Russia's banks are without exception broke. The stock markets are down to about a tenth of the levels reached in 1998 and presently are at a complete standstill. Russia faces another bleak and miserable year.

The transportation infrastructure remains underdeveloped. In 1997, there were 927,000 km of roads suitable for traffic. About 40% of all villages cannot be accessed.

Sales of new cars reached 835,000 units in 1997; 1.3 million units were sold in 1989. New cars are still out of reach for most people. A three-year-old Russian-made car costs about 60% of the average Russian salary.

It is estimated that the automobile industry will take at least 40 years to reach western standards within Russia. In 1997 there were 14.3 million passenger cars in Russia's fleet; about 90% of the fleet today are old and poorly maintained due to part shortages and cost. The forecast for Russia's vehicle fleet by 2005 is expected to increase slightly to 16.8 million units.

The top passenger car manufacturers in Russia are Lada (AvtoVAZ), Volga (GAZ), AZLK Moskvich, AvtoVAZ, KamAZ, and PA IzhMash. These companies account for 100% of all new passenger car sales. AvtoVAZ had about 80% market share in 1997. Competition is expected to get quite intense; Opel and VAZ are planning to produce about 35,000 Astras per year. Fiat has formed a joint Venture with GAZ worth around $850 million to build 150,000 cars per year.

Renault has formed a joint venture with Moscow's Moskvich worth $350 million and Daewoo is planning to partner with AvtoVAZ to build 225,000 cars. Other companies investing in Russia include Ford, Skoda, and Finland's Valmet.

Russia's New Car Sales by Manufacturer

Manufacturer 1998 2000 AZLK Moskvich/ 50.0 90.0 Autofrancmos N/A N/A GM-Valmet- N/A N/A AvtoVAZ N/A N/A PA IzhMash N/A N/A Gaz (Volga) 10O.0 100.0 Vaz (Lada) 750.0 800.0 Others 15.0 00.0 Total 915.0 990.0

New joint ventures that will be assembling cars in Russia will not be a simple task due to sluggish demand that will directly impact production. The political instability as well as part manufacturing quality are major problems.

Most of the sales are done with up-front cash only because there is currently no effective system in place for financing consumer loans or leasing. AZLK and Ford have each begun to work out financial programs with several domestic banks calling for 30% down and an interest rate between 20-30%. Few Russians opt for insurance because premiums can reach 20% of a car's value annually.

Russia's Automotive Growth Prospects

Category Price (thousands of dollars) Leading brands Market potential Premium 33+ Mercedes 180/220 BMW 320 SAAB 9000/90 5000 Sub-premium 28-33 Ford Taurus Nissan Maxima Toyota Camry 5000 Middle 20-28 Mitsubishi Galant Toyota Carrina Nissan Premium 5000 Low/middle 14-20 Ford Escort Daewoo Nexia Fiat Fiesta 5000 Low 11-14 Skoda Felicia Daewoo Nexia Hyundai Accent 20,000 Popular 8-11 Lada 9/99 Volga   Base <8 Lada 5-8 Moskvich   Total     40,000

The total light vehicle fleet in Russia today stands at approximately 28 million units—51% commercial and government, and 49% privately owned, with an average age of six years old. The demand for low price cars and locally produced Lada-type cars seems to be desired among Russians.

The Russian economy still has many obstacles to overcome and the medium term still is not very encouraging. Foreign companies are still investing in the Russian economy in spite of its problems. Protectionism is starting to lift its head as Russia isolates itself from capital markets. Russia's GDP in 1998 was 468.1 billion.

Country profiles were provided by Raymond Champagne