OREANDA-NEWS. February 01, 2010. PricewaterhouseCoopers presented a review – Prospects for the Russian automotive market. The negative impact of the global crisis on the Russian automotive market was one of the most noticeable worldwide because of the strong market growth in the preceding period, the high dependence on imported cars, followed by a rapidly weakening Rouble, increasing interest rates and fall in consumer confidence, reported the press-centre of PricewaterhouseCoopers.

In 2009 the market declined by 56% (including imported second-hand cars and excluding LCVs) in quantitative terms and by 61% in monetary terms that accounts for US26.8 billion. Locally produced foreign-branded cars was the segment that declined the least.

Due to warehouse overstocking and declining demand for cars, both Russian and foreign car manufacturers have had to cut back significantly on production – overall reduction was 60%. Based on results of 2009 the production of foreign brands fell by less than production of Russian brands. PwC specialists expect that internal production in 2010 will grow faster than the overall market since OEMs have managed to clear out their stock overhang from 2008.

We do not expect a rapid recovery in the nearest future, primarily because inventories (which were sold at large discount) have been reduced significantly, unemployment is high, consumer confidence remains low.

An optimistic scenario implies a 15% increase in car sales in quantitative terms with a sales volume of about 1.6 million vehicles. A pessimistic scenario implies a decline of around -5% with the market volume of 1.3 million vehicles.

In the short-term, there is still significant uncertainty in the market, including with exchange rates, confidence levels and interest rates. Positive factors such as government support and car disposal programme are offset by negative factors such as reduction in level of discounts given by OEMs and extension of high import duties. Overall this could result in yet further falls in the market. At best growth is likely to be modest in 2010.

In the mid-term perspective however, Russia has a rather well-developed dealer and logistics infrastructure which may relatively quickly “convert” general economic growth into a rapid upturn in the automotive market.

PwC continues to believe that Russian car market has significant potential in a long term.  However the road to this long term outcome may well be not without further pitfalls, given  the vulnerability of the Russian economy to the global economic conditions. And it is not beyond the realms of possibility that there will be another temporary downturn during this period. Assuming an estimated saturation level of 400 cars per 1000 people will be reached by 2025 and annual rate of car disposal will be 6%.