Ford luxury car brand

MOSCOW — Russia’s auto market is in freefall. As financial turmoil in the country makes cars more expensive by the day, demand for many brands has almost evaporated.

Sales fell 38 per cent in the year to February, with mid-market brands like Ford plummeting 78 per cent, eating into earnings and threatening production. Only luxury cars are still holding up as richer Russians count on them as status symbols — even if that means cutting back on other aspects of life.

“Russians can allow themselves to rent a room in a shared flat on the fifth floor of a Khrushchev-era apartment building, live very poorly, but still drive an Audi, ” said Tatiana Lukavetskaya, the CEO of Rolf, a major car dealer in Moscow and St. Petersburg.

“That’s because everyone sees how I drive, but no one sees how I live.”

While sales for Chevrolet were down 74 per cent in February and General Motors’ Opel saw a 86 per cent nose-dive, Mercedes, Lexus and BMW have all seen a rise. Audi fell, but by less than the market as a whole.

Oksana Isaeva, sales manager for a jewelry firm, is in the market for her third Audi in a row. She’s feeling the financial pinch, but would rather buy a smaller Audi — a Q3 rather than a Q5 — than go for a lower-class brand of car.

“It’s happened because of the economic situation in the country. It’s a drop in the class of car, unfortunately, ” she said.

For Russian car buyers, the financial pain is twofold. Prices have risen as the plunging value of the ruble has made imports more expensive – even cars made in Russia use many imported parts. Meanwhile, banks are unwilling to lend to prospective car buyers at anything but punitive rates.

“Even if the bank gives its approval to the loan, the rate starts somewhere around 20 per cent, ” says Andrei Toptun, chief analyst at specialist research firm Autostat.

Russia’s car sales statistics, already poor, are being propped up artificially, he claims.

The weak value of the ruble means businessmen from neighbouring ex-Soviet states now buy cars in Russia for use in Belarus or Central Asia, Toptun says. “Consumers come to Russia from Kazakhstan, buy a car and send it back home to Kazakhstan, ” says Toptun. With those exports taken out of the equation, he estimates that Russia’s auto sales fell more by more than half in February.

Many of the most popular U.S. and European brands rushed to open factories in Russia over the last 15 years, with local plants offering a way to avoid onerous Russian import duties and exploit a then-growing market. Now those foreign firms are left sitting on overcapacity and, in some cases, potentially damaging labour disputes.