Analysts think that the auto industry in Russia may fall into overcapacity crisis as Europe

Article by Christian A., on February 3, 2013

Analysts think that the auto industry in Russia may fall into the same overcapacity crisis as the other countries in Europe. The analysts make this warning as contract manufacturer Avtotor Holding is reported to be the latest to unveil a major investment in Russian auto production. The company said last November that it has entered a partnership with supplier Magna International Inc. to set up a complex of six assembly plants and 15 parts plants in Russia's Kaliningrad province.

The complex, which will achieve full capacity in 2018, will roll out as many as 250,000 vehicles each year. Avtotor Chairman Vladimir Shcherbakov told the Wall Street Journal the project is likely to be priced at $3.2 billion. Manufacturers have high hopes for Russia after strong growth raised auto sales to around 2.9 million units in 2012. Russia is now ranked as the No. 2 biggest auto market in Europe. Germany has the top spot. There’s no assurance that the Russian market will continue to expand for an indefinite period.

In November, industry sales were flat. It now seems that the Russian market may stagnate. In a statement, Joerg Schreiber, chairman of the Association of European Businesses' Automobile Manufacturers Committee, said that “a quick return to growth” isn’t expected in the coming months.

But it doesn’t appear that automakers are discouraged. Last December, Volkswagen Group started the foundations for a new engine plant to be constructed beside its assembly plant in Kaluga, about 200km southwest of Moscow.

VW predicts that by 2018, its brands will achieve sales of half a million vehicles each year in Russia. On the other hand, Russian automaker AvtoVAZ has started operating a plant in Togliatti to build up to 350,000 vehicles each year with partner Renault-Nissan. Ford Motor Co. is growing as well.

A Sollers spokesman told Automotive News Europe that the Russian automaker is running three assembly plants with Ford and that a fourth one is in the plans. All of these moves have started to add up. Research firm LMC Automotive said that around 66% of new cars sold in Russia are locally produced. This figure is predicted to increase as automakers increase production.

Topics: russia

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