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Russians Switch to Used Cars, As Sanctions Hit Auto Sector

Spending on new cars in Russia more than halved last year as the auto industry felt the full force of Western sanctions over the conflict in Ukraine, with production plunging, prices soaring and buyers switching to cheaper used models.

While analysts continue to debate the overall effectiveness of economic curbs on Russia, there can be no doubt they have hit hard in its car industry, which was heavily reliant on foreign manufacturers and imported parts.

Spending on new cars slumped 52% to 1.5 trillion roubles ($20.4 billion) last year, while the number of new cars sold tumbled by 58.8%. Car production also slumped to its lowest since the 1991 collapse of the Soviet Union as Western automakers halted production and sold factories.

Overall spending on new and used passenger cars dropped over 15% in 2022, as inflation pushed up prices and drove living standards down, data from analytical agency Autostat shows, despite a 14% rise in spending on used cars.

That left used cars accounting for almost three quarters of all cars sold, up from 55% in 2021, the data shows.

“Money flowed into the used cars market as prices for second-hand cars held up, while at the same time the structure of the new cars market changed significantly,” Autostat CEO Sergei Udalov told Reuters.

“Budget Ladas and Chinese cars with prices of 2 million roubles and more remain in it, while premium brands have almost completely left,” he said.

Annual inflation at 11.9% last year contributed to an estimated 1% drop in Russians’ real disposable incomes, according to the Rosstat statistics agency. Retailers have invested heavily in discount store formats, a trend that is being mirrored in the automotive sector.

Anton, an employee at a major Russian company who declined to give his last name, purchased a used Skoda in December, preferring a Western-made car to a domestic or Chinese-made alternative.

At 2.5 million roubles, his Skoda was around 1 million roubles more expensive than it would have been a year earlier, but still 1 million roubles cheaper than a brand new version.

Anton said he felt lucky to have snapped up a used foreign-made car with low mileage, as stocks are running low.

“A new car is now just a perk for rich people, unless it’s a Lada or a Chinese car,” he said.

According to Autostat, the average price of new cars sold last year increased by 17% to 2.33 million roubles, and used ones by 32% to 890,000 roubles.

Czech carmaker Skoda Auto, a unit of Volkswagen , said deliveries to Russia fell 80% in 2022. Volkswagen has closed its Russian factories and stopped imports, but has not yet agreed to a sale like some of its peers.

France’s Renault sold its majority stake in Russia’s Avtovaz to the Russian state for reportedly just one rouble, but with a six-year option to buy it back. The same state buyer then snapped up Nissan’s assets for one euro.

Imports of used cars jumped last year, with those from Japan leading the way. Japan has curbed exports of high-value cars to Russia, but used cars imported by individuals fall outside the restrictions.

The Western exodus has allowed Chinese brands to gobble up market share. In one high-profile case, engine parts from China’s JAC are being used to revive the Soviet-era Moskvich.

Market analysts expect new car sales to climb to around 800,000 this year, from 687,370 in 2022, but still far below the more than 1.6 million sold in 2021. (Reuters)

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