Vremya Novostey, August 9, 2005

Last week, RBC-TV Business Channel attempted to find out what kind of cars we will be driving in the coming years. Apparently, Russian carmakers will either pass out of existence altogether, or will start assembling foreign cars.

The Russian car-making industry is suffering a crisis now, yet it's too early to discard it as hopeless. Guests invited to the In Focus program agreed that Russian car producers (with AvtoVAZ, the industry's flagship, at the top of the list) would continue to please Russians with their cheap cars for at least two more years, although this market sector is doubtlessly shrinking. Over the past year, AvtoVAZ alone sustained a 14-percent decline in sales, while foreign car sales grew twofold over the same period. Production is declining as well, and in the first half of 2005 it was reported to have sunk by 10 percent.

The change for the worst on the market for the Russian producers has been chiefly prompted by the competition with foreign car making giants. The world's leaders have come ever so close to the cheap car segment by offering Renault Logan, Ford Focus and Hyundai Accent on the Russian market. The cars are selling at USD9,000 to 12,000, and thus they are diverting customers from the latest Russian-made models (this above all concerns Kalina). Only AvtoVAZ's cheapest classic models, with their prices fluctuating from USD4,000 to 8,000, are unrivalled.

The only way out under the current conditions would be to improve cars' quality. Yet, in this case the price would soar up, which would scare away the most committed customers. As is seen, our carmakers have found themselves in a deadlock. Once the country has joined the WTO, the deadlock will be overcome. This would probably cause some plants to shutdown or focus on the assembly of foreign cars. As editor-in-chief of Autonews-RBC said, it would be natural for AvtoVAZ to take advantage of what it has now: cheap cars and spare parts, and a wide distribution network throughout Russia and former USSR states. Considering this, it is worthwhile avoiding multibillion ruble investments into new model designs and focusing on the cheap car segment.