The export of cars from South Korea to Russia dropped by 71.5% year-on-year at the beginning of 2015 according to a report from the Korea Automobile Manufacturers Association (KAMA). The sudden decline, because of poor sales in the Russian market for some of those carmakers, has forced companies to announce the end of import supplies and a focus on getting the most out of their existing plants in Russia, while others may have to close local production altogether. That said, Hyundai-Kia is showing some resilience in terms of sales in Russia but exports from South Korea have dropped.
"According to official statistics, in January, the supply of new cars to Russia dropped to about 3,100 cars, whereas a year earlier it was 10,860 cars," stated the KAMA report.
Sales of Hyundai vehicles in Russia dropped 5% in February, based on the same month last year, while those for Kia fell by 6%, according to figures from the Association of European Business (AEB). However, Ssangyong saw a massive 72% drop in February, from 2000 units down to 560, and Daewoo suffered a 64% drop to 1,640 units sold, compared to February 2014.
Korean carmakers report that export supplies at the beginning of 2015 fell not only in Russia but in neighbouring Commonwealth of Independent State (CIS) countries.
Across the region covering the CIS and non-EU countries in Europe in January, Hyundai Motor reduced supplies from the 5,600 units seen in the previous year to 2,700 cars. Kia also reduced the number of vehicles supplied from 4,400 cars to 2,400 cars. However, GM Korea saw the most notable decline, with volumes down from 6,700 to 1,360 cars.
Representatives of Hyundai-Kia said that both carmakers had managed to optimise logistics flows and the decrease in imports by focusing on supplies from plants in Russia. The Korean carmaker has facilities around St Petersburg.
However, it seems that some Korean car manufacturers are considering a completely contrary strategy in dealing with the crisis, with rumours that SsangYong may cancel its contract with Russian company Sollers for the assembly of vehicles in Russia’s Far East region to fully focus on imports.
“The reason for SsangYong’s decision may be connected with the fact that Sollers failed to reach the full production capacity, which is part of its agreement on industrial assembly with the Russian government,” said a representative of the government. “Therefore, the company may not receive the expected benefits on decreased import duties on car components.”
The other reason for such a decision, according to market experts, could lie in the fact that, at the end of last year, the Russian government decided to decrease the level of state subsidies for the movement of cars from plants in the Far East of the country to the European region, where the main sales centres are located. Carmakers operating in the Russian Far East have repeatedly claimed that the partial cover through subsidies for internal logistics spending was crucial for car making in Russia.