Carmakers Brace for Uncertain 2009

bloombergA worker checking a BMW 3 Series at the Avtotor plant in Kaliningrad, which also makes Kia and Yuejin autos.��
After several years of stellar growth, the market for foreign cars in Russia is starting to crash, but a host of economic factors have made it hard to say how bad 2009 will be, industry experts said Thursday.

The Association of European Businesses predicts an 18 percent decline in total new car sales this year, a figure that averages companies' own forecasts. Total sales for both Russian and domestically produced, foreign-branded new cars will decrease to 2.4 million this year, from 2.93 million in 2008.

"It's as bad as any other forecasts out there," Martin Jahn, vice chairman of AEB's auto committee, said at an annual conference held by the group. "It's difficult to forecast even next week."

The forecasts are based on expectations for currency devaluation, unemployment, oil prices, the availability of financing and other economic factors -- none of which are particularly stable. Government anti-crisis measures, such as increasing import tariffs on foreign cars, are also bad for the industry, the group said.

"We don't see the tariff increase as beneficial, and we don't believe from experience in other markets that it is the right thing to do," said AEB chairman David Thomas, who is also president of Volvo Car Russia.

Companies will inevitably raise prices in the second or third quarter of the year, as "profit margins on the Russian market are already relatively low," he said.

Nevertheless, import duties won't change consumer preference much, Thomas said. "Russians choose foreign cars for factors other than price."

The share of Russian brands on the market has declined in 2008 from 36 percent to 29 percent, according to AEB figures.