Russian Automobile Industry

Top of Form

The automobile industry in Russia has highly grown up in the recent years. With the production of about 1million vehicles in 2005, Russia was ranked as the twelfth largest manufacturer of vehicles in the world. After the booming economy, there has been a sudden high demand for brand-new domestic as well as foreign make vehicles, which has almost wiped the foreign used cars market in Russia.

The growth in the demand of foreign brand vehicles has gone far beyond the best of the predictions made by Russians. In the long term, Russia shall be a better market for both production and sale of automobiles. As per the research, sale of new cars will reach 2.5 million in Russia by 2015. Also, some of international suppliers shall have their own products in the country. But it's a small amount of products compared to Russian products.

Former president of Russia, Putin tried to boost the car industry, power generation and to improve the availability of mortgages. He put a new rule to boost up the car industry ,that is,

"Any Russian citizen, who uses a car 10 or more years old, will receive a check for 50 thousand Roubles and will be able to use that money to buy a new car. It doesn't matter what car he will buy, Russian or foreign, as long as it is assembled in Russia."

Future of the Russian car industries

The amount of new vehicles in Russia will increase from 1.2 million in 2004 to 2.4million by 2014. This is about 6.5% percent per annual growth rate. New car imports to Russia will soar from 350,000 a year in 2004 to 750,000 a year in 2014. At the same period, the number of new foreign cars assembled in Russia will rise from 100,000 to 800,000.

Russia: market of the future

After China, Russia is one of the fastest-growing auto markets in the world. Between 2004 and 2014, each year will see around 100,000 more new cars registered than the previous one. The total will rise from 1.4 million new cars in 2004 to 2.6 million in 2014 (6.5% per annual). More and more Russians are switching to Western car makers: while Russian car makers currently cover 70% of demand, 60% of new cars bought will be manufactured by foreign makers by 2014.So, Russian cars are take main place in the market every year. This will make good profit for their country.

Prospects for suppliers

Automobile suppliers can also benefit from the booming car market in Russia. At present, the top 20 suppliers worldwide have around 200 production sites in Europe; but there are just six or seven companies with some locations in Russia.
According to this, Car makers will involve their suppliers more in creating value in future. Between 2004 and 2010, suppliers' share in production value for Russian car makers is set to rise from 30% to 40%. Amongst international car makers, this proportion is already high, anyway this is to be rise to 70% by 2010.

And international car makers are set to double their production from local suppliers to manage the Russian demand. This will send local content soaring from 10% in 2004 to 40% by 2014.
As an international maker expands their products in Russia, they will make a high-performance supplier industry behind them by 2014.

Modernizing Russian car companies

Modernizing car companies also offers new opportunities for Russian car makers and suppliers too. But also local car makers and suppliers must modernize their processes and products. Western companies have to take a stake to modernize the Russian supplier industry. Russian suppliers can take Western technology, will find themselves upgrade more efficient production processes and can introduce good quality management to nowadays standards. So for this their international partners will get access to Russian customers and local authorities.

The Russian automobile sector has to modernize across the board. This will help the level of investment in Russia compared with other countries. Germany invested EUR 2,343 for every car made in 2002, while Russia invested just EUR 465. Other countries in Eastern Europe also invested much more. While Russian manufacturers spend less than 1% of their sales on research and development, international makers here spend 5% of their sales or more.

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