Scrappage sees brighter Russia numbers but for how long?

Scrappage sees brighter Russia numbers but for how long?

Exchange rate depreciation concerns and scrappage are driving Russian consumers to speed up purchases of new cars as political uncertainty combined with the threat of sanctions, contributes to the volatile market.

Figures from the AEB Automobile Manufacturers Committee in Moscow show November sales of new passenger cars and LCVs fell 1.1% to a shade less than 230,000 vehicles - a considerable improvement on the precipitous drops recorded throughout almost the whole of 2014.

Russia's original scrappage scheme - previously slated to end this New Year's Eve - has now been extended in a US$185m programme designed to stimulate a moribund domestic market that has seen overseas OEMs with home-based production start to look nervously at the sanctions-hit country.

"The key reason for the market segment decline and sales decline is the decrease of disposable income and wages of the population, because of the high inflation rate and depreciation of the rouble exchange rate," Ernst & Young CIS Automotive Group Head, Andrey Tomyshev, told just-auto from Moscow .

"They - [November figures] are much better - however you have to understand this means parts of future demand which could be realised in the following next year have been realised now because people decided to buy cars this month. They don't know what is going to be the exchange rate next year.

"The government decided to extend the scrappage programme for the following year - the total amount of financing will be RUB10bn - the current programme will also be extended by RUB2.5bn to the end of December."

There is much speculation the better numbers are being accelerated due to future uncertainty and the scrappage programme, with fears of a resulting difficult period once the incentives end however.

"People who were planning to change car or buy a new car or perhaps to purchase it the following year, have shifted it to November and December, because of the current uncertainty and risks," said Tomyshev.

"Another reason is people are experiencing a growth in prices for the following year. In this month, you can still buy car from stock of previous year, which did not grow in price."

The effect of such uncertainty could have an impact on unemployment and to that end, the Ernst & Young Automotive Head added the analysts had commissioned a report, together with the Russian association of dealers, to try and quantify any staffing implications.

"Now we are finalising this survey and are processing data," said Tomyshev.

Among the top ten bestselling models so far in Russia, nine are locally produced.

The January - November period saw new car and LCV sales decline by 11.6% or 292,489 models compared to the same period of the previous year. This year 2,220,751 cars have been sold.

"Under unusual circumstances, unusual things are happening: November month result exceeds October result and total sales in November are almost at the same level as last year," said AEB Automobile Manufacturers Committee chairman, Joerg Schreiber.

"Retail demand has been extraordinary in recent weeks, helped by government subsidies and consumers rushing to get ahead of widely anticipated new year price increases.

"The outlook on December sales is rather promising as well, raising the prospect of a decent closing of a difficult year for the Russian car market."