With an impressive expected growth rate of 30% in the future and the increased availability of financing, the automotive market in the Eastern giant faces the challenge of avoiding the threat of bad payments and frauds.

The automotive market in Russia has seen significant growth in recent years. With economic deregulation and the entry of international manufacturers and financial services operators, the market was worth more than $20bn (1) in 2005. Although car ownership is still low by global standards, with ownership levels of less than 20 per cent, 1.7 million cars were sold last year. Growth of more than 30% each year means the market will be worth an estimated 6.2 billion euros by 2010 and car ownership levels will be on a par with Eastern Europe. Accompanying this growth is the rise in credit financing with 25 per cent of cars sold with credit arrangements in 2005, up from just 15 per cent in 2004 and estimated to rise to 50 per cent by the end of the decade creating a financing market worth in excess of $10bn.

The automotive market has changed radically in the last ten years and Russians now have a choice of all the global marques -showing a preference for foreign cars over locally produced models-. Popular brands are Daewoo, Ford, Mitsubishi, Hyundai and Renault with BMW, Mercedes, VW and Fiat also well regarded in the market. There is great potential, not only for automotive manufacturing and sales, but also for financing operations directly through branded dealerships.

Traditionally, Russians like to use cash but the rapid growth of the banking and financial sector has increased the availability of financing, creating a competitive automotive finance industry supplied by banks, retail finance outlets and the dealers themselves. The historically-complex and time-consuming paper-based decision process is being replaced by automated decision support systems capable of offering and managing a range of products, including loans and leasing payments schemes for both new and second-hand cars. With a rapid processing time and attractive finance offers, some of which don't even require a down payment, customers can drive away from a dealer with the car of their choice on the same day.

However, this growth, and the rapid changes in lending practice leaves financial organisations vulnerable to losses from higher risk customers and fraudsters. Organisations, especially banks, have met this challenge by the growing adoption of credit scoring and automated decisioning systems.

In addition, the growing awareness of risk and bad debt in the financial sector has supported the initiation of the first Russian credit bureau (Experian-Interfax). as a result, lenders can base credit risk decisions not just on their own experience but also the behaviour of individuals with other lenders, enhancing their credit risk management and the stability of the industry as a whole. However, the lack of a similar system to share fraud data leaves lenders vulnerable to attack from fraudsters, many of who will systematically defraud each lender in turn.

As car ownership becomes more affordable and available in Russia this dynamic market will continue to grow. Supported by extensive developments in financial infrastructure and systems, lending practices have changed beyond recognition. These trends need to continue in order to create a sophisticated, controlled market, which promises great opportunities for manufacturers, lenders and consumers alike.


By Daniel Zelenski, Head of Experia-Scorex Russia
& George Shapovalov, Business Development Executive