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9 Dec, 2008 04:08

Crashing sales slam on brakes for Russian carmaking

Deteriorating market conditions have forced Ford to halt production at its plant, near St. Petersburg. After record sales in recent years were expected to see Russia become Europe's largest car market, the global financial crisis is buffeting the investments.

Car sales in Russia – one of the worlds fastest growing markets over recent years – have slowed sharply this year and are expected to decline in 2009 according to Elena Sakhanova, analyst at VTB Investment.

“For the full year 2009, currently we think it will be a 10-15 maximum decrease in passenger car sales.”

Ford, along with GM and Chrysler, is begging the American Government for financial help, but they are likely to get only half of what they asked for. Vladimir Rozhankovsky, Senior Analyst at Centre Invest Group, believes the US government will keep a close eye on the management strategy of the troubled car producers.

“Obviously this money is not enough to develop any comprehensive plan for future development of the automakers. So put it this way – the current President wants carmakers to prolong their survival until the newly elected president Barack Obama is in office.”

GM has said the amount its likely to get it will be enough only to cover its debt.  It opened a 300 million dollar assembly plant in Russia two months ago with capacity of 70 thousand vehicles per year. But with falling Russian sales, Elena Sakhnova says, it may be loss making.

“In three months or in four months, if you see a significant decrease in demand, there can be a question mark and they can be loss-making. And then they may be forced to make some decisions regarding the freeze of their hiring or freeze of some of their production capacities.”

With 25 percent import duties on new cars it is still profitable for car makers to export their vehicles than produce locally.  Market watchers think that those like Nissan and Peugeot-Citroen, that are building assembly plants in Russia now, may be forced to delay local production.

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