Overcapacity in Russia?

Nick Gibbs is UK correspondent at Automotive News Europe.Nick Gibbs is UK correspondent at Automotive News Europe.
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Automakers for months have been announcing plans to add local manufacturing in Russia. The list of companies planning to increase output includes Volkswagen, Nissan and Ford.

But when Russian sales unexpectedly fell flat in November it caused some concern.

"If everybody puts in the capacity they say they might, there could be overcapacity," warns Carol Thomas, central and eastern European specialist at analysts LMC Automotive.

Over the past couple of decades Russia has had terrifying boom and bust cycles. The most recent came when sales halved between 2008 and 2009.

"It's more mature than other BRIC (Brazil, Russia, India and China) markets, yet in 2009 the market collapsed more so than any of those markets, more than most markets," says Michael Gartside, lead analyst of PwC Autofacts in Europe.

He says the government is working to diversify the economy away from the volatility of energy supplies, but even with a relatively stable growth rate, Russia won't have the same rising demand for cars that China, Brazil and India promise.

"It's a much smaller population and it's an aging and declining population in contrast to the other BRIC markets," he says.

He believes Russia is reaching it's natural level of demand for cars and that further production will be mainly to bring down the import rate, currently running at 44 percent of all new car sales, according to figures from LMC.

If Russia's car manufacturing industry is to survive the ups and downs of the local economy, it needs to think about exports, too.

That would inevitably put more pressure on western Europe's already under-utilized production network.

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