Volkswagen doubles exports of Russia-made cars

Volkswagen doubles exports of Russia-made cars
By Vladimir Kozlov in Moscow September 15, 2017

It's the great hope for the Russian economy: the silver lining of the heavy ruble devalaution in the last two years is that Russian labour is now cheaper than Chinese and in theory the country can export its way out of the low-growth hole the economy has fallen into. If it does happen then it will start with the automotive sector. 

In the last decade or so many of the world's largest carmakers have built large and modern car factories to sell to the huge Russian domestic market. In 2008 Russia very nearly over took Germany as the largest car market in Europe, on course to make 4mn units, but the crisis that year killed the business off. This year the car market has finally started to recover, but total sales are still expected to be around 1mn units. Russian-based carmakers are now looking to export markets to take up the slack. 

In 2017, Volkswagen will double the proportion of Russia-made cars it exports from 10% of the total output to 20%, Oliver Gruenberg, head of the German carmaker's plant in Kaluga, was quoted as saying by Vedomosti on September 15.

The crossover Skoda Yeti, which is being assembled at Volkswagen's other Russian plant in Nizhni Novgorod, accounted for most of the exports. Russia-made Yeti cars were mostly exported to the Czech Republic, as the group's Czech and Indian plants were unable to cope with demand for this model.

Foreign carmakers that have plants in Russia are keen on exporting some of the output, taking advantage of lower labour costs, but the advantages are mostly outdone by high spending on logistic, fluctuation of the ruble exchange rate and absence of free trade agreements between Russia and the majority of other countries. As a result, export markets for Russia-made cars are limited to CIS countries, such as Belarus and Kazakhstan.

In 2016, Volkswagen made 147,000 cars in Russia and 91,100 in January-July of 2017.

Exports have started at other manufacturers too. Toyota's plant in St Petersburg increased exports of its cars 80% y/y in January-June to 3003 units, the company said on August 29.

Thanks to the launch of a new model, RAV4 crossover, the plant's total output during the period was 112% up y/y to 34,465 units, of which RAV4 accounted for 18,203 vehicles.

According to the Association of European Business, in January-July, 18,689 Toyota RAV4 vehicles were sold in Russia, which made it the 8th best selling model. Sales of cars and light commercial vehicles in Russia grew by 15% year-on-year in June, following gains of 9.4% and 15% y/y in March and May, according to the AEB as the car market finally returns to growth. 

Meanwhile, other automotive companies that have Russian plants are also stepping up exports.

Nissan's exports were up 5% in January-June, with most of the exported vehicles going to Belarus and Kazakhstan, just like Toyota's.

Still, the goal of entering markets in Eastern Europe, which carmakers operating in Russia previously stated, is yet to be achieved.