Daily Management Review

Russians Opt For Used Cars As The Auto Industry Is Battered By Sanctions


Russians Opt For Used Cars As The Auto Industry Is Battered By Sanctions
As the auto industry was hit hard by Western sanctions over the conflict in Ukraine, spending on new cars in Russia more than halved last year. Production fell, prices shot up, and consumers began to turn to used cars that were less expensive.
Russian economic restraints have undoubtedly had a significant negative impact on the country's auto industry, which was heavily dependent on foreign suppliers and imported components, even though analysts continue to debate their overall effectiveness.
While sales of new cars fell by 58.8%, spending on new cars fell 52% to 1.5 trillion roubles ($20.4 billion) in 2017. In addition, as a result of Western automakers stopping production and selling factories, car production fell to its lowest level since the dissolution of the Soviet Union in 1991.
Despite a 14% increase in spending on used cars, the total amount spent on new and used passenger cars fell over 15% in 2022 due to inflation raising prices and lowering living standards.
According to the data, used cars now make up nearly 75% of all new car sales, up from 55% in 2021.
"Money flowed into the used cars market as prices for second-hand cars held up, while at the same time the structure of the new cars market changed significantly," Autostat CEO Sergei Udalov told Reuters.
"Budget Ladas and Chinese cars with prices of 2 million roubles and more remain in it, while premium brands have almost completely left," he said.
According to the statistics agency Rosstat, annual inflation in Russia last year was 11.9%, which is a factor in the estimated 1% decline in real disposable incomes. Retailers have made significant investments in discount store formats, and the automotive industry is following suit.
An employee at a significant Russian company who wished to remain anonymous purchased a used Skoda in December, opting for a foreign-made vehicle over a domestic or Chinese-made one.
His Skoda cost 2.5 million roubles, which was about a million roubles more than it would have cost a year earlier but was still a million roubles less than a completely new model.
As supplies are running low, Anton said he felt fortunate to have purchased a used foreign-made vehicle with low mileage.
"A new car is now just a perk for rich people, unless it's a Lada or a Chinese car," he said.
The average cost of new cars sold last year increased by 17% to 2.33 million roubles, and the average cost of used cars increased by 32% to 890,000 roubles, according to Autostat.
Deliveries to Russia decreased by 80% in 2022, according to Volkswagen (VOWG p.DE) subsidiary Skoda Auto in the Czech Republic. Volkswagen has stopped importing and closing its factories in Russia, but unlike some of its competitors, it has not yet agreed to a sale.
The Russian state purchased the majority of France's Renault's shares in Russia's Avtovaz for reportedly just one rouble, with a six-year option to buy it back. Then, Nissan's assets were purchased for one euro by the same state buyer.
Last year, used car imports increased, with Japanese vehicles leading the way. High-value car exports from Japan to Russia have been restricted, but used cars brought in by private individuals are exempt.
Chinese brands have been able to eat up market share thanks to the exodus of Westerners. In one well-known instance, engine components from China's JAC are being used to restore a Moskvich from the Soviet era.
Analysts predict that this year's new car sales will increase to around 800,000 from 687,370 in 2022, which is still a significant decrease from the more than 1.6 million vehicles sold in 2021.