Russia’s Auto Industry Must Get Fit to Compete to Realize Its Potential

The FINANCIAL — Russia’s automotive industry, which has experienced an almost phoenix-like recovery since 2009, now needs to speed up the pace of its modernization if it hopes to realize its growth potential. Seven priorities will be critical to spurring its global competitiveness, according to a report released by The Boston Consulting Group (BCG).

From Recovery to Competitiveness, BCG argues that despite the current weakening of both the Russian and worldwide auto markets, Russia remains on track to become an automotive power. The authors project that Russian domestic sales will grow by an annual average rate of 6 percent through 2020, creating an annual sales volume of 4.4 million cars. This growth would propel it past Germany, positioning it as the top market in Europe and the fifth-largest globally—behind only China, the U.S., India, and Brazil, according to BCG.

“There is an opportunity here,” said Nikolaus Lang, a senior partner at BCG and coauthor of the report. “Russia itself is a large and fast-growing domestic market. It has a chance to emulate the success of the Brazilian and Chinese industries and become a truly global competitor,” he added.

But to realize that vast potential, Russian producers and suppliers will need to compete more effectively in an increasingly challenging global environment, according to BCG. Russia’s government and auto companies must encourage more efficient, cost-effective local production and localization by major international carmakers and parts suppliers, the authors argue.

They identify several weaknesses—in regulation and infrastructure and at almost every stage of the value chain—that must be addressed. They also warn that Russia’s potential might easily be undone by phenomena such as market volatility, rocketing labor costs relative to its peers, and poor customer relations.

“As a consequence, almost no automotive companies—local or international OEMs or suppliers—capture the market’s full potential in efficient sourcing and production and in customer-oriented sales and after-sales efforts,” said Stefan Mauerer, a Moscow-based principal of BCG and coauthor of the report.