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. Last Updated: 07/27/2016

Russians Lift Flagging Car Market

MTA worker assembling a Renault Logan car at a plant in Moscow. Russian sales have boosted the carmaker's fortunes.
FRANKFURT -- Automakers love people like Nina Shabalkina, whose decision to buy a new car helps make her native Russia one of the few bright spots in what promises to be a rather dreary 2007 European automotive market.

"I bought a Suzuki made in Hungary because of its convenience and reliability compared to Russian cars," said Shabalkina, 40, who works for a tour company.

Brisk economic growth, an expanding middle class and a taste for foreign brands have sent car sales rocketing in Russia and attracted a stable of foreign carmakers eager to fill demand with locally made products as well as imports.

With car sales in saturated Western European markets expected to stagnate or fall this year, manufacturers are counting on Russia to pick up the slack.

"The prospects for growth in East European car demand in 2007 look strong. However, the growth will come almost single-handedly from Russia, where consumer demand is running hot," Global Insight automotive market analyst Ewa Root said.

"Indeed, with sales of foreign-brand cars in that market up by more than 50 percent, Russia will close the year at practically 2 million units, making it larger than the Spanish market and therefore the fifth-largest market in ... Europe."

Carol Thomas, who tracks Eastern Europe for consultants J.D. Power-LMC, said the Russian car market would grow 7 percent in 2007 and expand by 5 to 6 percent per year into the next decade.

That marks a deceleration from unsustainable double-digit growth rates since 2004, she said, but should keep the country a bulwark of demand.

U.S.-based Ford Motors, France's Renault and South Korea's Kia Motors are already making cars in Russia, while Toyota, Volkswagen, PSA, General Motors and Nissan are building up capacity in the country.

For U.S. carmakers watching their domestic market share crumble, Russia has been a sales boon.

Ford sold 13,700 units there in November, more than double the year-earlier figure. That gave Ford an import market share for the month of 19.7 percent versus 12.4 percent in 2005, making it the best-selling import brand in Russia, it said.

Helped by its entry-level Chevrolet brand of vehicles made in South Korea, GM sold a record 117,745 vehicles in the first 11 months of the year in Russia, a gain of 72 percent.

Renault's recent disappointing global performance was offset by a strong showing from sales for its Logan model in Russia over the last year. The French automaker's economy model, which has been built in Moscow since June 2005, helped boost company sales by almost 200 percent in the country in the first half of 2006.

One potential hurdle to Russian sales growth, Thomas said, is tougher emissions standards that are forcing the phase-out of older, cheaper products affordable for many families. About 45 percent of new cars sold in Russian currently cost less than 6,000 euros ($7,800). Earlier this decade, more than half of new cars cost less than 6,000 euros.

"The starting price of cars is shifting up," she said, which tends to foster sales of used cars instead of new ones.