Skip to main navigation

Getting up to speed - Russian economy and automotive industry - EY - Global

Getting up to speed

Russian economy and
automotive industry

  • Share

Nominal and real GDP growth

Nominal and real GDP growth

Source: Rosstat, Ministry of Economic Development of the Russian Federation, IHS Global Insight, Business Monitor International, EY estimates

Macroeconomic indicators

Indicator 2007 2008 2009 E2010 F2011
Population, million 142.1 141.8 141.6 141.5 141.3
Nominal GDP, US$ billion 1,287.5 1,650.8 1,231.6 1,483.4 1,664.2
Nominal GDP, change in % 30.1 28.2 -25.4 20.4 12.2
Real GDP, change in % 8.3 5.4 -7.9 3.9 4.3
GDP per capita, US$ 9,063.2 11,638.7 8,696.3 10,485.0 11,781.8
Foreign direct investment, US$ billion 55.1 73.7 36.2 38.1 40.3
Consumer price index, % 11.9 13.3 8.8 8.7 6.5
Industrial output, US$ billion 807.1 994.2 708.5 911.3 955
Industrial output, change in % 6.0 2.4 -9.6 6.8 5.0
Spot crude, US$ 69.6 94.8 61.2 76.7 81.0
Real income growth, % 15.0 8.6 -4.2 3.6 3.2
Unemployment rate, % 6.2 7.1 8.4 7.1 6.7
Average monthly wages, machinery industry, US$ 447.6 563.9 545.9 570.8 n/a
Average monthly wages, Russian economy, US$ 530.7 695.8 578.5 677.4 750.5
RUB/US$ 25.56 24.86 31.75 30.38 30.52
RUB/EUR 35.04 36.50 44.26 40.33 40.23

Historical and forecast sales of passenger cars in major markets, thousands of units

Historical and forecast sales of passenger cars in major markets, thousands of units

Source: J.D. Power, EY estimates
*CEE: Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia, Turkey

Historical and forecast sales of passenger cars in major markets, thousands of units

Country Population, million Passenger car fleet, million Car density (cars per 1,000 people)
Germany 81.6 42.1 515
France 62.9 31.3 497
UK 62.2 30.7 494
Poland 38.0 17.6 462
US 310.8 142.4 458
Czech Republic 10.5 4.5 429
South Korea 48.5 13.5 279
Russia 140.4 34.2 244
Ukraine 45.4 8.3 182
Brazil 195.4 21.3 109
Turkey 75.7 7.5 99
China 1,343.1 44.3 33
India 1,214.5 31.3 26

Source: J.D. Power, IHS Global Insight, EY estimates

Gradual improvements in the labor and credit markets supported Russian economic growth.

Summary: Russia's economy and automotive industry financially influence each other. How will developments in 2010 influence growth in 2011? The outlook is moderately positive.

Russian economy in 2010

In 2010, the Russian economy recovered by about 3.9% in real terms, signaling an economic recovery after the 2008-09 recession.

The revival of internal demand (investment and consumption) led positive GDP growth in 2010. Additionally, economic growth was supported by gradual improvements in the labor and credit markets, as reflected in the significant decline in unemployment and real interest rates.

Inflation at the end of 2010 was 8.7%. Excessive monetary injections between late 2009 and mid-2010 to stabilize the economy spurred the inflation. As a result, inflation might cap real income and consumption growth in Russia.

Nominal and real GDP growth

Turning to the macroeconomic policy, the state primarily focused on stabilizing the financial market and ensuring the long-term competitiveness of the Russian economy.

Economic outlook for 2011

The Russian Government has started large-scale privatization involving around 5,500 businesses. The objective is to modernize the public sector and improve the investment climate.

The Russian Government claims that it is likely to gain accession to the World Trade Organization in 2011. Should this occur, the government may have to discontinue the protective measures from 2009.

While oil prices have certainly risen significantly from 2010 levels, the broader macroeconomic factors in the Russian economy are likely to ensure a moderate growth pace in 2011. In addition, restructuring problems in the industrial sector may reappear since a number of companies need to address overdue debt, and there is also the risk of corporate insolvency.

Macroeconomic indicators

In the medium and long term, acceleration of the economic growth in Russia will depend on its ability to continue taking sound institutional initiatives such as:

  • Minimizing government intervention
  • Improving overall competitiveness
  • Diversification of the industrial base
  • Development of innovative technologies
  • Reducing administrative barriers

Russia in the global automotive industry

Growing in 2010, the automotive industry recovered from its downturn during the recession. Across the globe, vehicle sales in emerging markets have remained buoyant, while mature markets have witnessed a gradual revival in the demand for vehicles.

Historical and forecast sales of
passenger cars in major
markets, thousands of units

The significant rise in investors' confidence in the automotive sector is reflected in the number of successful IPOs and the value of capital companies have managed to raise in 2010. In total, automotive vehicle manufacturing, components and retail raised over US$21.6b to date in 2010, compared to US$281.1m in 2009.

In terms of value, this puts the industry in third place, behind only the insurance and banking sectors. Even if the General Motors (GM) IPO (US$18.1b) was excluded, the industry ranks 18 out of 74 industries globally.

While global vehicle sales registered an average annual growth of under 1% between 2007 and 2010, the Russian market shrank by 10% over the same period. This was despite 30% recovery in sales in 2010 over 2009.

Similarly, production in Russia declined by almost 5%, compared to a 22% increase in the combined production of China, India and Brazil between 2007 and 2010.

The stark contrast in the performance of Russia compared to the "BIC" countries partly reflects the lack of sufficient support the industry received from the government at the peak of the crisis and also exposed its weakness being a net importer of vehicles, compared to BIC countries, which are net exporters.

Car density, 2010

Russian automotive industry

In 2010, the Russian automotive market demonstrated consistent growth, mainly driven by:

  • Recovery in consumer confidence
  • "Pent-up" demand
  • Government support initiatives

As a result, sales of light (passenger car and light commercial vehicles) and heavy vehicles increased by 30% and 90% compared to 2009, exceeding the expectations of most industry experts.

How is the Russian government supporting the auto industry?

Unlike 2009, Russian government was actively supporting the automotive industry during 2010. It introduced a number of market interventions, including:

  • A light vehicle scrapping program
  • Subsidized interest rates for the purchase of domestically produced vehicles
  • An increase in import duty on vehicles to give local production an advantage over imports and protect ailing domestic manufacturers (extended in 2010)
  • Direct subsidies and guarantees to help restructure domestic OEMs
  • Increased state orders to support demand for domestic vehicles
  • Relaxation of the aggressive schedule of transition to new fuel emission standards

Car scrapping program: The Government introduced a two-stage car scrapping program with a budget of RUB20 billion. The scheme proved to be a significant success and helped reverse the alarming decline in the domestic market, specifically lifting the sales of local passenger car producers in early 2010.

Boosting local assembly: Later, the Ministry of Industry and Trade proposed new changes to the Industrial Assembly Procedure, which laid out a number of stringent conditions to boost localization processes in Russia. These changes have been accepted and came into force in February 2011.

Striving for high quality: Another major milestone was the approval of the "Strategy for development of Russian automotive industry for the period until 2020." The framework aims to maximize the value-add at all process stages of the production chain, while ensuring high-quality automotive products. The Strategy stipulates a partnership scenario development for the light vehicle¹ segment through integration into global groups. The optimal commercial vehicle industry scenario entails independent global competitiveness of Russian OEMs and a focus on exporting.

Overall, the developments in 2010 are likely to have a positive impact on the evolution of the Russian automotive industry in terms of manufacturing, supply of components and vehicle distribution. In addition, the fundamentals of the Russian market in terms of low car density, high population and aging vehicles also support the strong growth outlook for this market.

<< Previous | Next >>

1Passenger cars and light commercial vehicles (below 3.5 tons, with several exceptions reaching the highest range of 6 tons)

Back to top