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Booming Auto Sales Help Infrastructure

Special to The St. Petersburg Times

Experts and consultancy agencies are unanimous — Russia is becoming the most important automobile market in the world. The country overtook Germany as Europe’s biggest auto market in the first half of this year as sales rose 41 percent to 1.65 million cars, swollen by demand for models from U.S. and Asian manufacturers, according to PricewaterhouseCoopers.

Between January and June 2008, Russians spent $33.8 billion on 1.65 million cars, compared to 1.63 million vehicles in Germany.

Experts predict that Russian auto sales could reach 3.8 million this year if the present level of growth is sustained. The country currently accounts for 12 percent of the total global auto market, and by 2015, the country’s car sales are expected to account for one fifth of global sales growth, or a maximum 6 million cars per year.

“Sales will continue to grow at this pace for two or three years as rising incomes fuel demand,” Mikhail Pak, an automotive analyst at IFC Metropol in Moscow, was cited by Bloomberg as saying.

Many analysts have suggested that the growth in car sales is due to soaring property prices in Russia — younger Russians, (aged 27-40), are choosing to apply for loans to buy cars instead of for mortgages.

Dozen of foreign automakers have already opened factories in Russia or operate in joint ventures, Peugeot Citroen of France and Toyota Motor being the latest examples. Peugeot, Europe’s second-biggest car company after Volkswagen, last month began work with Mitsubishi Motors of Japan on a $732 million plant near Moscow to supply sport utility vehicles and medium-sized cars, and Toyota, the world’s No. 2 after General Motors, opened a Camry sedan assembly line near St. Petersburg last December.

Russians are also trying to develop the production of their domestic brands, which is outnumbered by the booming demand for foreign models. Ladas and Volgas are still produced, but sales of these traditional Soviet cars are stable only in the provinces and small towns of Russia.

The main obstacles facing Russia’s auto market are poor road infrastructure and a lack of parking lots, which result in constant traffic jams and numerous car accidents in crowded cities like St. Petersburg and Moscow. After a surplus was announced in the federal budget, plans were announced two months ago by Prime Minister Vladimir Putin to build a new road infrastructure and reconstruct the existent infrastructure.

According to observers, the first phase will see a new highway connect Moscow to the northwest region, including St. Petersburg. Another highway is planned to stretch through the southern parts of Russia to the Olympic city of Sochi on the Black Sea.

“Government spending on improving transport infrastructure will also be an important factor in stimulating demand for cars,” said Pak.

Growing sales of foreign cars is also an indicator of the booming Chinese auto market. Fast cars have proven popular with young Chinese businessmen, with Mercedes Benz leading the market. By May 2007, the German carmaker had sold more than 300 of its sport models there, Bloomberg reported.

Contrary to Russia and China, the demand for cars in the West has stagnated amid the global economic meltdown. This month, General Motors announced that it was suspending dividend payments and making cutbacks in America where sales have fallen by 16 percent.

“In other developed countries this market is growing, at best, only slightly each year. The current economic conditions, characterized by high oil prices and the credit crunch, do not facilitate global automotive market development,” said Stanley Root, a partner at PWC’s automotive practice.

¦? The first in a series of new terminals designed to increase the volume of cars carried by rail across the country was unveiled 90 kilometers south of Moscow on Wednesday.

Double-decker car transporters loaded with KIA hatchbacks on both levels were on display at the $50 million Mikhnevo terminal. The wagons are the first of their kind in Russia and are essential to the logistical concept behind the new network of terminals, since they will allow more cars to be delivered more quickly and efficiently through Russian Railways’ network.

“This will help take pressure off the overburdened roads by shifting more freight traffic onto our railway network,” said Viktor Ivanov, general director of RailTransAuto, the company that is setting up the terminals.

A spokeswoman for RTA said the Mikhnevo depot can currently store about 5,300 cars.

There are seven other hubs in the intended network, including one in St. Petersburg. The other terminals are scheduled to open in the next few months.

24 July 2008
Saint-Petersburg Times