IHS Global Insight Perspective | |
Significance | The first sales month influenced by the Russian scrappage scheme at least saw the recent accelerated rate of sale decline arrested to 7% in March to 126,701 units as light-vehicle sales declined by 25% in the first quarter, according to the Association of European Businesses. |
Implications | March's sales result may be viewed as being somewhat disappointing given the onset of the scrappage scheme, but as the scheme was only launched on 8 March, April will be the first full month of sales influenced by the scheme. |
Outlook | The long-term effect of the scheme remains to be seen given the still febrile economic conditions in Russia and the slowdown in the consumer lending market, which was one of the main factors in the industry's decline last year. |
The Russian passenger car market has at last had some positive news in March as a result of the country's new vehicle scrappage scheme, which at least arrested the accelerated decline in sales that has been a characteristic of the Russian market since the onset of the financial crisis. The market recorded a 7% decline in sales volume during March with sales of 126,701 units, in comparison to the figure of according to data published Association of European Businesses (AEB), this was despite the launch of the scrappage scheme and the fact that March had one more working day than March 2009. However, March's sales did not enjoy the full effect of the scheme as it was only launched on 8 March, making April the first full month's sales results subject to the effect of the scrappage scheme. However, March's Russian light vehicle sales were actually a significant improvement on January and February's sales, with volume declining 25% y/y during the first quarter of the year.
Russian Light-Vehicle Sales by Brand | ||||||
Brand | Mar 2010 | Mar 2009 | Change % | YTD 2009 | YTD 2010 | Change % |
Lada | 34,177 | 30,266 | 13 | 88,720 | 71,632 | -19 |
Chevrolet | 9,370 | 9,387 | 0 | 30,268 | 20,539 | -32 |
Hyundai | 6,068 | 6,252 | -3 | 21,391 | 17,889 | -16 |
Kia | 7,079 | 5,399 | 31 | 13,710 | 17,659 | 29 |
Renault | 7,605 | 6,293 | 21 | 15,011 | 16,110 | 7 |
Ford | 7,433 | 11,507 | -35 | 14,809 | 29,956 | -51 |
Toyota | 4,681 | 5,507 | -15 | 19,356 | 12,046 | -38 |
GAZ | 4,723 | 5,172 | -9 | 12,087 | 11,140 | -8 |
Daewoo | 4,818 | 5,764 | -16 | 11,692 | 10,886 | -7 |
Nissan | 4,174 | 9,312 | -55 | 22,927 | 10,489 | -54 |
Source: AEB |
On a brand-by-brand basis, Russia's best-selling passenger car manufacturer AvtoVAZ has been one of the biggest early benefactors of the Russian passenger car scrappage scheme. The company is able to offer its so-called "classics" range of the 2105 and 2107 at a very low price as result of the scrappage scheme. The 2105 is Lada's cheapest car—and thanks to the 50,000-rouble vouchers, its price has fallen by around one-third. Without the discount, the Lada 2105 starts at 163,576 roubles (US$5,560), while the Lada 2107 starts at 176,307 roubles. However, other Lada models have experienced little or no uplift, with the Priora getting almost no applications as a result of the scrappage scheme. The Lada 2105, at a special price of 99,000 roubles, sold out in a few days, and now dealers are trying to direct buyers' attention to other models that have lower levels of demand. This helped bolster the group sales of Lada's parent company by 13% y/y during the month to 34,177 units, albeit from a somewhat low base. Chevrolet was the best-selling foreign brand during the month, as has been the case in the first two months of the year, with sales being supported by the high-volume Niva and Lacetti models, although in actual fact the latter experienced a substantial decline in sales during March. Chevrolet's brand sales were actually almost identical to March 2009 at 9,370 units despite the onset of the scrappage scheme. Third-placed Hyundai's sales actually declined by 3% to 6,068 units, as some of its Russian model line-up is produced outside the country and therefore unable to benefit from scrappage. Kia continues to be the best performing OEM in terms of generating growth in Russia, with a highly positive 31% uplift in sales as a result of strong sales of the Rio and the Sportage sport utility vehicle (SUV), which are now being manufactured in Russia.
Outlook and Implications
Unlike other scrappage schemes that were rolled out across Western Europe last year, the Russian scheme has taken a long time to be rolled out following the marked decline in sales which was experienced in Russia in 2009 when the light vehicle market halved. Governments in Western Europe reacted much more quickly to the crisis and put schemes into place which immediately increased demand and released pressure on the beleaguered retail automotive industry. The Russian scheme may be more about limiting further declines and seeing some kind of stabilisation rather than the kind of accelerated growth that was generated in the German market for example. March's sales represented the 17th consecutive month that monthly sales volumes declined in Russia since the beginning of the global financial crisis in September 2008. The Russian economy suffered a simultaneous collapse in the value of the rouble, the stock market and the availability of credit in the second half of 2008. This had a corresponding negative effect on consumer confidence and credit availability.
The Russian government's scrappage scheme is offering a subsidy of 50,000 roubles (US$1,677) to consumers willing to scrap a car which is at least 11 years old. While this is a significant amount, especially given the low price point of many of the cars that are on sale in the Russian market, it remains to be seen whether the macroeconomic conditions exist to support the accelerated increases in sales seen generated elsewhere with vehicle scrappage schemes. The Russian economy is embarking on recovery from a deep recession suffered in 2009 but will enjoy only a moderate rebound in 2010. The Russian economy has been overly dependent on energy export revenues to drive domestic growth. Energy prices rebounded partially by mid-2009, but are seen to rise only gradually in the near-to-medium term. In addition, the tightening of credit conditions worldwide created serious liquidity problems for Russian banks and enterprises. Falling exports, faltering domestic demand, and accumulating payment arrears plagued the industrial sector, and unemployment remains stubborn.
As a result in IHS Global Insight is forecasting only a minor uplift in full-year light vehicle sales for the year of 5% to around 1.55 million units. This compares to 2008's market which hit more than 3 million units.