Russia’s car market turns to China for revival

“The automotive industry has seemingly become a leading indicator for the Russian economy, as it reacted most quickly to the changed economic conditions,” said Olga Belenkaya, economist at Finam. Still, “there is no certainty that a bottom in the economy has already been reached — perhaps it will happen next year.” The car market in Russia, which once rivaled Europe’s biggest economy by sales, has survived but has emerged shrunken and transformed. Sanctions by countries that accounted for about half of Russia’s foreign trade before the war have left manufacturers cut off from some technologies and struggle to cope with a disruption of supply chains. The isolation has been one of the forces warping Russia’s wartime economy and driving it toward what its central bank called “reverse industrialization.” Although the downturn has been so far shallower than first predicted, Bloomberg Economics forecasts GDP will contract 3 percent next year as oil output and exports come under pressure. The travails of the car industry reveal some of the ways in which Russia is adapting. In a market where automakers such as Toyota once vied for dominance with Russia’s AvtoVAZ, only 14 of 60 brands remain active, according to the Russian Auto Dealers Association. Three of them are Russian and the rest are Chinese. Chinese vehicles now make up over 30 percent of market sales, more than triple their share at the start of the year, with the auto dealers group expecting it to reach about 40 percent in 2023. Should domestic production stagnate, sales by Chinese automakers could eventually account for 70 percent of the total, according to the association. A factory in the Russian exclave of Kaliningrad that BMW operated with local partner Avtotor for more than 20 years has already started test production of Chinese brands and Nissan’s former plant in St. Petersburg may soon follow. AvtoVaz, the maker of Lada vehicles that date back to the Soviet era, is also pouncing on the opportunity to increase market share.

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