Georgia’s Unique Economic Drive: From Damaged Imports to Profitable Exports

In an era where sustainability is increasingly at the forefront of economic strategies, Georgia, a small but dynamic country in the Caucasus, is making significant strides. By specializing in the refurbishment of used cars, Georgia is not only boosting its economy but also contributing to the global movement towards a circular economy, which emphasizes reuse, repair, and recycling over the traditional linear model of consume and dispose. Whether this has been intentional or not.

“I know it had been gutted and reassembled, but they’ve done a good job: it runs well and looks good,” one buyer said after taking a 2021 Toyota Land Cruiser for a test drive at Georgia’s largest physical automobile market, in the town of Rustavi just outside Tbilisi.

Despite its modest size, Georgia has become a powerhouse in re-exporting used cars, transforming vehicles deemed beyond repair into desirable commodities for Eurasian buyers. The country imports severely damaged vehicles from the United States, often deemed total losses by insurance companies. These cars, once destined for scrap, are given a new lease on life by skilled Georgian mechanics.

This transformation process is both an art and a science. Mechanics in Georgia expertly repair and refurbish these vehicles, often so effectively that they appear almost new. The profitability of this venture is significantly boosted by Georgia’s low labor costs, allowing for high-profit margins when these cars are sold in markets like Russia, Armenia, Kazakhstan, and Kyrgyzstan. In the early months of 2023, Georgia’s exports of automobiles to these countries have seen a remarkable increase, with exports to Russia more than tripling.

This practice has turned Georgia into a regional hub for used cars, attracting buyers from across Eurasia. The appeal is clear: these cars are significantly cheaper than new models, yet they run well and look good, making them attractive options for buyers in neighboring countries.

The Georgian used car industry’s success is underscored by a record-breaking figure in passenger car re-exports, reaching a 10-year high of 13,500 vehicles worth nearly $240 million in the first few months of 2023 alone. This boom in the car re-export market has not only been lucrative for Georgia but has also led to a surge in imports of German car parts to support the refurbishment process.

This unique industry has positioned Georgia as an important player in the Eurasian automotive market. The country’s strategic location, coupled with favorable conditions such as cheap labor and minimal red tape, has facilitated this growth. Despite the challenges posed by the pandemic, the industry rebounded with significant growth in 2022, indicating a robust demand for these rejuvenated vehicles.

The country has also turned what could be seen as a limitation - the lack of a domestic auto manufacturing industry - into an opportunity. By focusing on refurbishment and re-export, Georgia contributes to reducing the global carbon footprint associated with vehicle production and waste.

This approach could present a case study for other countries looking to integrate sustainability into their economic models. Georgia demonstrates that the circular economy can be both environmentally beneficial and economically viable. The country’s success in the used car market is a clear indication that sustainability and profitability can go hand in hand.

By breathing new life into damaged cars, the country is not only bolstering its economy but also showcasing a potential path to a more sustainable and resource-efficient future.

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Sourcing the salvage title cars from the States has been common practice throughout Eastern Europe and the Middle East. I am not surprised that Georgia is active in this field. However, I am very curious about what standards those vehicles are repaired to. Salvage title cars are written off by US insurance companies, meaning their worth is less than the price of repair. It means that they are often in next-to-scrap condition. I am sure that the labor costs are lower in Georgia, but the price of original and OEM parts is the same. This operation makes economic sense only if Georgian sellers are using Chinese knock-off parts and Tier 3 components and fabricating their own parts. But, if that is the case, those cars are far from being dependable and safe.