Russian market expected to grow from 2017 due to higher oil prices and stronger ruble
Government continues to support auto industry with incentives
Russian vehicle sales in 2016 decreased 11% year-over-year (y/y) to 1.43 million units, a 51.4% drop from the record high of 2.94 million units recorded in 2012. The market has been stagnant due to a recession caused by economic sanctions by Western countries over the Ukraine crisis, falling oil prices, and a weak ruble.
The economy is expected to show signs of recovery in 2017 after oil prices rebounded and the ruble stabilized against the dollar. The Association of European Businesses (AEB) released a forecast in January 2017 stating that vehicle sales for 2017 would rise 3.8% y/y to 1.48 million units. Nevertheless, the Russian market may remain unstable due to other issues affecting the economy including the Syrian conflict.
In 2017 the Russian government has continued to implement incentives to bolster the auto industry. In 2016 the government spent RUB 46.8 billion to fund incentives for purchase of 620,000 vehicles. A budget of RUB 62.3 billion has been earmarked for further measures to support vehicle demand in 2017.
Russian vehicle production in 2016 fell 5.4% y/y to 1.31 million units, a 41.6% decrease from a record 2.24 million units in 2012. While production capacity in the country reached around 3.2 million units per year, production volume declined as a result of lower domestic demand. The Russian government has been enacting measures to promote export of Russian-built vehicles and subsidize a portion of the costs for automakers to increase production volume. The Ministry of Industry and Commerce released a forecast in March 2017 that stated vehicle production for 2017 would increase 7.0% y/y to 1.4 million units.
Amidst prolonged recession in Russia, some OEMs reduced their production volume and withdrew from the country, while other automakers enhanced their production facilities and expanded their assembly model ranges in anticipation of mid- and long-term growth in the market. Daimler is building its first plant in Russia and will start operations there in 2019. The Chinese OEM Lifan Motors plans to begin production at a new plant with an annual production capacity of 60,000 units in 2017. Ford and VW each opened engine plants in September 2015. Mazda also plans to start operations at a new engine plant in 2018.
According to LMC Automotive's latest forecast (Q1, 2017), Russian economic growth is expected to turn positive in 2017, but consumer spending will still be very weak and this is likely to hold back any recovery in the light vehicle market until the second half of the year. Light vehicle sales in the region are expected to increase by 6.7% y/y to 1.52 million units in 2017. Sales will grow steadily after 2017 and reach 2.06 million units in 2020.