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August 11, 2015

RUSSIA: Brave face from AEB but sinking oil price dents July confidence

Russia's Association of European Businesses (AEB) automotive head is hailing last month's 28% fall in vehicle sales as "almost good news" as the country's economy continues to reel from a plunging oil price and international sanctions.

Russia’s Association of European Businesses (AEB) automotive head is hailing last month’s 28% fall in vehicle sales as “almost good news” as the country’s economy continues to reel from a plunging oil price and international sanctions.

The AEB has had to brace itself for month after month of catastrophic falls in auto sales and although the rate of decline is starting to ease, this may well be due to Kremlin incentives such as a continuation of scrappage schemes and more favourable credit access.

Sales of new passenger cars and LCVs in Russia decreased by 27.5% in July or nearly 50,000 units amounting to 131,000 cars, with nine bestselling models locally produced according to the AEB’s Automobile Manufacturers Committee (AMC ).

Six-month figures from January to July saw 913,000 cars sold.

“After a cumulative volume loss of 36% in the first half of the year, the July result of minus 27.5 % looks almost like a piece of good news,” said AEB AMC chairman, Joerg Schreiber.

“In reality, what we are seeing is mostly the low-base effect of a poor market showing in the corresponding period last year. The fundamental performance of the automotive market continues to disappoint though, in the framework of a struggling economy and falling consumer incomes.

“Purchase incentives provided through government programmes and by the market participants themselves have proven instrumental in avoiding an ever sharper decline, however, [these] would need to be enhanced significantly to be able to reverse the trend in a substantial manner.”

After a brief rally in the international price of crude oil, the market has seen yet further pressure on barrel costs and with Russia heavily dependent on income from its vast energy exports, Moscow is starting to see the effects feed through to GDP numbers and hence increasing consumer fragility when it comes to auto purchases.

Despite being assailed economically on all sides, Russian First Deputy Prime Minister, Igor Shuvalov, still managed to strike a note of bravado at the recent St Petersburg International Economic Forum, noting: “Russian society does not need growth whatever the cost. What we need is good quality growth.

“There are no wizards around when your oil is US$100 a barrel. Society expects the government to make decisions when it is not US$100 a barrel.”

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