Auto manufacturers are constantly trying to sell more and more cars, it makes the shareholders happy and employees get a corporate pat on the back. Have you ever wondered why many car companies offer a vast array of model variants? Sell, sell, sell is why. The more you have to offer the more money you can make. It’s simple economics really.
But it all comes down to a few key factors, wealth and demand. Without wealth there is no demand right? Right indeed. That is the case for the Russian economy, as Putin struts his tough guy image across the world economic sanctions do little to bolster his image at home.
Russia is facing an economic crisis, last year the Ruble lost a quarter of it’s value in a day. The country’s gross domestic product declined by 3.9 percent but the government did manage to keep inflation below 13 percent.
Forecasts of strong growth in the latter part of 2015 have failed to materialise and it looks certain that Russia’s economy will stagnate throughout 2016. That’s the world bank talking.
Russia will see these analyst predictions as Western intrusion, but the fall in oil prices are hurting an economy that has flexed it’s muscles on the reliance of an economy built around the sales oil and natural gas reserves.
Combine this with the additional economic sanctions imposed by the West for Russia’s unilateral invasion of the Crimea and it seems the Russian economy is more like a blocked artery right now.
So what does this mean for the average Russian consumer? It means they have less disposable income and this impacts everywhere and from personal retail shopping to new car sales.
January 2016 saw a 29 percent decline in the demand for new car purchases and this follows on from a 46 percent decline in December 2015.
The Russian government has stepped in to offer assistance subsidies on auto loans to tempt new car buyers, in effect spending billions of Rubles to prop up the industry. This has gone some way to stem the decline.
Demand for new cars is expected to slide a little further to 4.7 percent during 2016, but it is the Ruble’s fall in value that will continue to hurt the ordinary Russians ability to spend at will as they once did during the brief boom period.