Russia's economic challenges extend beyond its extractive industries. Sanctions, a volatile ruble, the crisis in Ukraine and low oil prices have also led to a decline in foreign investment in a variety of Russian sectors while disrupting or reducing the operations of foreign firms in Russia.
One sector where foreign firms are experiencing large losses is the auto industry. Car sales are an indicator of consumer sentiment; in past years, Russia's improving economic conditions led more Russians to purchase vehicles. Many foreign carmakers have manufacturing centers in Russia because the country was at one time regarded as a highly promising market. Foreign carmakers invested in Russia believing that the country's growing middle class would purchase personal vehicles.
However, the current crisis has greatly reduced consumer demand for cars, despite an initial rush to buy vehicles as a way of investing in durable goods when the ruble's value plunged in December 2014. The downturn reduced the purchasing power of Russians, the ruble's fluctuations made production more expensive, and high interest rates decreased demand.
Car manufacturers have responded. In March, General Motors announced that it would cease most of its production inside Russia by the end of the year and close its factory in St. Petersburg. Other companies followed suit, at least temporarily: Citroen and Mitsubishi stopped production of some models at a joint venture for three months starting in April.
After plunging in January, car sales are gradually starting to recover, buoyed by the strengthening ruble. Nevertheless, Russia's March car sales were more than 40 percent lower than March 2014 sales. Russia's broader economic problems, specifically high inflation and relatively high interest rates, are again responsible for a sector's weak recovery.
