What are we going to drive? Express forecast for the car market

We are import dependent. All. We depend on the import of many components supplied to all car assembly plants, including the native AVTOVAZ and UAZ. We depend on the delivery of complete car kits, some of which are assembled according to the SKD method. And we depend on the net imports of finished cars, although their share of the total sales is not more than 15%.

We don’t make many critical components, from airbags and ESP units to automatic transmissions, CVTs and turbocharged engines. We do not manufacture electronic components, including the infamous microchips, although the technology for their manufacture has long been studied and understood.

What changed?

Precisely because of the heavy dependence on imports, our car factories have had enormous problems with parts in the past year, as have been experienced by factories all over the world. Because the global automotive industry is a complex system of logistics and interconnections. It is impossible to do absolutely everything in one country – this is unprofitable, irrational. And if the geopolitical situation had remained stable, Renault (Moscow), Hyundai (St. Petersburg), AVTOVAZ (Tolyatti, Izhevsk) and some other factories would still be shut down in early March due to a shortage of components.

The changing world situation has greatly exacerbated this problem. Even if a component supplier is found, it must be paid first – but what if the foreign economic activity has practically stopped? And how to deliver the components if the logistics is broken and does not recover quickly? The same goes for car kits and finished machines.

At the beginning of March, only the cars previously contracted and produced from stocks of components were transferred to buyers. New deliveries to dealers have practically stopped – as they say, until clarification. First of all, everyone wants to know at what level the ruble will stabilize, so that there is at least some kind of pen and relative stability.

Conveyor belts are installed in almost all factories. But beware: no company left with a loud bang of the door. No one said that Russia is no longer a foot. Even Volvo, which was one of the first to announce the withdrawal (the Swedes have truck production in Russia), quickly took back their words.

We are the market

Russia is not a defining market for any car company. But Russia is an important, interesting market. For example, for Skoda this is the second market in the world – after China. We are extremely important to Korean manufacturers. For the Volkswagen group. For the Renault group, to which AVTOVAZ also belongs. And for a number of other brands. Even for Rolls-Royce, which sold a record 300 cars in Russia in 2021.

Therefore, most brands will return to Russia as soon as there is a thaw in relations between countries. Companies with their own production facilities will be the first to do this. These are huge investments – hundreds of millions of dollars, in some cases the bill is already in the billions. And these are not just factories in the open field, but enterprises built into the global auto industry, for which employees also work in headquarters: they too will lose their jobs if Russian production is stopped.

So – will return. Not everything. And not right away. But they will return.

And China?

Will the Chinese be able to make up for the shortage of cars? Can. But even the Chinese auto industry isn’t too agile. It is impossible to drastically increase the offer at the snap of a finger, it is impossible to adapt new models to our market quickly and it will not be possible to certify them quickly. And can the Chinese replace Mercedes and BMW? And cheap Renault? What about Rolls Royce?

And it is important to understand that a vacuum in the market is always filled at a higher price. For example, if yesterday a Chinese crossover cost 1.5 million rubles, now it is sold for 2.5 million. And even for three. And it will remain so as long as demand exceeds supply.

When?

If we cautiously assume that relations between Russia and other countries will normalize towards the end of spring, we can predict a relative stabilization of the car market in early 2023. Prices for January positions will not return, but speculative offers “Lada for two million” or “Camry 2.0 for six and a half” will obviously no longer be.

If the confrontation continues, the alignment of the market will not happen anytime soon. But that just means pent-up demand. Our minimum — based on country size, population and traffic — is about 1.5 million new cars a year. What we don’t buy now, we make up for later.

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Source: Z R

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