RESEARCH SNAPSHOT: BMI on Russia’s car market
Russian carmakers are slowing the decline in their market share, but foreign brand sales will continue to grow rapidly with the market set to rise above 5mn units by 2012, according to BMI's latest Russia Automotives Report.
In the first four months of 2008, Russian carmaker AvtoVAZ revived its fortunes with total sales of 212,200 units, up 22.8% year-on-year (y-o-y). While this was a great improvement on the 6.2% growth recorded in 2007, it was still less than half the 54% growth rate of foreign branded cars, of which 454,069 units were sold in Q108.
Although sales growth was modest compared to the overall market in 2007,AvtoVAZ was still able to boost net profit by 57.3% to RUB3.95bn (US$169.1mn).
The performance bodes well for Renault's hopes of reviving the carmaker after it acquires a 25% blocking stake, worth US$1.17bn. Renault is aiming to almost double AvtoVAZ's car production to 1.5mn units by 2014, including vehicles produced with the Lada and Renault badges.
Chevrolet led the foreign brand market in Q108 with 58,500 vehicles sold, representing growth of 59% y-o-y. It was followed by Hyundai, with 44,000 sales (up 97%) and Ford with 41,500 sales (up 6%).
General Motors' (GM) position on the Russian market is set to improve further as a result of the planned expansion of its manufacturing base in the country. It is also looking to increase its capacity in the Russian market after signing joint ventures to build Chevrolets with FSO in Poland and with local partners in Kazakhstan and Uzbekistan. GM also builds cars and sports utility vehicles (SUVs) through joint ventures with Avtotor in Kaliningrad and AvtoVAZ in Togliatti.
Not all foreign brands recorded growth. China's Chery noted a 19% drop in sales in the first quarter, largely due to its lack of competitiveness caused by limited local production and high trade barriers.
Chinese carmakers are being squeezed out of the market in what BMI believes is a ploy to protect domestic producers and foreign investors from competition from low-priced imports.
The strong growth witnessed in the early months of 2008 confirms our forecast of 3.24mn passenger car sales by year-end, with growth of 20% y-o-y leading to overall market growth of 19% y-o-y to 3.56mn units. Given current trends, the market share of Russian carmakers is expected to fall to around 25% by 2012, or just 1.36mn units. This would equate to a 50% rise in sales of Russian brands over 2007 levels, compared to a 125% increase by foreign brands. Our forecasts are slightly lower than government expectations, with output at 2.42mn units in 2010 and 3.02mn units by 2012.
By 2012, output should be around double the level achieved in 2006, but this will still not be enough to satisfy domestic demand.
Russia scored 69.9 (out of a theoretical maximum of 100) in the BMI automotive business environment rating this quarter, up 1.1 points over the previous quarter and putting it 13.8 points ahead of Poland. An expected moderation in automotive sales growth led to a modest decline in its limits to potential returns score, but this was more than outweighed by a strong improvement in the country's market risk score as the Russian economy proves to be stable and robust, environmental regulations continue to move towards Euro standards and foreign brands continue to advance their market share.
This market's stronger areas include its market size and its strengths in production.
Areas of particular weakness are the general regulatory environment and the country's overall economic structure. Russia has great potential for increased vehicle ownership, with a credit boom helping to raise car purchases over the forecast period.
Business Monitor International (BMI)
This article was extracted from BMI's Russia Autos Report Q3 2008, which includes 5-year industry forecasts and is part of BMI's Industry Report & Forecasts Series. For more information: see here