What a difference a year makes. For much of last year Russia’s economy was riding very high on the back of a boom in energy prices. But that boom waned and hopes for immunity from the international financial crisis were dashed, too. Russia’s stock market collapsed by more than 70% in 2008. From late last year, the car market fell away sharply also.
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The latest sales figures out of Russia make for grim reading. The Moscow-based Association of European Businesses (AEB) reported that April sales of light vehicles were 53% down on last year at 135,733 units. In the first four months, sales tanked 44% down on last year at 525,786 units.
However, the AEB believes that the market is stabilising – albeit at a low level.
JD Power’s CEE autos analyst Carol Thomas concurs. “The April market result was very near to our forecast – with a SAAR below 1.5m units on cars. Our forecast for the year as a whole is for car sales of 1.5m units, some 45% down on last year.”
However, she doesn’t anticipate a rapid bounce-back.
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By GlobalData“The economic prognosis isn’t at all good. Unemployment is rising and the economy will stay pretty weak on current assumptions,” she says.
For the car market there’s the added difficulty of upward pressure on car prices.
“The increase in car import duties and the weaker rouble are forcing prices up at the wrong time,” Thomas maintains.
“Manufacturers with operations in Russia – like Ford for example – have found that imported parts have become a lot more expensive this year and they’ve been forced to make adjustments and/or take a hit on margins,” she says.
One potential bright spot is the government’s package of measures designed to support the industry.
A loan subsidy scheme introduced in April entitles purchasers to a subsidy of two thirds of the Central Bank refinancing rate for a loan taken out from 2009-2011 for certain domestically produced models priced up to 350,000 roubles. Some foreign brand vehicles assembled in Russia are also eligible.
Take-up looks low so far, but that scheme could become more significant later this year.
“There’s also talk of that 350,000 rouble upper limit on eligibility being raised,” Thomas says. “That could bring in many more vehicles and help to stimulate the market further. We should get a decision on that within the next few weeks.”
It could well be that the state of the automotive industry in Russia will be moving further up the government’s agenda. The rapid swing from boom to recession has already provoked some street protests and there are concerns that idle car factories in geographically concentrated locations could exacerbate worker discontent. The Kremlin is said to be keeping a close eye on AvtoVAZ and GAZ in particular.
“Do not underestimate the social and political importance of the auto industry in Russia,” Thomas cautions. “In Russia, some companies simply cannot be allowed to fail, even if they have patently failing business models.”
JD Power now forecasts that Russia’s car market will get to an annual 3m units in 2013. There’s a slow pick-up from 2009’s trough.
Are international OEMs backtracking on Russian investments announced when the times were good?
According to Thomas, there’s little sign of that.
“The exchange rate and higher import duties have actually helped to counter the capacity disadvantages associated with much lower volumes,” she says. “Of course there are production cuts and some projects are being delayed, but there are no major cancellations, yet”
Vehicle manufacturers clearly still see Russia as an essential emerging market with good growth potential in the long-term. And historically, markets with a big national champion (AvtoVAZ/Lada, in Russia’s case) also offer an opportunity for relative newcomers to gain share. Russia still looks like a pretty good long-term bet, despite current difficulties.
These may be tough times in Russia, but a recovery to volumes looks to be coming. And you never know, the oil price may go up quite quickly again as the global economic upturn takes hold (fingers crossed) later this year.
In recent years, some newly affluent Russians got a taste for binge consumption after a long, long period of enforced communist and, indeed, Yeltsin-era post-communist austerity. They may well get their appetites back quicker than most.
Dave Leggett
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