Russian Car Market Shrinks Sharply in First Half of 2025
Russia’s passenger and light commercial vehicle market is experiencing a significant downturn. According to the Association of European Businesses, only 546,430 vehicles were sold in the first half of 2025 — a 27% decrease compared to the same period in 2024. The forecast for the entire year has also been revised downward: the expected decline is now estimated at 24%, almost nine percentage points worse than earlier projections.
As Bloomberg reports, this negative trend reflects the combined pressure of high interest rates, a sharp increase in the vehicle recycling fee on imports, and the general slowdown of economic growth, which has already sparked discussions among officials about the risk of a recession and the need for monetary easing.
High Borrowing Costs Squeeze Consumer Demand
For nearly eight months, the Bank of Russia maintained the key interest rate at a record 21% to curb inflation that worsened following the Kremlin’s invasion of Ukraine. Only last month was the rate reduced by one percentage point, but its impact on the market has yet to be seen.
One immediate result of this tight monetary policy is a sharp decline in car loans. According to the newspaper Kommersant, citing state-controlled VTB Bank, the volume of domestic car loans fell by 50% in the first five months of 2025 compared to the same period last year.
Recycling Fee Hike Adds to Consumer Burden
Another major factor contributing to the slump in sales is the sharp increase in the recycling fee on imported vehicles that took effect at the end of 2024. The fee rose by 70% to 85%, and the government has already announced that it will continue to increase it by another 10% to 20% annually through 2030.
For the most common vehicle category — new passenger cars with one- or two-liter engines — the fee now adds 667,400 rubles (around $8,460) to the price, up from 300,600 rubles before the 2024 hike. During a meeting with business representatives in May, President Vladimir Putin defended the measure as a necessary step to support domestic production.
However, as Bloomberg notes, the impact of this measure has fallen disproportionately on Chinese automakers, who captured up to 60% of the Russian market after the exit of Western brands. According to Zaur Khantsev, editor of the Telegram channel Avtopotok, the government is “trying to force Chinese companies to localize production in the Russian Federation,” and the recycling fee is one of the tools being used for this purpose.
Lada Struggles Amid Chinese Competition
Despite state rhetoric about supporting domestic industry, Russia’s primary auto brand, Lada, is also suffering. According to AvtoVAZ CEO Maxim Sokolov, Lada sales dropped by 26% in January–May 2025 compared to the same period the previous year. He cited both high interest rates and intensified competition from Chinese manufacturers as key reasons for the decline.
A Short-Lived Boom Before the Slump
It is worth recalling that Russia’s passenger car market nearly collapsed in 2022 following the invasion of Ukraine. Western brands withdrew, spare parts became scarce, and assembly lines were disrupted. However, in 2023 the market saw an unexpected rebound: according to Autostat Executive Director Sergey Udalov, sales jumped 48% at the end of the year as consumers and dealers rushed to buy vehicles before the recycling fee increase.
That boom, however, was short-lived. In 2025, the market is once again in freefall — steep enough to spark anxiety among car dealers about the survival of their businesses. According to Interfax, Industry and Trade Minister Anton Alikhanov stated on Tuesday that the government is preparing a support package for the auto industry to prevent a potential 40% drop in the market.
Outlook: Monetary Easing or Further Decline?
Amid sluggish growth and declining consumer activity, calls for monetary policy easing are becoming louder. The Central Bank remains cautious, but with inflation still high and lending shrinking, the auto sector remains one of the most vulnerable in the economy.
According to Bloomberg, the Russian car industry finds itself once again at the intersection of geopolitical, financial, and structural upheaval. The government’s efforts to preserve market independence are clashing with the hard realities of reduced consumer purchasing power, the withdrawal of global players, and growing pressure on Russian households.
This article was prepared based on materials published by Bloomberg. The author does not claim authorship of the original text but presents their interpretation of the content for informational purposes.
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