Russian Automotive Industry Experiences Big Drawbacks

Russia continues to slide towards a recession, as more reports from different industries show contraction. One of the more recent, undesirable stories comes from Russia’s auto industry. In the month of March, Russia’s auto industry faced a slew of indicators that reflect a downturn. A consumer report found that car demand decreased, while two of the world’s largest car manufacturers, General Motors based in the United States and Volkswagen from Germany, announced plans to downsize operations in Russia.

Car sales in March 2014 were 243,332 units, while in March 2015 the industry only sold 139,850 units. This year-over-year decrease of 43% is somewhat expected, since automotive demand slumps during poor economic times. As the economy begins to see early signs of a recession, with a weak ruble and contracting industries, consumers will try to conserve more resources. However, this indication more or less provides insight into the short-term prospects of the automotive industry.

The short-term forecast of the auto industry in Russia looks dim as a result of GM's and VW's plans to downsize operations. In early March, GM announced it would indefinitely suspend its operations in its St. Petersburg plant by the end of 2015 as part of a restructuring plan. As a result, 1,000 workers will be laid off and the company will stop sales of its Opel and Chevrolet brands. Following the direction of GM, VW announced a reduction in its labor force. The world’s leading car manufacturer plans to lay off 150 workers and reduce the working hours of the retained employees in its Russian car plant. In addition, Japan's Nissan Motor Company ceased operations during the two week period where the ruble was free falling uncontrollably.

Now that the government has intervened and stabilized the ruble and is working on economic reforms, the conditions in the Russian auto industry should not get any worse. However, as a struggling Russian economy deals with the dramatic plunge of the ruble, foreign affairs, and a drop in consumer demand, it is evident that the country will experience a recession.