Falling ruble leaves Russian carmakers with nowhere to turn

Tue Aug 18, 2015 1:01am EDT
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By Gleb Stolyarov and Jack Stubbs

MOSCOW (Reuters) - A steep decline in the rouble has hammered Russian carmakers by driving up the cost of the foreign parts they rely on, forcing them to raise prices at home and making them uncompetitive abroad.

After a decade of annual sales growth in excess of 10 percent, the Russian car industry is now a victim of an economic crisis fueled by lower oil prices and Western sanctions over Moscow's role in the Ukraine crisis.

Domestic car sales have halved from their peaks in 2012-2013 when during some months the country ranked ahead of Germany as Europe's largest car market by sales, and the eighth biggest in the world. It now ranks only fifth in Europe and 12th globally.

The ruble's decline has pushed up Russian carmakers' costs as - unlike rivals in other leading carmaking nations - they heavily depend on imported parts, which they pay for in dollars and euros.

Back in 2012-2013 the rouble was trading at around 30 per dollar; the current rate is about 65 - which effectively makes imported parts about twice as expensive.

This has forced automakers to raise prices - a desperate move in a country where the economy shrank by 4.6 percent in the second quarter of 2015. Employers have cut staff and wages, while annual food price inflation is running at over 20 percent, leaving many Russians with little money for big purchases.

A renewed drop in the rouble - it has fallen 15 percent against the dollar since the beginning of July and is trading near a new six-month low - is set to prompt more price hikes and further erode sales.

"If the rouble steadies at the current rate until the end of the year, then the market is set to decline by 28-30 percent," said VTB Capital analyst Vladimir Bespalov.   Continued...

Employees work on a Renault Sandero at an assembly line of a car maker plant, which produces Renault automobiles, in Moscow, Russia, in this May 15, 2012 file photo. REUTERS/Maxim Shemetov/Files