BUSINESS

Is the Russian market for Automotive and Commercial Vehicle lubricants growing or declining?

Is the Russian market for Automotive and Commercial Vehicle lubricants growing or declining?

Introduction

The world's attention has shifted recently to the rising sales volumes of automotive and commercial vehicle lubricants in Russian which increased by 40% in the first 6 months as compared to the first six months of 2012. The motor industry is well-rooted in most of Europe; however, production in Russia has led to greater opportunities within an expanding Russian market. General Motors and other vehicle manufacturers are increasing their production in Russia. Russia has shown promise for investment in this industry, with General Motors, Ford, Volkswagen, Nissan and Renault opening new manufacturing plants across Russia. Many economic analysts claim that this rising trend has been facilitated by Russia's oil-wealth and the availability of auto financing (Kramer 2012). The purpose of this section is to prove and explore the growth of the Russian markets for automotive and commercial vehicle lubricant.

Growth Details

The Russian Economy

Russians Gross Domestic Product (GDP) grew 4.2% in real terms in 2011 continuing anupward trend that has surpassed the EU 27 and global growth rates despite fluctuations . Russia growing GDP increasing in the demand for labour (see figure 2), consumer demand and foreign direct investment.

Figure 1: Unemployment Rate in Russia (Yearly Basis) (www.indexmundi.com)

Country

1999

2000

2001

2003

2004

2005

2006

2007

2008

2009

2010

2011

Russia

12.4

10.5

8

7.9

8.5

8.3

7.6

6.2

6.4

8.4

7.6

6.6

The Central Bank of Russia (CBR), in an attempt to boost economic growth, lowered the refinancing rate which led to overall lower real inflation rates (Ernst & Young p. 2). Given the overall rising trend in the Russian economy, it comes as no surprise that Russian markets have seen an increase in foreign investment in the automotive and commercial vehicle lubricant industry. The graph below reflects these changes in the Russian economy.

Figure 2: (Ernst & Young p. 2)

Russian Vehicle Consumption

Automotive Manufacturing Markets

At present Ernst & Young (2012) still consider Russia an emerging market for vehicle consumption; an accurate position seems given a 30% light vehicle sales growth in 2010, and 9% in 2011.

Figure 3: Sales of Light Vehicles in Major Market

As a complementary good it can be assumed that the consumption of light vehicle engine lubricants will be growning at a similar rate. Potential competitor such as Novatek reporting growth of US$ 6650.32 Million in year 2011(www.novatek.ru) and Bashneft present in Russia reporting growth of 15.1 Million tons of oil production and a revenue of US$1.7 Billion in 2011 which is 18.7 percent more than all the previous records (www.bashneft.com). It is worth noting the growth in Russian demand for light vehicles like the U.K market has seen demand bolstered by government subsidies such as car scrapping program from March 2010, to June 2011. Considering the fact that Russia is an emerging market it is still at a stage that is said to have an accelerated automobile demand with a slump in sales of 1.5 million units in the year of 2009. The sales of light vehicle in the year of 2010 was a 30 percent and a 39 percent ...