As the financial crisis in Europe swirls, we bring you exclusive extracts from LMC Automotive’s suite of quarterly European national market sales reports and forecasts. The reports cover forecasts for car and light commercial vehicle sales by make and model over the next seven years. This extract looks at the growing Russian car market.
Overview
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• A full year estimate of 4.3% for 2011 GDP growth suggests that activity gathered considerable momentum in Q4. We estimate that seasonally adjusted quarterly growth rose to 2.2% in Q4 as fiscal stimulus and rapid credit growth led to a surge in domestic demand. Moreover, there is a possibility that full year growth may be revised higher (to 4.5%) implying an even sharper pick-up in growth.
• High frequency data paint rather a mixed picture for 2012 Q1 and global economic weakness appears to have sapped growth in the relatively externally exposed manufacturing sector. Taken together, industrial production data and recent PMI readings suggest only modest growth in this part of the economy in recent months. Service sector activity continues to be buoyed by the strength of consumer spending. The services headline PMI rose sharply to 56.5 in January and se expect robust real earnings growth to underpin further expansion in 2012 H1. We have raised our forecast for GDP growth to 4.1%, prompted by the upside surprise to 2011 Q4 (which provides a more supportive base effect) and a stronger profile for 2012H2 as a renewed pick-up in inflation weighs on consumer purchasing power causing GDP growth to slow to 3.3% in 2013.
• The Russian car market finished 2011 at 2.46m units (+39.6%) meaning it was one of the fastest growing in the world. Incremental volume of almost 700,000 units also meant it delivered the largest increase with the exception of China. Although the growth rate continued to slow as 2011 progressed, the market still grew by in excess of 25% year on year in each of the final three months of the year. The seasonally-adjusted annual running rate (SAAR) of the market peaked at over 2.8m units in November but slowed to 2.67m in December. January sales were encouraging as the market grew by 18.6% even though sales are no longer being supported by government incentives. In 2011 the market was buoyed by yet another scrappage scheme (600,000 scrappage vouchers were issued between March 2010 and June 2011. A third loan interest subsidy scheme was also very successful in supporting sales. Around 263,000 light vehicle sales were incentivised via the scheme in 2011 compared to 166,000 in 2010 and 70,000 in 2009. Originally the scheme was expected to be continued in 2012 and 2013 but the government opted to discontinue it at the end of 2011.
• The Russian car market will be required to stand on its own feet in 2012 although there have been some rumours of a smaller scale scrappage scheme for disabled drivers should demand weaken too sharply. Assuming no such support we forecast a market of 2.527m units in 2012 (+2.6%) even though economic growth promises to be quite respectable this year. Our caution reflects the fact that more than 500,000 light vehicle sales were “supported” last year. A proportion of these will have been pulled forward from 2012 (it is impossible to gauge just how many. Our 2012 forecast is therefore based upon the withdrawal of significant incentives.
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By GlobalData• Our forecast assumes that oil prices hold up reasonably well – the current forecast is for an average of $106 in 2012 – a projection which appears to be subject to upside risks given the way the oil price is holding up at present. If prices recover more aggressively than expected there is a chance that car sales could approach the 2008 peak of 2.7m units again in 2012. Should the oil price drop significantly, the impact upon the economy, consumer sentiment and the rouble would be critical leading to a sharp drop in car sales, possibly to under 2m units again.
• WTO accession will lead to a reduction in the 30% tariff on imported passenger cars to 25% possibly in July this or alternatively from January 2013. We do not anticipate much impact upon the price of imported cars although there is a chance that some sales may be held back in anticipation of price reductions. Duty rates will remain at 25% until July 2016 (or possibly January 2017 at which point they will start dropping again to reach 15% by July 2019 or January 2020.
Macro-economic background
• The initial estimate for full-year 2011 GDP growth is 4.3%, suggesting that the economy gained significant momentum in Q4. According to our estimates, this figure implies quarterly growth of 2.2% compared with 1.3% in Q3. Moreover, indications from the Economy Ministry suggest that full-year growth may be revised to 4.5%. The surge in momentum in Q4 was in marked contrast to much of the rest of the global economy, and was driven by a combination of fiscal stimulus (preceding the presidential elections in March this year) and robust consumer spending growth, with estimated retail sales volumes rising by 2.2% on the quarter. Meanwhile, the strong depreciation of the rouble is likely to have encouraged some expenditure to switch towards domestically produced goods.
• Looking ahead, industrial production growth is likely to suffer from the weakness of global activity, given its relatively high exposure to external demand. Quarterly output growth in 2011Q4 slipped to just 0.6% while the manufacturing PMI fell to 50.8 in January. Meanwhile, we expect a turn in the inventory cycle to provide a further drag on growth, with the aggressive accumulation of stocks evident in 2011 unlikely to be repeated this year given that current uncertainty relating to the sovereign debt crisis is expected to persist.
• The outlook for consumer spending is more upbeat as labour market conditions are set to remain favourable. Seasonally adjusted unemployment was 6% in January, close to the pre-crisis low, and we expect this tightness to feed into real earnings growth which we forecast to pick up to 4.6% this year from just 1.5% in 2011. Purchasing power will also be boosted in the near term by the delay to the seasonal hike in utility prices (which will now take place in July). This dragged inflation down to a historical low of 4.2% in January, although the extent to which this will encourage households to increase spending may be limited given that the impact is temporary. Offsetting these positive factors, to some extent, is a more austere credit environment, with survey data suggesting that lending conditions are set to tighten considerably in the near term.
• Meanwhile, oil prices have continued to remain at a high level, partly due to supply concerns related to tensions in the Middle East. Our baseline forecast is for a very modest decline in oil prices in 2012 (to US$106pb from US$111pb in 2011), which would have negligible implications for economic activity in Russia.
• Overall, we expect GDP growth to slow to 3.8% this year. The slowdown is likely to be industrially led, with sectors such as metals and chemicals more exposed to external demand. The economy will benefit from continued fiscal stimulus in Q1, but the withdrawal of this temporary relief from Q2 onwards will act to subdue any momentum generated by an upturn in global conditions. However, we expect the strength of the labour market to continue to support strong consumer spending, which is projected to rise by 5.8% this year, not too much slower than the pace of just over 7% in 2011.
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Car sales
Russian car sales finished 2011 at 2.46m units (+39.6%) meaning that the Russian market was one of the fastest growing in the world last year, delivering the largest increase in volume (almost 700,000 units) with the exception of China. Although the growth rate was slowing towards the end 2011, the market still managed to grow by in excess of 25% in each of the final three months of the year. The seasonally-adjusted annual running rate (SAAR) of the market surged to a peak of over 2.8m units in November before dropping back to 2.67m in December. Only January data is available so far and although sales were still up – by 18.6% compared to January 2010 – the SAAR dropped back to 2.4m units, the lowest SAAR since August 2011. This was to be expected in our view given that the 2011 market was largely fuelled by government incentives in the form of a further scrappage scheme and a third loan interest subsidy scheme, both of which applied only to domestically produced light vehicles.
A total of 600,000 scrappage vouchers were issued under the scrappage scheme between March 2010 and June 2011 whilst the loan interest subsidy scheme incentivised 263,000 light vehicle sales during 2011 compared to 166,000 in 2010 and 70,000 in 2009. Sales via this scheme are estimated to have accounted
for around one third of credit sales.
Sales on credit grew significantly during 2011 and solid increases in real incomes also persuaded Russians to go out and buy new cars. This scheme was originally expected to be repeated in 2012 and 2013 but this plan was dropped in 2011. During 2012, therefore, it looks as the market will have to stand on its own feet, although there have been some rumours that a smaller-scale scrappage scheme (possibly applying only to disabled buyers and in selected regions) might be unveiled. Assuming no support from the government, however, we expect only a small increase in sales to 2.527m (+2.6%) even though the economy is only expected to slow slightly from the pace set in 2011.
Last year over 500,000 (light vehicle) sales were “supported”. A proportion of these will have been pulled forward from 2012 although it is impossible to gauge exactly how many. Without government support the market would have been much weaker in 2011 and our much lower forecast for 2012 reflects the withdrawal of significant incentives. As a consequence the level of car sales in Russia in 2012 will depend closely upon economic performance which in itself will hinge upon the behaviour of the oil price. Oxford Economics’ current forecast for 2012 of $106 a barrel (Brent crude) involves a fall compared to 2011 but so far the price has been above expectations, hitting $122 a barrel again on March 7th.
The Russian government’s GDP forecast of 3.6-4% in 2012 is now based upon an oil price of $107-110 a barrel for Urals crude (recently increased from $100) meaning that the risks are shifting to the upside for economic performance this year. If prices continue to recover more aggressively than expected, there is a real chance that the car market could approach the 2008 peak level of 2.7m units again this year. Should the oil price drop significantly – to $90 a barrel or below, the impact upon the economy, consumer confidence and the rouble would be critical, leading to a sharp drop in car sales, possibly to below 2m units again.
WTO accession – the agreement with Russia is now expected to be ratified by the government between June-August 2012 – will lead to a reduction in the 30% tariff to 25% (originally this was due to take place in July 2012 but it may now be delayed to January 2013). We are doubtful that there will be much impact upon the price of imported cars when the duty reduction occurs, particularly if demand is holding up reasonably well, although some sales may be held back in anticipation of price reductions. Import duties will start coming down again from July 2016 (this may be delayed to January 2017) which will mean that rates will reach the ultimate target of 15% either by July 2019 or January 2020. Import share in 2011 was 32.3% for passenger cars but we see that figure picking up to around 46% by 2020, supported by lower import duties. There have also been some rumours that the authorities are looking to introduce a further tax known as a “utilisation tax” on imported new cars post WTO entry but it seems unlikely that such a development would be well-received by the WTO.
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Please note that this report was first published by LMC Automotive in March 2012
LMCA’s French Automotive Sales Forecast is the definitive forecasting service covering both cars and light commercial vehicle sales in the French market. Published quarterly as part of the LMCA European Automotive Sales Forecast which is widely used by the leading automotive manufacturers, it provides forecasts of sales by model over a time horizon of seven years into the future.
LMCA’s forecasts are built on macro-economic forecasts generated by our partner, Oxford Economics, and a detailed examination of demographics, fiscal and regulatory influences. This is combined with an in-depth analysis of each OEM, its strategies and its existing share of the market, both overall and segment-by-segment, as well as its roadmap for new model introductions. The French sales forecasts are provided by OEM, brand, market segment and model.
Clients to LMCA’s French Automotive Sales Forecast will receive the latest report in pdf format together with an electronic download of the data and forecasts, provided in annual timeslices. The electronic download is provided with filters and a pivot table.
Similar reports are available for Spain, Germany, Italy, UK and Russia.
LMC Automotive Russian Automotive Sales Forecast – Quarterly
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