2014-01-03 17:56:42 - Recently published research from Business Monitor International, "Russia Autos Report Q1 2014", is now available at Fast Market Research
BMI is increasingly bearish on the near-term outlook for domestic vehicle sales and production in Russia as we enter 2014. A combination of sluggish demand for new cars, and a deteriorating economic backdrop, means that we are now targeting declines in both sales and production over 2014.
Looking at the most recent data available as this report was being compiled, light vehicle sales in Russia declined by 7.7% year-on-year (y-o-y) in October 2013, to 234,481 units, taking sales for the first 10 months of the year, which declined by 6.9% y-o-y, to 2,281,181 units. Previously, we expected the growth rate to pick up slightly in Q413, due to lower base effects. However, we believe that the country's weak consumer story is
increasingly impacting the segment, as the substantial decline in October suggests.
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Accordingly, we now forecast a 6.5% decline in the passenger car segment, down from a 5% drop previously, and a 7% decline in light commercial vehicle (LCV) sales, from a 5% fall previously. The potential implementation of the car loan subsidy programme in 2014 may serve to boost sales somewhat, but we expect this to have a limited impact in volume terms.
BMI has long maintained that 2013 would see a slowdown from 2012 levels, when light vehicle sales in the country increased by 11%. Despite strong annual sales growth in the early part of 2012, autos sales moderated on the back of subdued private consumption in the second half of the year. We maintained that such growth in the segment was on the back of an unsustainable rise in consumer sentiment, fuelled by cheap credit, which was likely to unwind over the course of the year. This played out, and these dynamics continued to impact sales in 2013. Indeed, we believe this erosion of private consumption will continue as unemployment creeps upward, real wages dip, and access to credit slows. This has informed our bearish vehicle sales outlook for the year.
In July 2013, the Russian government announced that it is to implement a car loan subsidy programme at some point over the coming months although the exact start date has not been disclosed. Under this scheme, banks will provide subsidised loans until the end of 2014 to customers buying cars that cost RUB700,000 (US$21,300) or less. A similar programme had been in place between 2009 and 2011, as the government sought to revive the autos sector.
We expect the programme to have a rather limited impact compared to the growth seen under the previous subsidy programme, as the wider consumer story is weaker. Indeed, BMI forecasts a 3% decline in the passenger car segment and a 2.4% drop in LCV sales in 2014 on the back of the ongoing deterioration in consumer sentiment.
In 2011, the government estimated that it had subsidised around 263,000 auto loans. That year, passenger car sales in Russia increased 39.6%, to some 2.5mn units. BMI believes that the government's subsidised loan programme helped increase sales somewhat during 2011, but we do not believe that it was the primary driver of this growth (certainly in volume terms). Indeed, we believe a broader trend in improving consumer sentiment and increasing access to credit in the wider economy were behind this growth story, and the subsidy merely aided the process.
As the latest scheme was announced, Minister of Industry and Trade Denis Manturov said that he hoped the new loan subsidies would help automakers sell an additional 250,000 cars a year. Similarly, the retail arm of the bank VTB Group reportedly expects car loans to increase 13% in 2013 on the back of this new programme. We expect the market impact to be more limited this time, however, as the country's macro picture is rather more bearish. It remains unclear when the scheme will begin.
In tandem with our increasingly bearish outlook for domestic sales, BMI also holds a negative view on the outlook for domestic autos production. The majority of Russian autos output is for the domestic market, on the back of government incentives, and few companies maintain production for export facilities in the country due to structural inefficiencies. As the Russian consumer story unwinds over the next few years, BMI expects to see a decline in passenger car sales. This will impact production volumes, and lead to over-capacity issues over the long-term. We expect these structural inefficiencies to remain, and there is little chance for manufacturers to re-orientate production for export. Accordingly, BMI maintains a cautious long-term outlook on Russia's production potential, and we do not expect to see considerable further investment in the market.
Over the first seven months of 2013, Lada remained the dominant player in the local new car and LCV segment (as defined by the AEB), selling 264,278 units for a market share of 16.9%. However, its sales were down by 11% y-o-y, as foreign players continue to make inroads into the Russian market.
Rising to second place over the January-July 2013 period was French carmaker Renault, whose sales were up by 9% y-o-y, at 122,646. In third place was Kia on 111,969 units (up by 4%), followed by fellow Korean carmaker Hyundai on 104,221 (up 1%). Falling from second at the end of 2012 to fifth in the January-July 2013 period is US carmaker Chevrolet (a subsidiary of GM), whose sales were down 17% y-o-y, at 95,687 units.
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