MOSCOW - Russia's auto market is in free fall. As financial turmoil in the country makes cars more expensive by the day, demand for many brands has almost evaporated.
Sales fell 38 percent in the year to February, with mid-market brands such as Ford plummeting 78 percent, eating into earnings and threatening production. Only luxury cars are still holding up as richer Russians count on them as status symbols - even if that means cutting back on other aspects of life.
"Russians can allow themselves to rent a room in a shared flat on the fifth floor of a Khrushchev-era apartment building, live very poorly, but still drive an Audi," said Tatiana Lukavetskaya, the chief executive of Rolf, a major car dealer in Moscow and St. Petersburg.
"That's because everyone sees how I drive, but no one sees how I live."
While sales for Chevrolet were down 74 percent in February and General Motors' Opel saw an 86 percent nose-dive, Mercedes, Lexus, and BMW have all seen a rise. Audi fell, but by less than the market as a whole.
Oksana Isaeva, sales manager for a jewelry firm, is in the market for her third Audi in a row. She's feeling the financial pinch, but would rather buy a smaller Audi - a Q3 rather than a Q5 - than go for a lower-class brand of car.
"It's happened because of the economic situation in the country. It's a drop in the class of car, unfortunately," she said.
For Russian car buyers, the financial pain is twofold. Prices have risen as the plunging ruble has made imports more expensive - even cars made in Russia use many imported parts. Meanwhile, banks are unwilling to lend to prospective car buyers at anything but punitive rates.
"Even if the bank gives its approval to the loan, the rate starts somewhere around 20 percent," says Andrei Toptun, chief analyst at specialist research firm Autostat.
Russia's car sales statistics, already poor, are being propped up artificially, he claims.
The weak value of the ruble means businessmen from neighboring ex-Soviet states now buy cars in Russia for use in Belarus or Central Asia, Toptun says. "Consumers come to Russia from Kazakhstan, buy a car and send it back home to Kazakhstan," says Toptun. With those exports taken out of the equation, he estimates that Russia's auto sales fell by more than half in February.
Many of the most popular U.S. and European brands rushed to open factories in Russia over the last 15 years, with local plants offering a way to avoid onerous Russian import duties and exploit a then-growing market.
The operations are not a big part of the companies' sales - only 2 percent of GM's annual 9.9 million sales last year, or 1 percent of Ford's 6.3 million. But the trouble downgrades a potentially lucrative market they had been hoping to develop. Now those firms are left sitting on overcapacity and, in some cases, potentially damaging labor disputes.
At Ford's flagship Russian factory in St. Petersburg, the crashing market is threatening jobs and straining labor relations, according to local union boss Igor Temchenko, who said workers will strike Monday for an indefinite period. That is a rare occurrence in Russia, where many unions are poorly organized or pressured by politicians not to rock the boat.