In 2010, the automotive component industry in Russia began developing local content capabilities. This is in anticipation of Russia's increasing domestic vehicle manufacturing. Specifically, more than 40 international suppliers are establishing manufacturing operations in Russia.
Currently, the Russian automotive component market is underdeveloped due to:
- Insufficient supplier base
- Lack of tiered divisions in the supplier base due to the high level of vertical integration with major OEMs
- Lack of competitive technologies and quality among Russian manufacturers
- Lack of investments in R&D and engineering skills to develop and manufacture new types of components
- Due to technological backwardness, most local manufacturers' lack of competitiveness required to meet the high requirements of global OEMs
The Russian automotive component market has strong growth potential in both aftermarket and OE segments. The aftermarket has a positive outlook primarily because of the aged vehicle fleet and increasing need for maintenance.
OE segment is expected to demonstrate consistent growth in the middle and long term due to the following drivers:
- Recovery prospects of the Russian automotive industry
- The changes in the Industrial Assembly Procedure accelerating localization processes
- Russian OEMs' demand on automotive components meeting high global standards
- Technology-intensification of local vehicle production opening up growth potential for hi-tech component producers
EY forecast for automotive component market
We made a consensus forecast of the LV component market size in 2011-14, based on the projections of various international and Russian market experts and our market understanding. Currently Russian component aftermarket exceeds OE market in value terms with a share of 73% vs. 27%.
By 2014, the OE segment is expected to reach a 48% share, which would be more in line with other mature markets.
Market experts expect active localization processes in the near term to be dominated by the cooperation between leading global component suppliers with established Russian suppliers.
The component sector is likely to see more joint development strategies instead of Greenfield projects based on a number of benefits of the former approach, including risk sharing with a local partner, immediate access to the market, leveraging local relationships and global industry expertise.
Russian light vehicle component market forecast, US$ billion
Source: IHS Global Insight, J.D. Power, Avtostat, Ministry of Industry and Trade of the Russian Federation, market players' data, EY estimates