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May 11, 2022 09:49 AM

Russian sales plunged 79% in April amid Ukraine sanctions

Russian car sales drop record 79% in April as sanctions undermine domestic production and most foreign automakers suspend operations.

Bloomberg
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    VW dealer moscow
    BLOOMBERG

    A Volkswagen dealership in Moscow.

    New-car sales in Russia plunged the most on record last month as sanctions undermined domestic production and most foreign automakers suspended operations in the wake of President Vladimir Putin’s invasion of Ukraine.

    Sales fell 79 percent to 32,706 vehicles in April compared to a year earlier, the Association of European Businesses (AEB) said in a statement on Wednesday.

    That is the biggest drop since the European trade group began reporting the data in 2006. The April figures did not include sales from BMW, Mercedes-Benz or General Motors, which report sales numbers quarterly.

    Sales of Lada cars built by Russia's largest automaker, AvtoVAZ, fell 78 percent, AEB data showed.

    Related Article
    How Russia's invasion of Ukraine is impacting automakers

    The depth of contraction exceeded that in April 2020 when sales were suspended due to COVID-19 restrictions, analysts at Promsvyazbank said.

    "Such a sharp drop can be explained by a shortage of cars at warehouses, by rising prices and prohibitive rates on car loans," Promsvyazbank said.

    Sanctions over the war in Ukraine have hobbled the domestic car industry as parts supplies dried up, leading to forced shutdowns.

    Almost every foreign automaker with production facilities in Russia, including Volkswagen Group, Ford Motor and Mazda has suspended work in the country, while others stopped importing vehicles.

    The crash illustrates the intense economic fallout from the war in Ukraine, as Russia this year may face its deepest contraction in nearly three decades.

    BLOOMBERG

    Sales of new cars this year are expected to shrink by at least 50 percent, the AEB said last month, after a 4.3 percent increase in 2021.

    Demand is unlikely to recover due to a decline in real incomes, making the car industry the most affected industrial sector, VTB Capital analysts said.

    The Russian central bank raised its key rate to 20 percent in late February in an emergency move aimed at containing financial risks days after Russia launched what it calls "a special military operation" in Ukraine. It has since trimmed the rate back to 14 percent.

    "Parallel imports won't help lower the deficit tangibly due to high costs," VTB Capital said.

    Last week, Moscow published a list of goods from foreign carmakers, technology companies and consumer brands that the government has included in a "parallel imports" scheme aimed at shielding consumers from business isolation by the West.

    Car production is heavily dependent on imports, with a recent report by Moscow’s Higher School of Economics estimating that over half of the value added in the sector comes from abroad.

    Just-in-time inventory management, adopted to make the industry more efficient, meant that the impact from sanctions was felt almost immediately.

    Reuters contributed to this report

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