Russian giant promises "cheap people's car"

Russia's car market is expected to be Europe's largest within the next few years. But most of this market growth is being shared between international carmakers at the expense of domestic models. Russian carmakers are switching to the budget sector and tr

The need to create a new Russian “People's car” is fully shared by the management of the country's biggest carmaker Avtovaz.

“We need to produce a new very cheap car model costing around $US six- seven thousand but not more than $US 7.3 thousand, and probably there will be several budget models,” said Boris Aleshin, Avtovaz head.

Experts say a move to low-cost production is exactly what Avtovaz needs to fend off competition from foreign automakers – especially with average Russian salaries significantly lower than in Europe and the United States. If it can introduce new cheap models, it gives itself a chance of stemming the drift to international cars which has already taken place in larger Russian cities.

“At last Avtovaz is on the right way to compete with its foreign peers. If Avtovaz doesn't introduce a brand new car – cheap car, it will lose its positions in the regions like it has lost positions in Moscow and St. Petersburg,” Mikhail Pak Equity Analyst, Kapital IG, said. 

But time is running out with more international automakers setting up in Russia, bringing with the contemporary management and technology and combining this with a low cost Russian workforce.

Analysts are seeing growth in regional Russian markets as being a key opportunity for the Russian carmaker. It will have an advantage in that customers already know it, and its distribution network is still superior. But that still leaves the question of which models to sell, and how well they are made.