TOKYO- Japan's decision to restrict most used-car sales to Russia has significantly impacted a trade relationship worth nearly $2 billion annually. This trade had flourished amidst ongoing sanctions related to the conflict in Ukraine.

In early August, the Japanese government imposed a ban on exporting all but subcompact cars to Russia, effectively cutting off a lucrative trade channel for used vehicles, particularly Toyotas, Hondas, and Nissans, which were in high demand.

As a result, Russia, previously the largest importer of used cars from Japan, has lost its primary source of such vehicles. This has led to a drop in prices for second-hand cars in Japan and has left brokers scrambling to redirect these vehicles to other markets, particularly those that use right-hand drive vehicles, such as New Zealand, Southeast Asia, and Africa.

Russia's demand for second-hand Japanese cars surged after global automakers, including Toyota, scaled back their operations in response to Moscow's invasion of Ukraine. By the end of last year, Russia was purchasing over a quarter of Japan's used-car exports at an average price of nearly $8,200 per vehicle, more than double the 2020 price when Russia accounted for about 15% of Japan's used-car exports.

These sales were on track to exceed $1.9 billion for the entire year of 2023 before Japan imposed stricter sanctions. More than half of the 303,000 used cars imported by Russia in the first eight months of the year came from Japan, surpassing the 606,950 new cars, mostly Russian and Chinese brands, sold during the same period.

SV Alliance, a car export business based in Toyama, had been thriving during this period, sending an average of about 6,500 used cars to Russia every month through July from Japan's Fushiki port, which is conveniently located around 800 km (500 miles) from Russia's Vladivostok.

However, the impact of the sanctions has hit businesses hard. Olesya Alekseeva, a logistics coordinator at SV Alliance, noted that their business has declined by approximately 70%, leading to layoffs due to a lack of work.

Japan has been a prominent used-car exporter for many years, with mandatory inspections pushing up maintenance costs for used cars domestically. In contrast, financing costs for new car purchases are low, resulting in a thriving export industry that has put Japanese cars on the roads of various countries, from Malaysia to Mongolia and Pakistan to Tanzania.

Takanori Kikuchi, a director for automotive trade policy at Japan's Ministry of Economy, Trade and Industry, mentioned that the government is closely monitoring the impact of these new sanctions. Japan had previously banned the export of luxury vehicles to Russia in April of the previous year and added heavy trucks to the prohibition list in June.

Under the latest sanctions, dealers can still export smaller cars like the Toyota Yaris or Honda Fit to Russia. However, the share of Russian business for companies like Element Trading has dropped from over 50% to below 20%, according to Wataru Nishiwaki, the CEO of the used-car dealer in Niigata prefecture, which borders Toyama.

In August, the number of used cars available on the market increased by more than 20% compared to the previous year, while average selling prices of vehicles saw a 7% decline, according to preliminary data from auto auction house USS.

Some businesses have welcomed the price decline. Battery recycling firm 4R Energy, which deals in vehicles like the Nissan Leaf, has benefited from the lower prices, according to its CEO, Yutaka Horie. The reduced prices have given the joint venture between Nissan and trading house Sumitomo more opportunities to secure supplies. 

Japan's recent restrictions on used-car exports to Russia have had significant repercussions on a trade relationship worth billions of dollars annually. These sanctions have not only disrupted the supply of second-hand Japanese cars to Russia but also impacted the domestic used car market in Japan.

As businesses adapt to the changing trade landscape, the automotive industry faces challenges and opportunities in new markets.