Russian Automotive Industry
Russia's auto market was predicted to collapse by 40% in 2026 due to three factors. Following a surge in new car sales in fall 2025, the Russian auto market is expected to experience a sharp decline, auto industry analysts and dealers told Gazeta.Ru24 October 2025. This was due to a combination of factors: banks encouraging citizens to save money in deposits, rising recycling fees, and rising car prices.
In the United States, during World War II civilian automobile production essentially halted completely from February 1942 through mid-1945. This represented one of the most dramatic industrial transformations in American history. In 1941, before the full impact of the war reached American shores, approximately 3.8 million civilian cars were produced. However, production declined sharply after the Pearl Harbor attack in December of that year. The following year saw only about 223,000 civilian cars produced, all of them manufactured in January and early February before a complete production ban took effect on February 10, 1942.
For the next three years, civilian automobile production essentially ceased to exist. In 1943, only 139 civilian cars were manufactured, representing virtually zero production aside from a handful built for essential use exceptions. The following year was nearly identical, with just 610 civilian cars produced under special exception circumstances. Production didn't resume until July 1945, after V-E Day in Europe, and even then only about 70,000 civilian cars were built that year as factories slowly ramped up production.
The reason for this complete halt was the U.S. government's order for total conversion of automobile factories to war production following Pearl Harbor. The Big Three automakers—General Motors, Ford, and Chrysler—along with other manufacturers, shifted their entire operations to producing tanks and armored vehicles, aircraft and aircraft engines, jeeps and military trucks, artillery shells and ammunition, and various other military equipment. This industrial mobilization was unprecedented in scale and speed. The same assembly lines that had manufactured Chevrolets and Fords were completely retooled to build B-24 bombers, Sherman tanks, and military vehicles. Ford's Willow Run plant alone produced over 8,600 B-24 Liberator bombers during the war years, demonstrating the remarkable capacity of American industrial might when fully mobilized for the war effort. Civilian production didn't fully resume until late 1945 and early 1946. Even after factories began producing cars again, severe shortages and long waiting lists for new automobiles persisted well into the late 1940s, as pent-up demand from years without new cars overwhelmed the gradually recovering production capacity.
New car sales in the first quarter of 2026 will be around 80,000-90,000 vehicles per month, the analytical agency Avtostat told Gazeta.Ru. By comparison, the agency estimates that over 150,000 new passenger cars would be sold in October 2025, and 122,000 vehicles will be shipped by dealers in September 2025. Minister of Industry and Trade Anton Alikhanov had forecast that the Russian auto market would decline by a quarter in 2025 compared to 2024.
In 2025, the term "collapse" of the Russian automobile industry may be a bit of an exaggeration, as the industry continued to function and recover from the decline, although it has faced serious challenges. The key factors were the departure of many foreign automakers and the disruption of supply chains, which led to a reduction in supply and a decline in sales in 2022-2025. Despite this, demand for automobiles remains strong in the market, and domestic and Chinese manufacturers are filling the vacated niches, albeit with some difficulties, such as the lack of full localization of production among Chinese brands.
AvtoVAZ may switch to a four-day week: warehouses are full, and around 400,000 cars remain unsold. Lada sales have plummeted by 26% since the beginning of the year. The reason is inflation, rising interest rates, and the collapse of auto loans. People are no longer buying even cheap cars, loans have become unavailable, and the market has stalled. Production is being cut, but prices are not being touched yet, because no one is buying them anyway. AvtoVAZ is the symbol of the Russian auto industry. If it can't even sell Ladas, the crisis is much deeper.
The Chinese had eaten up the market, but their sales have also declined. So the problem isn't so much the brand itself, but rather the purchasing power of Russians.
The Russian economy continued to slow in 2025. More and more analysts were talking about a looming recession . Experts at the Center for Macroeconomic Analysis and Forecasting (CMAF), which is closely affiliated with the Russian government, believe that a recession is inevitable in 2026, even if the key rate was significantly reduced. They believed that a quick recovery was no longer possible. Several sectors of the Russian economy have already transitioned from stagnation to recession. A prime example was the auto industry , where sales had plummeted in 2025, and there are no signs of recovery.
Agricultural machinery manufacturers were the first to enter the crisis. At the beginning of summer 2025, Russian agricultural machinery companies began to halt production and send employees on "unscheduled corporate leave." Rostselmash, one of the largest manufacturers in Russia and the world, announced a reduction in its production program and the postponement of annual leave from September to June. "We're pausing, but maintaining our teams: we're currently operating at a maximum of one shift at reduced productivity," the company stated. Soon, the Traktor plant, which produces the country's most popular Uralets minitractors, also announced that it would be transferring its workers to a shorter work week.
Even at the beginning of the year, the industry was already in a pre-crisis situation, and manufacturers warned that their situation would worsen. "We're seeing a sharp decline in sales of Russian agricultural machinery: more than 30% in the first two months of 2025 compared to the same period last year," said Konstantin Babkin, co-owner of Rostselmash and president of the Rosspetsmash association. "Even though that year (2024) was the worst year in the last ten years for both the entire industry and Rostselmash. This is a serious crisis ." Truck manufacturers were also going into downtime, Following the agricultural machinery manufacturers, the country's largest companies producing commercial freight and passenger vehicles, including trucks, buses, and other equipment, have begun to shut down. Since August 1, Friday has become a day off for a significant portion of KAMAZ employees . Managers continue to work five days a week, but Fridays are unpaid.
"There is no reason to expect growth in sales of equipment manufactured in 2025. In this situation, Russian truck manufacturers are forced to take extraordinary measures to reduce production in order to maintain financial stability and avoid staff layoffs," says a statement from Russia's largest truck and diesel engine manufacturer.
In July 2025, the Likino Bus Plant (LiAZ) switched to a four-day workweek. The Pavlovsk Bus Plant (PAZ) went on corporate leave for two weeks, from July 21 to August 3. The Gorky Automobile Plant (GAZ) is also going on hibernation for two weeks, from July 24 to August 6. GAZ subsequently switched to a four-day workweek. In addition, the Sollers Group, which owns the Ulyanovsk Automobile Plant (UAZ), the Sollers Alabuga plant, and the Zavolzhsky Motor Plant, suspended production for a week from July 28 to August 4.
AvtoVAZ , Russia's largest passenger car manufacturer suspended assembly from July 28 to August 17. "AvtoVAZ traditionally takes a corporate vacation to conduct repairs, maintenance, and upgrades to its production equipment and tooling. Work will also be carried out to improve working conditions for employees," the company's press service reported. Russian media sources reported that production volumes of two key AvtoVAZ models—the Niva and the Granta—had dropped significantly back in the spring. However, company representatives denied this, insisting that "everything is currently proceeding according to plan; there are no changes today."
The reasons for the 2025 decline in sales for most automakers were common to all. Both individual buyers and organizations purchasing commercial vehicles and equipment have reduced demand due to prohibitively high interest rates on auto loans and leasing. Meanwhile, dealer warehouses were stockpiling unsold Chinese cars and trucks, as well as other vehicles they had imported last year. The volumes were significant—the recycling fee in Russia increased in 2025, so dealers were scrambling to stock up.
According to KAMAZ, more than 30,000 trucks had accumulated in dealer warehouses. Furthermore, vehicles returned to lessors by companies unable to meet lease payments due to financial difficulties are entering the market at reduced prices . KAMAZ estimates there are already approximately 10,000 such trucks. The situation is similar in the passenger car market. "Unfortunately, inventory, primarily of Chinese brands, is not decreasing," laments AvtoVAZ CEO Maxim Sokolov.
Despite the Central Bank lowering its key rate from 21% to 18% during its recent board meetings , the auto loan market is showing no signs of recovery. 18% remains prohibitively high. Moreover, auto loan rates haven't fallen as significantly as the key rate: according to Frank RG, the average rate is currently 16.1%—less than 1 percentage point lower than a year ago. According to experts from the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), interest rates on loans remain above profitability in many sectors of the economy . This is suppressing investment activity. Companies are not investing in commercial vehicles, among other sectors: with their own sales stagnating at best, businesses are preferring to wait. Individuals are doing the same—it's more profitable to save than to spend. AvtoVAZ CEO Maxim Sokolov hopes that "the market will sway a little as the key rate is lowered," but warns that "the period of inertia could be very long."
More than a market revival, manufacturers can only hope for government assistance in the coming months. "We will adjust the system to help people purchase cars and manufacturers increase production, primarily domestically produced ones," Vladimir Putin recently promised . But there are no specifics yet. Truck manufacturers received a measure of support of sorts: at the end of July, Rosstandart banned the import of Chinese trucks under the Dongfeng, Foton, FAW, and Sitrak brands, claiming they violated a number of "mandatory requirements." However, this measure alone will obviously not reverse the situation.
Chinese carmakers delivered more vehicles to Russia than anywhere else in the world during the first five months of 2023 as part of a major expansion in the country following the exodus of European, American, and Japanese marques, Bloomberg reported on 11 July 2023. Car exports to Russia from January to May were almost double those delivered to Mexico, China’s next biggest auto sales market. Asian car manufacturers exported around 287,000 finished vehicles to Russia in the first five months of the year, while Mexico received a total of 159,000 cars in the same period, customs data released by the China Association of Automobile Manufacturers shows. In 2022, China exported around 162,000 vehicles to Russia. The top three Chinese brands in Russia were Chery, the country’s second-largest car exporter worldwide, Geely and Great Wall. These accounted for a third of all new car sales in the first half of the year, according to the Association of European Businesses.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
