Over the past few years, Central and Eastern Europe have become major sales markets for the auto-motive industry. Sales in the region grew by an annual average of 7.3% to 3.4 million units in 2004 alone. The region also has experienced dynamic growth as a production location. A highly qualified workforce, low labor costs and attractive general conditions have combined to attract a number of automakers and their suppliers. In the past 10 years, car output has risen by an average of 6% a year. With 3.8 million light vehicles produced last year, the region accounted for 6.1% of global output. The 20 largest international suppliers based on sales already have more than 150 production locations in the central and eastern portions of Europe.
Roland Berger research indicates that the future holds bright prospects for OEMs and their suppliers, as well. With sales forecast to grow by 6.9% annually until 2010 for countries in eastern Europe, only China and East Asia can expect more dynamic growth rates.
Russia is a particularly promising sales market and production location. The sale of 1.3 million new cars last year places Russia among the world’s top-10 automotive markets. We forecast that in 2014 as many as 2.3 million new cars will be sold in Russia. With an estimated increase in annual sales of one million vehicles within the next 10 years, Russia is one of the most rapidly growing markets in the world after China.
The international automotive industry stands to benefit disproportionately from this growth. Today, Russian producers including AvtoVaz, SOK or GAZ supply about 70% of Russia’s current market demand. By 2014, however, international car makers are expected to account for 60% of all new cars sold there. This is because the Russian market is bound to open up after the country’s entry into the WTO. Russian consumer preferences are shifting toward global standards and people are becoming wealthier. By 2014, international producers are expected to sell about 1.4 million new cars in Russia. About 800,000 of these will be produced in Russia, while the remainder will be imported.
Ford, GM, KIA, and Renault already have production locations in Russia. Toyota is expanding there as well. DaimlerChrysler and Volkswagen already have announced plans to start production in Russia, too. The growing demand for foreign vehicles will encourage other international automotive manufacturers to locate in Russia. Stricter environmental and safety standards also will cause local OEMs to invest in more modern equipment. As a result, Russia’s new-car market will become more demanding in terms of technology, attracting automotive suppliers to Russia as well.
Currently, 41% of an average Russian vehicle’s components based on purchasing cost are manufactured to international quality standards. Further OES market growth driven by international quality standards and emissions requirements is expected for powertrain parts and interior components. Consequently, about 50% of all suppliers interviewed by Roland Berger Strategy Consultants are planning to launch or expand their activities in Russia in the next three years.
Two things are required for continued growth in the Russian automotive market. First, automotive companies must have workable strategies and targeted management. Second, Russia must stabilize its economic and legal framework in order to take advantage of the country’s low labor costs and the size of its economy. Russia clearly has the potential to become a major automotive base for the export of vehicles and components to the rest of the world.