Full Speed Ahead – The Re-Emergence of the Russian Auto Industry

Russia’s relationship with the car has been something of a rollercoaster in the last few decades. For a long time, owning a car was associated with capitalism; parts were scarce and service stations were hard to find. When asked to picture a typical Russian car, many people will think of the Lada. Solid and box-like, the car was often ridiculed for being low-quality. Cars, like many other goods, were produced for the masses and quantity was more important than quality.

When the Soviet Union collapsed, the market was open to foreign imports and the Russian car industry changed. AvtoVaz, Russia’s largest car manufacturer, suddenly saw competition from foreign car companies that were producing higher-quality cars, in particular from Germany and Japan. The Russian car industry went into decline and annual sales fell. Fast forward to today though and things are changing again. Russia’s automobile industry is “set to overtake Germany’s to become the largest in Europe”.

So how is the Russian car industry changing?

Going green

Due to the increase in private car ownership, air pollution from vehicle emissions has gone up. In response to this the government has implemented vehicle emission regulations and is aiming for all vehicles to have switched to Euro 5 fuel by the start of 2016. An age-based taxation system has been introduced for imported vehicles in a bid to provide more incentives to buy fuel-efficient cars. Whereas previously Russian car owners favoured large cars, like jeeps and SUVs, the top-selling models are now smaller, more economical cars.

Government subsidies

The Russian government is planning to boost the car industry with subsidies of 271 billion roubles ($8 billion) before 2016. This money will pay for research and development and will go some way towards compensating for the higher cost of meeting new exhaust emission standards. The government is hoping to increase car production to 3.1 million units a year. It has also introduced a program of buying back and recycling old cars.

Oil prices and localization

Russia is the second largest oil exporter in the world. This means that the country has benefited from the increased oil prices that have badly affected US car owners. This in turn has affected Russia’s position in Europe, making it a leading market for a wide range of goods. The government is also introducing policies that aim to localize car production, for example, low duties on parts. As it becomes more economical to assemble the foreign cars sold in Russia actually in Russia, more big companies are investing there. AvtoVaz is to be taken over by Renault-Nissan and Ford, General Motors, Toyota and Volkswagen have all opened plants there.