Association “Russian Automobile Dealers” (ROAD) took part in 2024 Convention of Chinese Automobile Dealer Association. As part of the activities ROAD participated in the closed session of the National Dealer Associations from different countries. NADA, CECRA, СADA (China) and CADA (Canada) made their presentations, which outlined the state and the prospects of the industry in each relevant country. The author of this publication had an honor of representing Russian delegation. Since the session was held in English, to keep the spirit of that event, this publication will also be in English and will follow the general outline of what ROAD has shared with our International automotive Colleagues. Illustrations to this publications will use the slides from presentation, which included Chinese translation, which we will also keep intact.
First of all, we would like to introduce Russian automotive as a whole. Unlike the rather established format of presenting New and Used market separately, we will show them together. The reason for that is to show that despite the drop of New car sales during recent years, overall sales volume remains steady at the level of about 7.5 million units annually. However, it must be mentioned that due to the increase of the New car prices the share of New cars in total sales volume has decreased from about 33% ten years ago to 20% this year.
Next we will show the financial volume of Russian Automotive Market, again as combined New and Used car sales. Due to Russian Ruble exchange rate, overall Automotive Market volume is similar to what it was about ten years ago and will reach about 150 billion US dollars this year.
Total active passenger and LCV car fleet amounts to about 35 million units and is rather old. More than 50% of entire car fleet is ten years or older. Despite expected growth of the oldest segment, the overall age of the fleet is expected to remain the same due to the increase of New car sales volume.
Since EV’s are the sign of current times, let’s take a look at the sales volume of battery electric cars in Russia. Despite a huge jump in EV sales measured in percentages, overall volume remains small. There will be less than 20.000 EV units sold in Russia in 2024 and the share of EV sales will be less than 2 percent.
Depending on base or optimistic case scenario, the overall share of EVs in Russian car fleet is expected to reach from one to only six percent by 2032.
Let’s talk about Russian New Car Market.
Prior to the events of 2022 Russian New Car Market was the fourth largest by volume in Europe and the tenth largest in the world. However, in 2022 there were tectonic changes in Russian automotive. In the beginning of 2022 there were about 60 New Car Brands present in Russia. After the start of Special Military Operation and international sanctions 46 of these Brands abruptly left Russia. At the beginning of 2023 only 14 New Car Brands remained.
Whatever were their reasons, these Brands have abandoned not only their dealer-partners but also some loyal customers. Practically overnight car dealers were left with no New cars or replacement parts and customers were left without warranty.
So how did we survive?
The survival of Russian Automotive over the last couple of years is a remarkable story of quick adaptation and business resilience that we are very proud of. Big part of the survival was an immediate implementation of so called “parallel imports”. Now what is that? Regular automotive imports trajectory is well understood. Products are going from OEM to the official distributor, which in turn sells them to a final retailer.
“Parallel imports” bypasses official distributor and allows local companies in OEM’s country of operations to sell cars and parts directly to final retailers. “Parallel imports” are somewhat more expensive since there are additional Government fees and no OEM’s financial support for warranty operations, but it allows original dealer network to continue selling and servicing cars of their Brand. Additional costs of “Parallel imports” are also offset by the disappearance of the cost of distribution, which, as we know from the Agency model, may amount to about 15-20% of the retail price.
So, as of now, there are about 120 New Car Brands in Russia, out of which about 80 are “non-official” and the rest represent official distribution with full OEM’s support.
And now we come to the opportunities that were realized by our Chinese partners in the business vacuum that formed in Russian Automotive.
Let’s look at the previous and current composition of New Car sales in Russia. In 2021 the share of Chinese Brands represented only about 7% of all New Car sales. It increased to 48% in 2023 and in 2024 it will achieve about 60% of all sales. At the same time the share of Western brands, which represented almost 70% of all New Car sales in Russia in 2021 has gradually dropped to less than 10% in 2024.
While “parallel imports” allowed Russian car dealers to temporarily operate while restructuring, naturally the appropriate way forward is through official distribution. And that is what Russian dealers have been actively pursuing over the last two years – replacing Western Brands that left with new Chinese Brands, placing them in their existing dealerships.
There are currently a total of about 60 Chinese New Car Brands in Russia, out of which about 30 are “official” and 30 “non-official”. On the slide below you can see their sales volume through September 2024.
For the first 9 months of 2024 out of 20 top selling brands in Russia 14 are Chinese, 3 are Russian and the remaining 3 are non-official Western Brands that are still being sold in Russia by the ex-official dealer network.
It’s noteworthy to mention that out of 3900 New Car dealerships more than half represent official Chinese Brands now.
Over the last couple of years the volume of sales of Chinese Brands New Cars increased almost tenfold, from about 115.000 in 2021 to an estimated one million in 2024.
Does that all mean that there are no more problems? Of course not. There are problems with a sudden appearance of so many Chinese Brands. But there are solutions to these problems. Let’s talk about them.
Most of the Chinese Brands do not keep sufficient spare parts inventory, which often causes delays in maintenance and repair times and often causes dealers to violate certain Consumer Protection Laws that assign maximum repair timeframes, which in turn may cause significant fines. We urge Chinese distributors to bring the level of parts warehouse to adequate level.
There are not enough quality electronic parts catalogues which further exacerbates time it takes to obtain correct parts. So we urge our Chinese partners to produce high-quality electronic parts catalogues in Russian.
There is insufficient access to full diagnostics. It’s essential that Chinese Brands in Russia provide access to full range of diagnostics equipment and fault code libraries.
A real big problem is lack of quality service manuals that allow for efficient repairs and quality technician training. We ask our Chinese partners to create high-quality translated manuals adapted to Russian realities.
Just as with repair manuals there is significant lack of training materials for various types of dealer employees. Again, we ask our Chinese partners to create advanced training programs for offline and online learning. Additionally we want to note that Association Russian Automobile Dealers has extensive experience with creating educational and training materials. We also have our own publishing house, so we can assist with high quality translations and document preparation in printed or electronic format.
Russia is a large country and often delivery times for cars and parts are hampered by insufficient logistics. We are working on optimizing it now. This is something that we handle on the side of our Association.
Other problematic area has to do with money transfers due to SWIFT restrictions. This is something that possibly our Chinese partners can address through their connections with Chinese Government by urging wider use of new payment systems that are already available between Russia and China.
And lastly, there is not enough branches of Chinese Banks in Russia and Russian Banks in China. Together Association Russian Automobile Dealers and Chinese Automobile Dealer Association can develop joint effort to bring this issue to their respective Banking industries.
