EU sanctions to Russia could devastate the car sector.

eu sanctions to russia

EU sanctions to Russia could devastate the car sector as many components should be included in the list of dual-use goods which can be used for military purposes and banned to the country moving local plants to shut down and the market to collapse.

In August 2014 according to data released by the Association of European Businesses in Russia, new Light Passengers Vehicles sold have been 171.912, down 25.9% from year ago, the ninth negative performance in a row. During the first eight month of the year, vehicles sales have been 1.582.583, down 12.1% from year ago.

The Russian can market was already suffering for internal weak demand and for the effect of the just ended incentives to new vehicles purchase before that USA and EU started with the first grade of economic sanctions, consequence of the Russian approach towards the Ukrainian internal crisis.

Today, a new wider range of sanctions will be applied while Russia already has a wide-ranging embargo on food imports from the EU, banning fruit, vegetables, meat, dairy produce and other important foods and a year-long ban also applies to food from the US, Canada, Australia and Norway, which have imposed sanctions similar to the EU’s.

The recent measures also cover dual-use goods which can be used for military purposes, defense equipment and some other sensitive technologies. List of goods have not been disclosed but many components for the car sector could be involved potentially pushing local plants to shut down.

Russian Foreign Ministry spokesman Alexander Lukashevich called the new sanctions “an absolutely unfriendly step” and Andrei Belousov, an aide to President Vladimir Putin, told Russia’s Ria Novosti news agency that Russia might limit imports of cars and light industrial goods from the EU.

The effect of this economic conflict could devastate the Russian car sector not only dragging the domestic market down but creating long term effects on the OEMs vision of the market, following the huge investment done here in the last twenty years.

A lose-lose battle where the only winners will come from the East, as the Chinese companies will take advantage as already did in Iran.

In June AEB had adjusted the forecast for 2014 for the market of passenger cars and light commercial vehicles to 2.45 million units, which is less by 12% than the last year, taking in account the internal low demand. This forecast looks now optimistic and focus2move Research Team just released a full year forecast at 2.24 million units for the entire 2013, which means a loss of 19.6% compared with the 2013.

Focus2move released also a forecast for the 2015 assuming the most probable scenario where the Putin politic reaction will not be positive before heavy effects of sanctions on Russian people. In this case, 2015 market will fall below the 1.9 million units and many European players with low volumes activities in the country could decide the leave.

For details on August Russian domestic market, please see our report here.