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Russian Car Sales Halved In 2009

Car sales slumped by 49 percent in 2009, the sharpest decline of any major market, and are expected to remain flat this year.

MOSCOW (AP) -- Russian car sales halved in 2009, the sharpest decline of any major market, and are expected to remain flat this year, a leading business association said Thursday.

Russia's car market had been on track to become Europe's largest in 2008 before sales crashed that autumn as the global recession made lending largely unavailable.

Car sales slumped by 49 percent in 2009 and 38 percent in December, rolling back to 2005 levels, according to the widely respected Association of European Businesses.

AEB's Martin Jahn told reporters that sales were affected not only by the global downturn but also by a sharp hike in duties for imported cars, the credit crunch and a weaker ruble.

"State support measures did not prove to be efficient enough," Jahn said.

The government has offered to subsidize interest on car loans in a bid to spur sales, but as few as 70,000 car loans have been subsidized. "This could not possibly have swayed the market," Jahn said.

The government is launching a scrappage scheme in March similar to the cash for clunkers programs that boosted sales across Europe and the United States, but some market watchers doubt that it will be effective.

AEB forecasts "a slight improvement" in sales in the second half of the year to some 1.5 million cars for 2010, against 1.47 million last year.

Heidi McCormack, General Motors' executive director for new ventures in Russia and former Soviet countries, said the Russian sales have been hurt so badly not merely because Russians don't want to buy but because the credit crunch is still strong.

"The market contraction, in my mind, really has to do with absence of retail finance," McCormack told the Associated Press.

"As long as the banks can't lend, it doesn't really have much to do with the automobile (industry)."

McCormack is positive that Russia will raise to become Europe's number one market although this is tied up with the country's overall recovery.

"It's only the question of when," she said. "We think the market will be relatively flat in 2010, but it really gets back to the liquidity issue and the availabilty of the finance. We're pulled along with the economic recovery."

Russia's Central Bank chief lamented in late December that corporate lending remains flat while retail lending is declining as banks are fearing a rise in bad debts.

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