MOSCOW  - The latest models gleam at the Moscow car show, but Russian sales have dropped because of the Ukraine crisis and the shine has gone off a key growth market.

Hostesses in cocktail dresses and high heels fawn over the cars as they do every year, and sober-suited executives boast about the newest features, but the smiles seem somewhat forced at this edition of the Moscow International Automobile Salon. More than one million people are expected to visit the show, which closes on September 7, but Russians are doing more looking than buying, to the disappointment of carmakers.

In recent years Russia has become an important growth market for many automakers, and in 2012 it became Europe’s number two market behind Germany, with 2.9 million vehicles sold.

Carmakers were already expecting a fall in sales as Russia’s oil-fuelled growth boom of the previous decade exhausted itself. But the conflict in Ukraine has sent the market into free fall.

Rising tensions between Moscow and the West have pushed the Russian economy to the brink of recession, and as the uncertainty persists consumers are hesitating before making big purchases.

- Sales plunge - The slow slide of the ruble is also pushing up prices on foreign cars. According to the Association of European Businesses (AEB), which compiles car sales figures in Russia, sales plummeted by 23 percent in July from the same month a year ago.

No-one is expecting a quick rebound and carmakers are instead looking further into the future: Russia’s emerging middle class is still under-equipped for wheels.

The situation is “very challenging, but we believe in a recovery in the demand in the future,” said Yong-Key Koo, who heads up operations for South Korea’s Hyundai Motors in former Soviet states.

Opel, the German unit of US auto giant General Motors (GM), says Russia is key to its ambitions to become Europe’s number two carmaker by 2022. “Our objectives in Europe cannot be achieved without Russia,” said Matthias Seidl, Opel’s executive sales director for central and eastern Europe. “Russia continues to play a vital role in our strategy despite the recent market challenges,” he added. A number of foreign companies have invested in assembly lines in Russia in recent years, both to insulate against swings in the value of the ruble and offer models adapted to the local climate and tastes. Opel unveiled a new model of its Insignia saloon, its most popular vehicle in Russia. Ford displayed a “made in Russia” version of the Fiesta, a top-selling subcompact in the rest of Europe, which it hopes can help lift sales which are at just half the level of last year. Renault-Nissan, in addition to its own factories, also assembles its models on assembly lines of the top Russian carmaker Lada, which it recently took over.
The alliance is resurrecting its low-cost brand Datsun, which will sell only vehicles produced locally. “The car industry is nervous,” acknowledged Vincent Cobee, who is leading the global revival of Datsun.

He said the current situation over Ukraine is “anxiety-provoking”, but expressed hopes it would be temporary “as everyone has an interest in seeing things stabilise”. - A strategic market -

Even in the worst-case outlook, Russia is still predicted to remain Europe’s second-biggest market and the only question is when it will take over the top spot.

“Yes, the Russian market will grow and become the largest in Europe,” said Nissan’s Guillaume Cartier. “When? That is where the uncertainty is.”  Meanwhile, factories have been shifted into a low gear.

GM has halted operations at its facility until mid-September, according to Russian media. Citroen has also extended the summer break at its factory in Kaluga to the south of Moscow as sales are down for first time since the French carmaker set up in Russia five years ago. “Russia remains a strategic market... which will continue to develop strongly in the coming years even if there is a heavy price to be paid today,” said Jean-Louis Chamla, the brand’s director in Russia. On Thursday, the government announced a new cash-for-clunkers programme to jump-start sales.

Russian car sales were down 9.9 percent in the first seven months of this year at 1.41 million vehicles, according to AEB data.