Russia sales forecast to be flat in 2013

MOSCOW (Reuters) -- Russian car sales have slowed and are expected to be flat in 2013 after record volumes last year, industry figures showed, as drivers curb spending with an eye to economic troubles in Europe and the United States.

The growing middle class, Russia's relatively low level of car ownership and a large numbers of comparatively old vehicles to be replaced have spurred sales, making Europe's second-largest car market a bright spot in a gloomy landscape.

But sales growth slowed at the end of 2012 as economic uncertainty caused people to think twice before upgrading.

"The next year isn't going to be very easy ... based on the current conditions and the customer demand," said Joerg Schreiber, chairman of the Association of European Businesses, which produces the most timely and comprehensive monthly car market statistics in Russia.

"Everything depends on the domestic market environment, and Russia is surrounded by regions where economic development is quite difficult," Schreiber said on Tuesday. "So currently, we are forecasting a market on the level of the market in 2012."

Foreign carmakers have invested heavily in Russia, which AEB last January predicted could overtake Germany as Europe's biggest market in 2015-2016.

Schreiber declined to give a new forecast on when Russia would overtake Germany.

Last year car sales grew 11 percent to more than 2.935 million, the AEB said, in line with its previous forecast and setting a new record, above pre-crisis levels of 2.918 million in 2008. (Click on PDF of full release, below)

In 2013, sales are expected to be between 2.8 million units and 3.1 million units, the AEB said. A median forecast of 2.95 million units would be flat on the previous year.

Russia's economy has withstood the global slowdown this year because of a spike in government expenditures before President Vladimir Putin's election in March, while prices for its key export, oil, have stayed over $100 per barrel.

But GDP growth is far short of pre-crisis expansion rates of about 7 percent and a recent survey predicted growth of 3.2 percent in 2013, down from an expected 3.6 percent in 2012.

'Psychological' deterrent

Several industry experts said that one of the main barriers to high growth in 2013 was psychological, as Russians look to economic turmoil abroad, despite not having been badly affected.

"They know what's going on in Germany; they know what's going on in the States, so they are very sensitive to the potential onset of difficult conditions," Schreiber said.

Alexander Migal, managing director of Chevrolet in Russia, talked of "psychological issues" alongside "rational factors."

He said the recent surge in sales might not be sustainable and that growth would likely slow to single figures "for some period of years."

"I think the real saturation point for the Russian market is between 6-7 million vehicles per year, so we have a huge opportunity still in this market," he added.

Overtaking Germany

Marcus Osegowitsch, CEO of Volkswagen's Russian unit, predicted the first half of 2013 would be depressed, but the Sochi Olympics next winter could "pick up confidence in the market."

"We think that the second half of this year and 2014 will be very strong," he said, predicting that Russia could overtake Germany's sales of around 3.2 million annually in around 2016.

Foreign manufacturers are investing heavily in Russia. Renault-Nissan in December finalized a long-anticipated deal, investing $742 million in a joint venture that will take control of Russian automaker AvtoVAZ.

The partnership will lift production of cars and car kits in Russia to 800,000 in 2013 -- an increase of up to 14.3 percent, according to a report in Russian newspaper Vedomosti.

Carmakers have been reporting double-digit sales rises in Russia for 2012.

Germany's Volkswagen brand increase year-on-year sales 40 percent to 164,700 while the Ford-Sollers partnership said its volume rose 11 percent to 130,815 units in 2012.