Dmitry Baranov: ‘Russia’s car market can take several years to recover’

The leading experts of Finam Management about illegal car imports, new brands and a rise in car thefts

Dmitry Baranov: ‘Russia’s car market can take several years to recover’
Photo: Roman Khasayev

The Russian car market can take several years to recover after the exit of foreign car concerns, thinks leading expert of Finam Management Dmitry Baranov. Amid a deficit of famous brands, new car brands can settle in Russia, a flow of car scraps for repair and maintenance of cars in the country will start. Also, the number of car thefts will increase for the same purposes, the analyst forecasts. In an op-ed column for Realnoe Vremya, the expert talks about the current situation in the market and further prospects for its players.

Russia’s car market can take several years to recover

The current situation couldn’t help but influence the automotive industry and the market in general, moreover, this influence seemed insignificant, while the changes became dramatic. A number of foreign car concerns left Russia. However, it was said to be a temporary exit, but nobody knows if it will become permanent. Consequently, many foreign manufacturers stopped the production of cars, and supplies of models from other countries are restricted too.

In general the list of those who anyway refused to operate in the country turned out to be quite long. So the following brands suspended exports of cars or components in Russia: Audi, General Motors, Jaguar Land Rover, Porsche, Rolls-Royce, Skoda, Stellantis, Volvo and a number of other companies. BMW, Ford, Mercedes-Benz, Hyundai, Renault, Nissan, Volkswagen and some other brands froze their production.

The situation isn’t quite simple, and the Russian car market runs the risk of going several years back. It is unknown how this will help the market, but in late April head of the Russian Ministry of Industry and Trade Denis Manturov said that Chinese and Korean car companies, including Haval, Kia and Hyundai continued making cars, though less. Smaller production also stays at Avtotor.

Manturov said that the companies that left Russia could make the final decision on the possibility of continuing operations in Russia until May, which will allow the authorities to come to an agreement with them. This probability permits counting on a recovery of the Russian automotive market, but this can take several years.

The Russian market will preserve its diversity for a long time. Photo: Maxim Platonov

Illegal import, new brands and car component thefts

If many car brands don’t return to the Russian market in the end, this won’t lead to an instantaneous degradation of the market, it will preserve its diversity for a long time. Firstly, this will be provided by the ongoing use of cars of those brands that left Russia. Many of them have a considerable lifetime that owners will try to extend somehow, for instance, by driving them less — it is good there are different ways of providing yourself with transport now.

Secondly, a rise in car supplies from other countries, including those brands that exited Russia, can be expected. If there is no strict ban on manufacturers from re-exports, it is can be official supplies, but the appearance of illegal imports in the country and different exotic car purchase schemes aren’t ruled out. For instance, a local will buy a car and resell it to a Russian who will bring it to Russia.

Thirdly, the appearance of new car brands that have never been here isn’t excluded in the Russian market. Even though the Russian market was established a long time ago, new brands still have a chance of settling here, especially if many renowned brands leave the country. A shortage of new cars can force some consumers to purchase products of new brands if the price and purchase terms are attractive.

Also, clunkers that will be dismantled to get spare parts for repair can be brought to the country. Photo: Maxim Platonov

Fourthly, imports of a considerable amount of spare parts and components aimed to provide the repair and maintenance of used cars can be expected in the country. Also, clunkers that will be dismantled to get spare parts for repair can be brought to the country. On the one hand, this isn’t great because we already have enough waste, on the other hand, with the correct organisation, metallurgists will have an additional source of scrap metal they need for production.

At last, as sad as it might sound, the risk of a bigger number of thefts of cars and spare parts for the repair and maintenance of other car owners isn’t ruled out in the country. Again, this raises the question about having a garage or guarded car park and equipping the “iron friend” with different anti-theft deterrents.

Losses of car concerns, repurposing in car dealers

Talking about the prospects of car manufacturers and those who sell them, they are different. As for the producers who temporarily left Russia, they can quite quickly compensate for their losses if they return and resume the production here. Consumers haven’t forgotten them, these brands car in demand, there is staff, contact with suppliers is established and so on — all this allows cementing their positions and even ramp up sales, which isn’t excluded. If the producers make the final decision to leave Russia, the most important thing for them will be to get as many investments made in the country as possible back, but the losses will likely be inevitable.

As for the producers who temporarily left Russia, they can quite quickly compensate for their losses if they return and resume the production here. Photo: Maxim Platonov

If Russian plants start selling several car brands at once, this will lead to an excessive supply, that’s to say, to discounts. Also, the complicated situation in the economy can limit buyers’ financial possibilities, which will keep pressing the asset price.

Speaking about trade companies, they have the possibility of repurposing former car dealerships into other businesses, but this isn’t so simple here. Firstly, this will require time and money not everybody has because car sales are suspended. Secondly, what should dealers do if the situation quickly returns to normalcy? Thirdly, how to choose the new business correctly? Won’t it turn out too competitive compared to car sales?

These and other questions can push many companies into trying to save their car business, for instance, by selling new brands, expanding the amount of services provided and so on.

The company made two models based on Mercedes cabins. Photo: KAMAZ press service

Tatarstan’s car market will likely preserve its positions

The termination of cooperation between Daimler Truck and KAMAZ should be considered one of the key events in Tatarstan’s automotive market lately. This can affect the company’s production. As it is known, it made two models based on Mercedes cabins. Without doubt, the company will continue the production, but the models can be reconsidered if the intellectual property of the foreign partner cannot be used.

As for passenger cars, their sales depend on how the situation in the Russian automotive industry unfolds in general. The automotive market of the republic is one of the leading in the country and will likely preserve its positions.

Different car brands are popular in Tatarstan, and this will stay. Given the location of the region and well-developed transport infrastructure, it isn’t ruled out that some buyers will buy cars in other regions and then bring them to the republic if some models aren’t on the local market. Also, considering the region’s close links with some states, more cars of different brands can be brought to the republic from there.

Dmitry Baranov
Reference

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.

Tatarstan