Despite High Risk of Loss, Auto Manufacturers Choose to Continue Business in Russia
Published By : 20 Mar 2015 |Published By : QYRESEARCH
Automobile manufacturers such as Ford, Renault, and Volkswagen are continuously competing for gaining significant share in the Russia market. This is happening at a time even when the demand for automobiles is on the decline and there exists the lurking fear of companies selling cars at rates that leads to losses. According to the Association of Automobile Dealerships, car manufacturers can lose up to US$2000 per vehicle sold owing to the fact that price rise is unable to catch up with the declining ruble. The future of these world famous auto manufacturers doesn’t seem quite encouraging when it comes to them trying to capture a market share in Russia.
In fact, in the recent past, the Prime Minister of Russia had confidently stated that the car industry in Russia will expand substantially, and could even surpass the car industry in countries such as Germany and other European countries. A senior official also expressed that while abandoning a market is quite easy; coming back to the same is far from easy. The step taken recently by General Motors of withdrawing the Opel and the Chevrolet brands from Russia will have an adverse impact on this U.S. based auto manufacturer. In fact, it could cost General Motors almost US$600 million.
Sale of Russian cars at subsidized rates in 2014 led to losses that ranged between US$800 million and US$900 million. With an underperforming economy, the situation moved from bad to worse. The overall sale of cars declined 38% in the month of February, which as per the Russia’s Association of European Businesses is just the very beginning. Sources have expressed that at present Ford is caught up in a challenging situation since in the past it made a wrong choice of the price segment.