Russians Prefer Pricy, Attractively-Equipped Cars

Aug. 31 – Sales of budget-priced cars have declined in the Russian market for the first half of 2012, an Ernst & Young study says.

Budget models that cost up to 600,000 rubles (US$18,737) accounted for less than half (49.5 percent) of total car sales countrywide, compared to the 55.8 percent of the market it held last year. Meanwhile, sales of cars with price tags of or over 1 million rubles (US$31,250) have increased in volume to 14.4 percent of total car sales, up from 9.6 percent in 2011.

Moreover, experts expect that demand will continue shifting away from budget-import options and towards more expensive, attractively-equipped cars. The average price of a car in Russia breaks 788,000 rubles (US$24,607).

For the past seven months, Russia’s automobile market has expanded overall by 28.4 percent, up to 1.3 trillion rubles (US$40.6 billion).

The highest average price of a car this year peaked at 809,000 rubles (US$25,263) in March and dropped back down to 776,000 rubles (US$24,233) by July.

Ernst & Young attributes both the increase in the average car price and the shrinking market share of budget cars to “a transition by many models to a higher price segment.”

“Many mass-market brands that used to keep their prices below 600,000 rubles (US$18,737) introduced models with upscale packages that definitely overshot this price cap; such models attracted demand largely because of abundant car loan offers,” said Sergei Kopyev, a manager at Ernst & Young.

The Rolf car dealership makes similar claims about the gradual migration of several entry-level models into the 700,000-ruble (US$21,859) price range, in order to explain the rising market share of more expensive vehicles.

The group’s Corporate Communications Department Head, Maria Zaikina, suggests that the market grew in monetary terms because sales of luxury models in the 1-1.5 million-ruble (US$31,250-US$46,842) range are increasing.

“In the short term, demand will be definitely be shifting towards cars with an average price of 600,000-700,000 rubles (US$18,737-US$21,859), this mainly being driven by sales in large metropolitan centers,” Mikhail Pak with Aton said to the Russian daily Kommersant.

According to the European Business Association, sales of the budget-priced Renault Logan also fell 16 percent in this period; Chevrolet Lacetti sales fell by 14 percent; and the Daewoo Matiz saw its sales decrease by 12 percent.

Nonetheless, “given the general economic instability,” demand could shift back towards the budget import segment over the remaining half of the year, Pak added, not least because of a possible tightening of credit.

Sales of imported cars in Russia grew to US$15.6 billion in the year’s first half, accounting for roughly an additional 45 percent of the Russian market in terms of value, with the remaining 10 percent of the market consisting of native Russian cars.

As an emerging market, Russia is still at the stage of accelerated automobile demand recovery following a sales slump of more than 1.5 million units in 2009. Car sales rose by approximately 40 percent year-on-year, almost reaching pre-crisis levels.

The U.S. giant General Motors’ decision to invest US$1 billion over the next five years “to expand car and component production in Russia,” as well the aim of Germany’s Volkswagen to invest a total of 1 billion euros (US$1.25 billion) in its engine plant in Kaluga by 2018, can be seen as evidence that the country is still one of the fastest-growing auto markets in the world.