Carmakers Brace for Major Slump in Russia

Foreign carmakers in Russia remain committed to the country's long-term potential, but all are bracing for a "brutal" downturn this year, Automotive News Europe reports.

Car sales in Russia this year slid 2% in the first quarter, 12% in the second quarter and 17% in June, according to the Moscow-based Assn. of European Businesses. The trade group currently forecasts a 12% drop in full-year volume to about 2.45 million vehicles.

ANE notes that economic uncertainty and international sanctions triggered by Russia's conflict in Ukraine are drying up investment and new-car demand. Several carmakers are scaling back their operations in Russia. But manufacturers also cite projections that the country eventually will become Europe's largest national auto market.

Consultants Roland Berger aren't so sure. They feel strongly that carmakers should review their investment strategies for Russia. They cite the risk that continuing shrinkage in production volumes could lead to deindustrialization, making production efficiency and logistics costs even more difficult to manage.

Roland Berger warns the threat will grow in 2018. That's when Russia's membership in the World Trade Organization will force it to drop incentives for foreign carmakers to set up local production rather than import vehicles.