The decline of the auto industry in Russia

Global automakers to shutter Russian plants?

For an automaker to manufacture locally, two elements need to be in effect: for one, the market needs to be large enough to justify it, and for another, importing has to be too expensive to make it worthwhile. Many automakers have found both those elements in place in Russia, but may not for very much longer. According to Ward's, changing conditions in Russia could spell the end of local production in the world's largest country. On the one hand, the market is shrinking, while on the other, import duties are dropping.

The market for new cars in Russia fell by six percent in May when compared to the same period last year, leading analysts to predict a massive drop by 26-30 percent over the course of the year. If the decline continues apace, the market could drop from 3.6 million projected new-car sales in Russia to just 2.3 million by 2018. Meanwhile, Russia's obligations to the World Trade Organization mean that import duties on cars manufactured abroad will have to drop from 25 percent to 15 percent by 2019, making it less expensive to sell imported cars in Russia. At the same time, government incentives for manufacturing locally – whether by local or foreign automakers – may drop in the years ahead thanks to a weak ruble and the spiraling cost of Russia's invasion of the Crimean peninsula, according to the report. 

Analysts expect that, as a result, vehicles produced locally by foreign automakers could drop from 52 percent of the current market to 26, while imports rise to 67 percent – the difference presumably being taken up by Russia's own domestic automakers, which have apparently dwindled to a small proportion of the market. Despite the forecast, however, foreign automakers like PSA, Renault and BMW may still find it advantageous – if only for the shipping costs – to manufacture locally for the Russian market. If present conditions continue, however, we can't help but wonder for how long.