Russia's Auto Market Picks Up Speed

By JACOB GRONHOLT-PEDERSEN And IRA IOSEBASHVILI

MOSCOW—Russia's car market is rebounding more quickly than expected from last year's crisis, buoyed by a return of cheap credit and a successful government scrappage scheme, top auto makers said at the country's leading motor show on Wednesday.

Car sales in the country are up 9% for the first seven months of the year compared to the same period in 2009, according to the Moscow-based Association of European Businesses, although this is still far below 2008 levels.

"The mood among customers is definitely picking up," said Frank Wittemann, head of Volkswagen AG in Russia.

Russia's auto market was expected to edge out Germany as Europe's largest until credit ground to a halt and the ruble plunged in the wake of the global financial crisis. Now, as the country rebounds from its steepest recession in 15 years, auto makers see increased chances that car sales this year will be above expectations.

Toyota Motor Corp. expects total Russian car sales of 1.8 million this year, 20% above its initial forecast, said Dirk de Man, senior director at Toyota in Russia, adding that the market would reach pre-crisis levels by 2014 or 2015. Toyota plans to sell 87,000 new vehicles in Russia this year.

The share of cars sold on credit fell to below 20% at the height of the crisis, compared with 45% to 50% in 2008, although credit is slowly starting to grow again, Volkswagen's Mr. Wittemann said. Volkswagen expects to sell 60,000 cars in Russia this year, an increase of up to 35% from a year earlier.

Russia's car market is seen as one of Europe's least saturated, with only 230 cars per 1,000 people, compared with about 700 per 1,000 people in Europe and 900 in the U.S.

A car-scrappage program, which offers 50,0000 rubles ($1,622) to drivers turning in a domestic car that is 10 years old or older has also helped sales this year, although most of the money has been used to purchase local models, auto executives said.

Still, Russia's auto market may not be in the clear yet. The country's recovery has sputtered this summer, buffeted by concerns over U.S. growth and a Russia's worse drought in decades, which threatens to shave almost a full percentage point from its economic growth.

"The pace of Russia's recovery is looking less optimistic than it was three months ago," said David Thomas, head of Volvo in Russia. "Russia is just as much dependent on raw material exports as it was before the crisis, and this makes it very vulnerable to global trends in oil and commodities prices."

Still, Mr. Thomas said he expects the recovery in car sales to continue, predicting that the new car market will grow to two million next year.

French car maker Renault SA said Wednesday said it will manufacture three new car models in Russia, the Duster, Megane Hatchback and Fluence. The vehicles will be produced from 2011 at the facilities the French company has developed with its Russian partner AvtoVAZ, Renault said in a statement.

—Angeline Benoit in Paris contributed to this article.

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