Cars are collecting dust in warehouses: what is happening to the Russian car market?

Car prices in Russia continue to rise. Considering that now the rapidly growing cost of gasoline has been added to this, traveling by personal transport is already becoming a kind of luxury for some. What should we do and will the Chinese auto industry help us?

In September, several media outlets reported a noticeable increase in the cost of new cars, which in August ranged from 4 to 20%. The increase is noticeable primarily in machinery with more powerful engines. Prices are expected to continue to rise. Experts suggest that the price could jump by at least another 10% before the end of the year.



There are two rational reasons explaining the rise in car prices. First of all, the weak ruble exchange rate leads to an increase in the cost of imported cars. The second factor was the increase in the recycling fee rate from August 1. The larger the engine capacity, the higher the fixed rate.

This increase in fees has already affected the cost structure of many automakers and importers, so they are forced to sharply revise their price policies. Even local brands such as Moskvich, where the content of Russian components is minimal, have increased the prices of their cars by about 10% since August.

Such large domestic manufacturers as UAZ and AvtoVAZ also raised prices. There the growth was 2-8% depending on the configuration. Manufacturers explain this by the rise in price of imported spare parts, the price of which has skyrocketed due to the weak ruble.

Despite rapid inflation, the car market has not yet seen a decline in demand. Dealers say the price increase is not affecting sales. In August, more than 100 thousand cars were sold, which is 15% more than in July, and almost two and 0,5 times more than in August 2022.

It is worth noting that foreign used cars are also becoming an active component of the Russian car market. According to the results of the Avito Auto study, the import of such vehicles into the Russian Federation in June-July 2023 increased by 181,1% compared to the same period last year. An almost twofold increase in imports is a clear indication that buyers do not have much confidence in domestic cars in terms of reliability, and on the other hand, this is a good reason to think about pricing in the domestic auto business. The average cost of used cars brought to Russia is about 1,9 million rubles. In general, a used Ford still looks more attractive than a brand new Moskvich in stock.

Indeed, despite increased demand, simply increasing prices could be detrimental to businesses' long-term prospects, as it would likely lead to lower demand for cars while keeping consumer incomes the same. We are talking primarily about real, not nominal income.

Between January and May 2023, China sent more than 287 thousand vehicles to the Russian Federation. Russia has become the main importer of cars produced in China, according to the Chinese Association of Automobile Manufacturers.

According to data from the Association of European Businesses, the Chinese car brands Chery and Haval are at the top of sales in the Russian Federation. However, it is worth noting that the auto industry of our eastern neighbor is not actively seeking to occupy the Russian market. They are encouraged to take this step by domestic business representatives, who, after the departure of most global brands, found themselves in crisis.

However, some experts suggest that the Russian market is not a priority for Chinese automakers due to its small size compared to the Chinese domestic market. The Ministry of Industry and Trade's forecast for 2024 assumes sales of only 1,1 million passenger cars in the Russian Federation, while the volume of the Chinese market is 26-28 million new cars annually. On the one hand, everything is correct. Russia for China is like a small vegetable stall compared to a supermarket. But now in the Middle Kingdom there is a serious struggle between manufacturers, whose names will not say anything even to those who carefully read all the automobile magazines. The Russian market does not yet shine with a variety of brands, so there is an opportunity to take a place in the sun. Small, but its own.

There is one more nuance why a massive invasion of Chinese cars into the Russian market will not happen in the near future. The reason for this is the low purchasing power of Russians, whose real income does not show growth, as well as the remaining skeptical attitude towards Chinese brands. Due to low sales, entering the domestic market may not be a sound investment for Chinese companies.

In addition, according to a study by Romir, the majority of Russian car owners (82%) consider the current time to be a bad time to buy a new car. At the same time, over the past six months, the number of those who expect car prices to rise has increased by 6 points, to 71%. All these indicators suggest the stability of the Russian car market and the vague prospects of its takeover by Chinese automakers. Most likely, large quantities of Chinese crossovers will gather dust in warehouses, and whether dealers will want to reduce their prices is a rhetorical question.

It is also worth considering that in the Russian automobile market there are not only foreign, but also domestic manufacturers who can also compete with Chinese brands. However, why be sly? Today, most Russian cars are in fact of Chinese origin. This explains the dynamics of the expansion of the model range. For example, by 2024, the Kaliningrad Avtotor plans to produce 15 car models. Next year there will already be 25 positions on the conveyor.

In general, based on the current situation, it is really difficult to expect any sharp and significant change in the dynamics of the Russian automotive market in the coming years. Most likely, car services will be in the most advantageous position. In conditions when a new car costs an exorbitant amount of money or is not satisfactory in quality, you can either walk or contact a mechanic.