13% of the total household income (in comparison with, for instance, about 120% in the USA).

The recession, which began in Russia in October 2008 (later than in most of the developed market economies), caused a dramatic reduction in the demand for cars and the auto market hasn’t recovered since then.
In 2008 Russia ranked fifth in the top 10 countries in terms of car sales volume, in 2009-2010 the country moved to the last place in this list.

A sharp fall in demand for cars in 2008-2009 was a consequence of the following processes:
• Consumer ‘s shock as a result of recession – dramatic reduction of consumers expenditures;
• reduction of the volume of car loans given by banks (from 50% of the total volume of sales in 2007 to 20% in 2009 and less than 40% - in 2010);
• Growing protectionism of the state economic policy.

Main arrangements of the above policy are as follow:
• the increase of custom duties up to the prohibitive level stopped the import of used cars, which used to be high (stated in 2009, still effective)
• scrappage program;
• the preferential lending program (started in Russia in March 2009, the loan is granted for the purchase of cars or LCV of Russian production at a price less than $20.000, the rate subsidized by Government is 6%).

That is, the factors, which provoked a drastic reduction of the car purchases in Russia were (at least partly) quite specific. Sales reduction was not associated only with the dynamics of household expenditures, but with custom duties increase.

The car sales have started to grow quickly in the first quarter of 2011. It is rather probable that the annual volume of sales will exceed the pre-recession level.
However, it is unlikely that Russia’s share of the global car market (today it amounts to only 3.2% in comparison with China’s 21.1% and 20.5% of the USA) will grow fast. The main reason – low income of 70% of the Russian households and the high income inequality (only 25-30% of households have incomes sufficient to buy a new car). It should be remained than in Russia share of wages in household incomes is high (up to 70 %) as well as differentiation of the wage levels.
In terms of the market perspectives it also means that the demand for public transportation vehicles will remain high in the country. This segment of the market has the biggest potential for green, hybrids and electric vehicles of new generation.
Some important facts about the Russian car market
• High proportion of cars in Russia is of 10 years-old (and even older). Most of old cars are owned by low-income households. Theirs expenses on maintenance are quite substantial (up to 5% of total expenses of the low-income groups);
• Before recession old cars were usually replaced by used foreign made cars. Such import was significant during the pre-recession years but it has completely stopped thereafter;
• Low level of the financial services in Russia in general, low volume of mortgages and consumer and car loans;
• No demand for foreign- made "green" cars and hybrids. So far, hybrid cars (like Chevrolet Volt or Nissan Leaf) haven’t been even presented in Russia by foreign car manufacturers. These models are too expensive for most consumers and they cannot be used as premium class models because of the lack of necessary infrastructure.



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