Experts have warned against closure of up to six car factories in Russia

Experts have warned against closure of up to six car factories in Russia

Vedomosti – A significant rise in demand should not be expected in Russian automobile market, according to BCG report. The market prediction of 3.5-4 million units per year by the year 2020, made only a few years ago, has been reduced in the current baseline scenario to 1.9 million units, taking the 2015 figure of 1.5 million into consideration. The anticipated low oil prices and the weak national currency are amongst the main reasons behind the reduction in the forecast. PwC has made a similar forecast – 2.2 million automobiles in 2020. Sollers, on the other hand, foresees the market below the 2 million vehicles mark, for the aforementioned time.

The Russian sales record had been broken in 2012, with an annual figure of 2.8 million new automobiles. Since then the sales decline steadily. The Russian car plants have a total annual capacity of more than 3 million vehicles, however, incur losses due to underutilisation. “The best strategy under the new circumstances is to realise the existence of the considerable amount of excess capacity and take drastic measures in order to utilise or restructure it, instead of waiting for the market growth” – says the co-author of the report, BCG senior partner: Vladislav Butenko.

The automobiles manufactured in Russia are also exported to CIS countries. However, this potential is not enough on its own to stabilise the Russian car market. According to the prediction of BCG , automobile exports will rise from the 2016 figure of 300,000 vehicles to only 600,000 in 2020. Government support wouldn’t be a remedy for the problem either: 90-150 billion rubles is required annually just on demand stimulation, as calculated by BCG. The government has allocated 50 billion rubles for these purposes in 2016 – 43 billion rubles in 2015. BCG believes that 3-6 out of the existing twenty-odd car factories may face closure. The manufacturers without any strategic interest in Russia, who focus on developing their businesses in other BRIC countries are at risk, as well as the enterprises which launched production comparatively recently, according to the report. American GM has already left Russia last year. In the meantime, the assembly of SsangYong has been suspended and the production of Toyota Land Cruiser Prado discontinued in the Far East.

Operations may be suspended completely in some Russian companies, however unlikely for the next two years. The companies will act cautiously at the current stage and continue with staff optimisation, reducing working days and shifts, says VTB Kapital analyst Vladimir Bespalov. The chief editor of Auto Business Review: Sergei Baranov is of the opinion that closure or preservation of certain plants has not been ruled out for 2016 yet, both in car and truck segments. “A number of manufacturers, which have low levels of integration with local partners and suppliers, may leave Russia, especially following the completion of their respective industrial assembly agreements” told a Sollers representative. The representative believes that the government should encourage the concentration of demand around a limited number of players, who focus on maximising the value added in Russia.

The Ministry of Industry and Commerce does not agree with such apocalyptic predictions. The ministry representative has more optimistic views: “We believe that a gradual recovery of the markets in the short term is more likely.” However, he has not given a concrete forecast. “Providing timely and proper support, alongside companies’ own efforts and the help of exports, all major car manufacturers can be saved in Russia”, stated the official