Russian car market undergoes model range reduction

The range of automobiles available to Russian consumers is declining sharply, says WardsAuto attributing the drop to reduced purchasing power and ever-tightening localisation requirements. Last year, about 45 models left the Russian market, which was the most since at least 2014. The C-segment, which includes the majority of middle-priced models, is now seeing the largest decline.

According to Managing Director of Boston Consulting Group Russia and CIS Vladislav Boutenko, the ongoing decline of the domestic automotive range may be part of a global trend towards the unification of model ranges, when carmakers are reducing the number of platforms but increasing the number of models produced on them. In addition, many automobile manufacturers are decreasing their investment in existing ranges and looking towards new technologies, such as electric vehicles.

Head of Deloitte CIS Automotive Service Group Tatyana Kofanova considers that the Russian car market is in a worse position compared to the markets of developed countries, as it is not large enough to justify investments in frequent model updates. Thus, mass-produced local models in Russia are already outdated. Besides, certain categories of cars, which traditionally enjoy stable demand in Western markets, for example electric vehicles and pickups, are not popular in Russia. It is limiting growth opportunities for many global carmakers.

In the 2000s, Russia was seen as a promising market by many global car manufacturers. However, the economic crisis of 2014 forced them to scale back their plans and led to massive consolidation. Now the Russian market is dominated by a few large automotive alliances, such as Renault-Nissan-Mitsubishi, Volkswagen Group and Hyundai-Kia.

According to Deputy Director of Autostat analytical agency Sergei Udalov, the middle price segment, which hasn’t yet recovered from the crisis of 2014-2015, has suffered further because of the COVID-19 pandemic. He expects carmakers to face additional problems maintaining current production volumes in Russia if localisation requirements remain high while sales volumes remain small.

The decline in the number of models available in Russia could be compensated by increased imports, but the current state policy prevents this. Last year, the government introduced utilisation fees aimed to fund additional subsidies for local car manufacturers. These subsidies were expected to further stimulate localisation, but unfavourable market conditions have hindered the implementation of these plans.