Car Sales in Russia have been steadily tanking for nearly a year and have now hit an all-time low. The most obvious and immediate thought for this sharp decrease is Russia’s invasion of Ukraine. However, it isn’t the only contributing factor to this massive downfall of the Russian car market. Much like the rest of the world, one of the biggest issues is the supply-chain shortage. There are, however, other reasons for the crash, too.

New car sales are down nearly 80% in Russia compared to last year

According to Reuters, the Russian car market has a multitude of factors to blame for the sharp decrease in sales.

In Russia, only 32,706 new cars sold throughout the month of April 2022. That reflects a decrease of 78.5% overall compared to April 2021. That reflects around 120,000 fewer car sales year over year. What’s causing this substantial drop in sales?

As one would expect, a key element in this decrease in sales is the global supply-chain shortage of various materials. However, while the shortage does have a bit of a playing factor, the most prominent factor is related to the state of the Russian economy.

The Russian Rouble is extremely volatile in terms of currency at the moment. This is especially true due to the recent invasion of Ukraine. While income is becoming less and less for Russian citizens, interest rates are going through the roof in an attempt to keep the economy afloat.

Reuters reports that the Russian central bank raised its key interest rate to an eye-watering 20 percent. This was in February and was a strategy to limit financial risk after the country’s attack on Ukraine. Though the bank has since dropped the interest rate to 14 percent, it’s still an extremely high and prohibitive rate for the general public to take on.

Additionally, the Russian central bank stated that demand is not likely to make a recovery due to the lack of real income for Russian citizens.

Russia’s economy is in trouble

Due to the Russian invasion of Ukraine, many companies have withdrawn from doing business with Russia. It goes far beyond the likes of supercar manufacturers like Lamborghini withdrawing Russian business deals, too. Virtually every western industry has pulled back from dealing with Russia, including major oil companies.

As a result, Russia recently put out a list of brands that are eligible for “parallel import.” This is a list of western-made goods that the Russian government is allowing to be imported to Russia regardless of the company deciding not to do business with the country any more to protect Russian citizens from Western product isolation.

This means that Russian importers will have to do business with companies who are willing to purchase goods on their own terms from manufacturers with an embargo on Russian dealings and export them despite the manufacturer’s wishes. While it’s not morally sound, there’s undoubtedly some willing to partake due to the potential for massive markups and profit margins.

The new car market is undoubtedly affected the most at the moment. However, Russia’s economy overall is in a perilous position.