Russian automotive sales are likely to drop 36 percent to about 1.8 million units this year from 2.8 million in 2008, and foreign makes may have to localize if they want to remain competitive, according to a study released Tuesday by Boston Consulting Group.

The most optimistic scenario would see 2.5 million cars sold this year, with growth resuming in 2011, while the worst-case scenario predicts sales of 1.4 million.

The falling sales, along with high import tariffs, may force foreign carmakers to set up shop locally, the study found.

Localization in a country with a 30 percent tariff translates into a savings of about 10 percent, the study said. Imports fell 73 percent in January after customs tariffs were hiked up to 30 percent on new cars, according to Avtostat.

Lack of reliable component makers continues to be an impediment to local production, however. Only 20 parts makers produce locally, meeting about 3 percent of the market's needs, the study found, while only 5 percent of local suppliers meet quality standards.

To increase its market share, German chemical company BASF has localized production of a number of its automotive products like paints and lacquers and is planning to launch a new plant for emission-control catalysts in the Moscow region soon, said Sergei Andreyev, the firm's CEO for Russia and the CIS. "We are expecting the market to change in favor of cars produced in Russia," he added.

Localization has paid off for Volkswagen, whose sales in Russia increased 60 percent last year and 20 percent in January largely because of a new production site in Kaluga, deputy CEO Martin Jahn said in an interview last month. "We would not be competitive here without local production," he said.

SOURCE: The Moscow Times -- March 11 2009
Maria Antonova