The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
Car sales in Russia were decimated by the financial crisis as the credit-led boom dried up seemingly overnight. Demand recovered to pre-crisis levels by 2012 but contracted 5% in 2013 as economic growth fell to low levels by emerging market standards. However the surge in demand for premium cars has been relentless – not only did sales bounce back to 2008 levels in 2011 but, while the market struggled in 2013, sales of premium vehicles grew by 6% y-o-y. In fact, the premium share of the market has consistently grown over the last decade and now accounts for 7% of all light vehicle sales compared to just 2% in 2003. And the income distribution outlook means that the premiumisation of Russia’s car market will continue unabated.
Source: Euromonitor International from JATO Dynamics and AEB
Admittedly, Audi, BMW and Mercedes in particular have expanded their product line-ups in recent years with the notable addition of SUVs and offerings in the compact segment such as the BMW 1-Series, Audi A3 and Mercedes A-Class. The former (SUV models such as the BMW X range, the Audi Q range and the Mercedes M-Class and GLK) have proven to be especially popular in Russia, not least because of the road conditions.
But the emergence of Russia’s middle and elite class has played a greater role in the success of Germany’s premium carmakers and that of other upscale brands such as Land Rover, Lexus and Porsche. To give it context, light vehicle sales in Russia have generally followed the development of the number of households with over US$10,000 annual disposable income and the number of these homes has doubled since 2003. In contrast premium brand sales growth has more closely followed the rise in the number of homes with over US$55,000 annual disposable income, which has more than quadrupled. Little wonder then that premium car sales in Russia have multiplied tenfold over the decade since 2003 whilst overall demand has “merely” trebled. Looking ahead, Euromonitor International forecasts that there will be 15% more $10k households by 2020 but the quantity of $55k households is set to double.
Source: Euromonitor International
Notwithstanding any major shocks therefore, light vehicle demand in Russia is estimated to be 3.2 million units in 2020, with premium brands set to nudge 400,000 units and thus capture a 12% share of the market. However, the crisis in the Ukraine could easily derail this process in the short term as the threat of trade sanctions and, in turn, a possible consumer backlash against goods from Western nations means that European premium brands arguably have the most to lose.