Demand for budget cars in Russia grows during pandemic

Demand for budget cars in Russia grows during pandemic

An unexpected increase in budget car sales depleted stocks of Russian car dealers and caused shortages of delivery capacity last year, as Russians tried to spend their rubles at a favourable rate. The share of cheaper vehicles is expected to grow further.

The impact of the COVID-19 pandemic on the Russian car market pushed demand for lower-priced vehicles up, says Automotive Logistics citing Commercial Director of automotive logistics company Gefco Russia Dennis Gliznoutsa. This trend went against initial expectations, which were roughly in line with forecasts for European sales. “The Russian market always reacts in its unique way to financial and economic challenges, not like all other countries,” points out.

At the beginning of the pandemic, Gefco expected sales of finished vehicles in Russia to drop by 20-25% with budget cars losing between 15% and 20%. However, demand for finished vehicles increased amid the ruble’s depreciation against the euro and the dollar, especially in the budget and economy class sectors, Gliznoutsa says. High demand combined with production disruptions during last spring’s lockdown resulted in a sharp reduction in Russia’s available vehicle inventory. Besides, car sales were fuelled by affordable loan terms provided by Russian banks.

As a result, after depletion of stock volumes, Russia’s vehicle logistics sector switched to moving vehicles straight from manufacturers to end consumers. That caused a lack of rail and road transport capacity, while storage lots stayed empty.

Photo1. A drop in the population’s purchasing power may attract volumes of more economically priced vehicles from Asian car manufacturers to the Russian market. Photo: Vmenkov

The pandemic is expected to reshape the Russian automotive market further, says Automotive Logistics. As soon as the increase in investing borrowed funds subsides, carmakers and dealers will start working on replenishing their stocks. “Apparently, the share of the budget and economy-class cars will increase,” considers Gliznoutsa. He addresses the potential growth to changes in the population’s purchasing power as well as the expansion of car-sharing and taxi services. It may attract volumes of more economically priced vehicles from Asian car manufacturers. Besides, it can spur second-hand car sales prompting Russian logistics companies to deal with second-hand sales under the same conditions and with the same level of services as in the new car market.

By Anna Litvina