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18 Nov, 2009 17:48

Russian car buyers drop gear to go down market

The Russian car market has been hammered by the economic downturn with sales halving over this year, as credit almost disappeared. That has locals looking for cheaper options and carmakers going down market too.

Even those who could once afford a Porsche or Hummer tame their appetite when credit gets tightened. With GDP down more than 9% and unemployment still rising, car sales are down 52% in the year to October, and, unsurprisingly, the ostentatious urge for upmarket foreign marques, which became a hallmark of the boom years, has given way to degree of automotive austerity on the part of the Russian buying public.

Automotive Expert, Igor Marzharetto says a key driver of the sales slump has been the end of easy automotive loans. The credit crunch which drove the global economy into recession, saw a mainstay of Russian middle-upper car market nearly vanish.

“The structure of sales has changed. The segment of cars priced from $20 – 40 thousand suffered most because it was popular among Russia's middle class which used loans to buy cars. With the collapse of the lending market, sales tumbled.”

Further eroding the urge to buy was the Rouble devaluation at the end of 2008 which made imported vehicles nearly 30% more expensive, and even as the Rouble has rebounded unemployment mounted and the recession deepened. Also trimming the urge to buy an import was a tariff hike.

Car prices fell by 20% in the first half of the year, as dealers responded to the demand collapse with massive discounts. At the same time, in order to bolster the domestic carmaking sector the government offered subsidies on loans to buy Russian-made cars priced under $20 thousand.

That’s helped create a market where no frills looks good, and low, or even ultra low, cost motoring is in vogue. Forecasts that it will remain in vogue has carmakers changing their priorities also.

International car producers working in Russia are now busy developing low cost cars. Volkswagen recently showed Prime Minister Putin its new low-end model which will come off the production line next year. Korea’s KIA, together with Izhavto also wants to catch up according to Han Chang Kyun, President of Kia Motors Russia.

“The Russian market is changing for coming generations. Russian customers are very reasonable in choosing cars – they’re more focused on the value of money. Even in the near future this trend will continue and that’s why we’re considering a new model at Izhavto plant.”

No broad recovery in demand is expected until 2011. Analysts say lack of cash is not to blame but rather people’s confidence in a stable future that’s suffered more than their wallets.