(Reuters) -Russia's depressed car market has shown weak signs of recovery as 2025 draws to an end, but is set to hit near-record lows early next year as higher scrappage fees drive up prices, dealers and experts say.

Far from signalling a genuine rebound, a jump in sales of new cars in October reflects a rush by buyers to complete purchases before the higher charges kick in, they say.

The outlook highlights the structural crisis in Russia's auto sector that goes back to the full-scale invasion of Ukraine in 2022.

Once seen as one of Europe's most promising markets, with potential sales of up to 4 million cars a year, it has been battered by the exit of Western manufacturers and by years of high interest rates that have pushed up the cost of car loans. The wider Russian economy has also slowed sharply this year, undermining consumers' purchasing power.

In the coming weeks, more pain looms for buyers of new vehicles as they face an inevitable rise in prices.

From December 1 authorities will sharply raise the recycling fee for powerful and expensive cars, mainly imported by individuals for personal use. From January 1, the fee for all cars will rise by about 10% in line with inflation.

SCRAPPAGE FEE DRIVES UP PRICES

Despite its name, the scrappage fee is not linked to recycling but acts as a protectionist measure to support domestic producers such as Avtovaz, which has cut to a four-day week to clear inventory.

Importers and domestic makers pay the charge, but Russian brands receive subsidies, giving them an edge over foreign models. Still, both local and imported cars face pressure as buyers expect prices to rise across categories.

In anticipation of the hikes, October sales jumped 35% from the previous month, to 165,702 units, although still 3.2% below last year's level, according to Russian analytical agency Autostat. The average price of a new car hit a record high of 3.43 million roubles ($42,189).

VOLUMES 'NEAR CRITICAL LOWS'

After dropping to post-Soviet lows in 2022, the first year of the war, sales began to recover. The big winners were Chinese brands, which sold nearly 1 million cars in Russia in 2024 out of total sales of 1.57 million units.

From that peak the market dropped almost 20% in the first 10 months of 2025 to 1.06 million vehicles, and is set to stay below previous levels despite the year-end growth.

"Annual volumes are already near critical lows at about 1.3 million units," Alexei Podshchekoldin, president of the Association of Russian Automobile Dealers, told Reuters. January and February are likely to be weak, with sales down 5 to 10%, he said.

Sales in January will be very low as most buyers rush to buy before the end of the year, Autostat executive director Sergei Udalov said.

The Association of European Businesses expects 2025 sales above its earlier 1.28 million forecast due to pre-hike buying, but still down about 22%.

"Car prices will jump significantly due to the fee, and if someone needs to buy a car, they will do it now, because people know that prices will never go down," said Sergei, a sales manager at a major dealership.

The AEB said a looming rise in value-added tax to 22% from 20% in 2026 adds further pressure as Russia seeks to plug a growing budget deficit and fund military spending.

Denis, a buyer who purchased an Infiniti QX50, said his dealer warned him that if he had waited, it would have cost him about 7.2 million roubles instead of the 6.5 million he paid.

"I was planning to do it next year, but the scrappage fee was exactly the reason why I decided to do it now," he said.

"In my opinion, the prices are unreasonable. But knowing that things will only get worse, and thinking that this might be the last brand-new car I ever buy, I decided to buy while I still had the chance."