One of the best places in the world to sell cars becomes one of the worst

A YEAR ago Russia’s market for new cars was one of the fastest growing in the world. It had gone from annual sales of less than 1.5m in 2005 to nearly 3m and was poised to overtake Germany as the fourth-biggest car market in the world. Ernst & Young, a consultancy, forecast sales of 5m by 2012. Credit Suisse confidently predicted that sales would grow by at least 12% a year until 2012 and that by then the foreign car firms that had rushed to build factories in Russia would be producing more than 1.5m cars a year. How wrong they were.

Although no big market has escaped the financial crisis unscathed, the collapse in Russia was swifter, more savage and shows fewer signs of recovery than anywhere else. Sales this year are expected to be about half those in 2008. In late September AvtoVAZ, Russia’s biggest carmaker, which has 25% of the market, announced the sacking of 28,000 employees, nearly a third of its (admittedly bloated) workforce. Production of Russian-branded cars fell by 68% in the first eight months. Foreign brands, which accounted for nearly all the stellar growth of recent years, saw their sales fall by 58% year-on-year in August, while local production sank by 48.5% to a mere 123,600 vehicles—just as huge amounts of new capacity were coming on stream. In the first six months, Ford, one of the first global carmakers to start production in Russia and by no means the worst hit, made just 24,600 cars at its St Petersburg factory, which is capable of churning out 125,000 a year. …