Russia the driving force in Eastern Europe
Light vehicle production growth in Russia will significantly outpace expansion in other Eastern European countries predicted Carol Thomas, East European Automotive Analyst for J.D. Power at the company’s Global Automotive Outlook Spring Conference in London.
Central and Eastern European (C&EE) light vehicle production rebounded last year by 23% to 5.8 million units following a dramatic 26% decline in 2009 to 4.7 million. Russia, however, accounted for more than 60% of the 2010 growth with 661,000 units produced. The drivers of the recovery included some restocking after inventories were drastically reduced during 2009. Scrappage demand in Western Europe was still important, particularly in the first half of the year. Overall C&EE sales rose by 17% with record sales in Turkey and various stimulatory measures in Russia led to locally-produced cars taking significant share from imports.
Thomas said that C&EE demand has recovered more quickly than expected but warned that 2008 sales levels would not be regained until 2014. She forecasted an increase of 9% in 2011 to 4.2 million units rising to 5.9 million in 2014.
Some short-term disruption to the markets is likely in the aftermath of the Japan earthquake. Thomas estimates lost production of 5,000 units across the region in March with a likely impact in April and May of 30,000 to 35,000 units. She expects increased output from June to September to make up for the lost build and does not expect any impact on Russian OEMs. Production output across the C&EE region is forecast to rise to 6.2 million units from 5.8 million in 2010. Thomas predicts a further rise of 8% in 2012 to 6.7 million.
The Russian light vehicle market has reawakened after the 2009 crisis and is forecast to top 3.6 million units by 2016 compared with sales of 1.9 million last year. Several factors will drive this recovery including export opportunities to former CIS countries such as Kazakhstan and Belarus now in a customs union with Russia. Last year’s Automotive Industry Development Strategy set out the Russian government’s approach to encourage automotive investment and, although World Trade Organisation entry is back on the agenda, import duties are set to be maintained at a high level for as long as possible.
Under Russia’s new industrial assembly regime OEMs must commit to producing at least 300,000 units at a new plant within four years of an agreement being signed or 350,000 units at an existing plant within three years of an agreement. They must also achieve a local component content of 60% within six years (sooner for existing plants), carry out stampings within four years, equip at least 30% of vehicles with locally-sourced engines and/or transmissions within four years and establish a research and development centre in Russia. In return, components may be imported on preferential terms for eight years (but no later than 2020) and semi-knock-down assembly continued for 36 months after the new agreement although kits should not account for more than 5% of total production. By the end of February deadline, six manufacturers had signed up to the new regime although they may not all sign a final agreement by May 31st.
Thomas forecasts that, by 2018, Russia will account for almost 15% of pan-European light vehicle production at 3.6 million units (up from 1.3 million last year) closing the gap on Germany, Europe’s largest producer.