Imported Car Market Defying World Crisis
- By Vardan Dastoyan
- Sep. 23 2008 00:00
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In our globalized economy, it's hard not to feel discouraged as we witness one crisis after another on Wall Street. But here in Russia, it's not all doom and gloom. Far from it -- at least as far as the booming Russian market for foreign cars is concerned.
Given the massive problems crippling Detroit, why does Russia's auto market continue to thrive? There are several reasons.
First, a declining stock market primarily affects only those Russians who actively invest in the stock market. Not only is this a very small group -- about 3 percent -- but it is a wealthy group. And its members typically work out of two pockets: one for investing and one for spending. Strong 2008 sales -- up 43 percent from last year -- suggest that this second pocket is still pretty full.
Second, the credit crunch has not had much effect on Russian consumers. Most buyers of foreign cars don't take out loans for their purchases, and the few who do aren't usually put off by occasional hikes in interest rates. Simply put, a 1 percent increase here or there in interest rates doesn't have the same effect in Russia as it does in other markets. In fact, as interest rates have consistently risen over recent years, the percentage of customers buying cars on credit has stayed roughly the same.
Third, the global economic downturn that has shrunk demand for cars in the United States and other developed markets has increased the number and styles of cars available to Russian consumers. Slower sales in developed markets have led to more cars being available for Russia as the number of cars in stock has increased significantly.
For automakers, 2008 is more likely to go down as the year Russia emerged as Europe's largest car market than as the year the world suffered a liquidity crisis.
While much has been made of the distinction between Russian and foreign cars, globalization is unquestionably blurring the lines between national brands. All over Russia, foreign companies are establishing factories and joint ventures, while Russian automakers are increasingly using technologies imported from abroad. Within a few years, consumers will almost certainly look more to the quality and class of a car than to its "nationality."
Whatever happens on Wall Street in the foreseeable future, the Russian auto market should continue to grow. The key to capitalizing on that growth, however, will consist of accurately gauging and effectively responding to another kind of growth -- the growth in the sophistication of Russian consumers.
Vardan Dastoyan is the CEO of Rolf Retail, a Moscow-based chain of car dealerships.