Russia: plunging local currency has local automakers backed against the wall image

We all know that just two years ago Russia was poised to overshadow Germany as the continent’s largest car market after years of double digit gains. And then the collapse came.

The country’s economic power plunged and the local currency had a massive drop – hitting the auto industry where it hurts: expenses for imported parts jumped through the roof, ambulance compelling the automakers to increase prices of locally sold cars. Following a decade of sale increases of more than 10 percent annually, physician the Russian automotive industry is the victim of the economic crisis brought by the plunging oil prices and western sanctions over its implications in the Ukraine crisis. Internal car deliveries have dropped around 50 percent from the top levels of 2012-2013 and the currency’s decline has pushed up costs because the Russian auto industry is heavily dependent on imported car parts, unlike nations with a traditional car industry.

Germany’s Volkswagen and America’s Ford both source at least 50 percent of their car parts from imports and even the market leader – local automaker AvtoVaz has to rely on imported parts for almost a fifth of its production output. And because of the even lower level of locally sourced production parts, General Motors made an unprecedented move – it almost completely pulled out of Russia back in March. Russian authorities have delivered subsidies and incentives to have the automakers source more locally produced parts, but the reality is that expensive and technologically advanced parts – electronics, engines and suspensions – still need to be imported.

Via Reuters