Russian car sales seen flat in 2010 after slump

ERJ staff report (AN)

Moscow (Reuters) -- Russian car sales will remain flat this year after halving in 2009, a leading business body said on Thursday, in a sign government support measures will fail to offset a lack of cheap car credit.

The Association of European Businesses (AEB) said on Thursday it expected some 1.5 million cars to be sold in Russia in 2010, almost unchanged from 1.47 million in 2009, which was a 49 percent decline from 2008.

Russia was on its way to overtaking Germany as Europe's biggest car market before the ruble devaluation effectively closed access to cheap credit for most ordinary Russians in late 2008, leading to a slump in car sales.

By contrast, car sales in Germany, Europe's largest car market, rose to 3.8 million in 2009 from 3.1 million in 2008 thanks to the government scrapping scheme.

In 2010, new car sales in Germany are expected to drop by a quarter to between 2.75 and 3.0 million after government subsidies to scrap old autos and buy new ones have run out.

Scrappage doomed to fail

Like many European countries and the United States, Russia had offered motorists incentives to buy new cars as a way to counter falling demand. But experts, including AEB, have repeatedly said Russian measures were too small to offset the decline.

The government has offered to subsidize interest on car loans, but the number of applications was much smaller than expected. This year it is offering a scrappage scheme, which many experts say is also doomed because of Russia's notorious red tape.

AEB said car sales fell 38 percent in December year-on-year -- a better showing than the 46 percent shrinkage in November. That could be partly explained by a purchasing rush before the New Year, when car dealers offers healthy discounts.

Separate data showed on Thursday Russian consumer confidence rose to a one-year high in the final quarter of 2009, thanks to a nascent economic recovery, but people remain far more pessimistic than before the crisis.

Russia's economy returned to growth in the third quarter of 2009 in seasonally adjusted quarter-on-quarter terms, after weathering its first recession in a decade. But the recovery is expected to be slow, with gross domestic product (GDP) unlikely to return to pre-crisis levels before 2012.

Almost all major global car makers have opened or announced plans to open factories in Russia during the boom years and some still say Russia is poised to overtake Germany as the biggest European car market in the long term.

AEB said nine out of 10 models topping the list of best selling cars in Russia in 2009 were produced locally.

French Renault's Logan was the best-selling foreign car in 2009 with 53,869 units.

AvtoVAZ, in which Renault has 25 percent, had its Lada Priora as the best-selling local model with 99,473 units.

From Automotive News (A Crain publication)