Global automakers may soon abandon their Russian plants

There are two factors that an automaker must consider before they decide to start manufacturing automobiles locally. The first is whether the local market is large enough to justify it, the second is whether importing the automobiles would be more expensive than manufacturing them locally.

For many automakers, both of these things have been true in Russia, but that may not be the case for much longer. Changing conditions in Russia could mean the end of local production in the country. Not only are import duties dropping, the market is shrinking as well.

When compared to the same period in 2013, the market for new cars fell by 6% in Russia this May, leading analysts to predict that the market could see a massive, combined drop of 26-30% by the end of the year. Should the market continue to decline at that pace, the market could drop from 3.6 million projected new-car sales in Russia to a mere 2.3 million by 2018.

As part of its obligations to the World Trade Organization, Russia has drop import duties on cars manufactured abroad from 25% to 15% by 2019. This means that it’s going to become less expensive to sell imported cars in Russia.

Not to mention that the weak ruble and the massive cost of Russia’s invasion of the Crimean peninsula could see the government’s incentives for manufacturing locally drop significantly in the years to come.

As a result, analysts are predicting that locally produced vehicles in Russia could drop from 52% of the current market to a mere 26%, while imports are expected to rise to 67%. Despite these grim predictions, foreign automakers such as Renault and BMW may still find it practical to manufacture locally for the Russian market. How long this can last in the present conditions, however, is unknown.

Read more about the story at Wards Auto.