Consumers Switch to Subcompact Cars in Russia

LONDON -- Nov. 26, 2014: Russia will emerge as a top automotive market in Europe as consumers in the country are beginning to place emphasis on driving dynamics and are willing to pay more for advanced driveline technology features. Government initiatives – such as subsidies, scrappage schemes, and customs duty exemptions for original equipment manufacturers (OEMs) that match localisation criteria – will further quicken growth in the Russian automotive industry.

New analysis from Frost & Sullivan, Executive Outlook of Developments in the Russian Automotive Industry, finds that sale volumes for passenger and light commercial vehicles are projected to cross 3 million units by 2020. The subcompact segment will account for more than 40 percent of light vehicles sales in this period.

For complimentary access to more information on this research, please visit: Russian Automotive Industry.

"Customer preference for smaller, fuel-efficient cars will push the subcompact and crossover vehicle segment to grow the fastest," says Frost & Sullivan Automotive and Transportation Consulting Analyst Anna Ozdelen. "Russian consumers also place higher importance on features related to powertrain and ride quality than those in the United Kingdom, France, and Germany."

Further, low vehicle density and an aging fleet of cars in the country will add to the demand for new vehicles. In fact, OEMs such as Renault-Nissan will penetrate further into the subcompact and SUV segments. The scrappage scheme introduced this year is boosting subcompact sales too. The low saturation levels in Russia compared with the United Kingdom, France, and Germany have helped with continued growth.

However, this demand will be tempered by geopolitical tensions in Ukraine, sanctions imposed on Russia by other countries, a deteriorating economic situation undermining consumer confidence, and market saturation in big cities. Vehicle manufacturers must turn their attention to small cities such as Nizhny Novgorod, Chelyabinsk, Rostov-on-Don and Kazan that will offer better opportunities.

"Russia will also be a key market for in-vehicle infotainment and telematics systems," notes Ozdelen. "Vendors can capitalise on consumers' penchant for high quality and value packages to make inroads in the country's automotive market."