The Predictable Surprise of the Car Industry

Domestic car producers start the competition

The tariffs on import cars (from three to seven years old) were increased on July 25th in Russia. The increase has already brought predictable results. The prices on used foreign cars have raised, but the demand dropped. The demand on domestic cars, especially on VAZ-2110 vehicles, increased during the period, when it was usually decreasing.

The Russian car market usually experiences a standstill in summer - the activity usually drops by 30 or 40 percent. Last year, Russia's major car company AvtoVAZ suffered serious sales problems. The problems did not last just for a couple of months - it took them six months. The company suffered from the overproduction crisis, and the production line had to be stopped for two weeks, which was virtually an emergency. Specialists say, as soon as AvtoVAZ's sales become lower than 800,000 cars a year, the car lobby always thinks of something to ameliorate the situation.

Domestic car sales boosted in Russia in July. Expensive Russian cars were rather popular, especially VAZ-2110 and VAZ-2115. However, a lot of used foreign cars were sold as well. Specialists believe, the sales have increased because of a lot of factors, not just because of the increased tariffs. For example, the introduction of the mandatory civil car insurance has definitely played a positive role in this respect. The domestic car market is expected to boost sales in the nearest future. According to certain forecasts, Russia's need in cars is to double during the coming years (about 1.2 million cars are sold in Russia a year now).

The people, who drive foreign cars, continue driving foreign cars despite of the price. The people, who are satisfied with Russian cars, will be buying domestic cars. Car market specialists think, the market will be divided into two such groups, although there is a large opportunity for them to grow together. AvtoVAZ is to have good sales in the coming two years. The company needs to work more on VAZ 2110 vehicles and to produce the Kalina car. The company has already started reorganizing the dealer network to equalize car prices nationwide. The production of foreign cars in Russia has not reached the desirable development. For the time being, foreign investors are trying to meet the natural demand - it is too early for them to take over the market. Yet, their ambition is growing already. For example, spokespeople for Ford Motor Company exposed the plans about the new car-crediting program. It will be possible to buy a Ford Focus vehicle on hire purchase (the car is assembled in Russia) - the loan will have 4.9 percent per annum against the current average level of 10-15 percent. The lower interest rate became possible because Ford had compensated the rate itself. However, the initial payment will have to make up not less than 50 percent of the car's price, against the standard 30 percent. About 12,000 Ford vehicles are assembled in Russia a year, but the company plans to double the output.

Russia's AvtoVAZ is going to follow the foreign company's example too. Spokespeople for AvtoVAZ say, the company is going to sell its cars on hire purchase too, because it is a priority direction for the development. The company is already negotiating the issue with banks. It seems that Russian car owners are not going to experience bad times. Car producers are starting the competition, they are ready to invest money in sales. According to business laws, customers always win from the producers' competition.

Matvey Ergardt

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Author`s name Olga Savka