Passenger car sales in Russia slip by 20% y/y in September as accelerated falls continue

The Russian light vehicle market posted another accelerated decline in light vehicle sales dropping by 20.1% year on year (y/y) to 197,233 units, according to the latest sales data released from the Association of European Businesses (AEB). This followed on from the 25.9% y/y declining in August and was the fourth consecutive accelerated monthly decline the market has recorded. The result meant that for the first three quarters of the year sales fell by 13.0% y/y to 1,779,947 units. Chairman of the AEB automotive manufacturers' committee Joerg Schreiber said, "September sales show a visible improvement over August, reflecting the end of the holiday season and quarter closing efforts by the market participants. Industry baseline performance however remains weak, demonstrated in the ongoing significant volume erosion compared to prior year. Until year end, the negative sales trend should be mitigated somewhat as a result of government measures in support of domestic vehicle production. We do not expect however a fundamental trend reversal for the total market during the fourth quarter of the year. Considering also the weaker than expected market performance in the third quarter, we are maintaining our full year outlook for the sales of PC and LCV in 2014 at a level of 2.45 million units, equivalent to a 12% drop compared to 2013 result of 2.77 million units."

Russia's leading light-vehicle manufacturer AvtoVAZ actually enjoyed a relatively strong month in September; its Lada brand strongly outperformed the overall decline in the market with a 9% y/y decline in sales to 36,513 units. This contrasts with the 32% y/y decline in sales it recorded in August. September's improved performance marginally lifted the y/y decline in sales to 17% for the first three quarters of the year, with a figure of 282,802 units. This result was fuelled by a substantial uplift for Granta sales, the best-selling passenger car in Russia, with sales rising by more than 2,000 units during the month to 16,924 units thanks to strong deals on the model. The Renault brand was in second spot with a result that also outperformed the overall market significantly with an 11% y/y fall to 15,406 units. The Renault brand has the fifth and sixth best-selling models, with the Duster and the Logan respectively, although the Duster posted a significant fall of 20.5% y/y to 5,562 units in September. The Logan, by contrast, posted a strong uplift in sales of almost 1,500 units to 5,640 units. In the first three quarters Renault sales fell 10% y/y to 139,434 units. Renault beat Hyundai in September by 8 units to put the South Korean brand in third place on 15,398 units. The Hyundai Solaris stayed second in the best-sellers list with sales of 10,001 units. However, in the first three quarters Hyundai was one of the strongest performers with just a 2% decline – only Toyota posted a better performance. Eighth-placed Chevrolet was once more the market's real lame duck as the model cycle issues affecting the Cruze and the Niva once more hit home, with sales collapsing 49% y/y. This increased the year to date (YTD) decline to 30% y/y to 89,891 units.

Outlook and implications

The Russian light-vehicle market posted its fourth consecutive accelerated sales decline in September and further confirmed the downward pressure on the market from a number of factors, including the collapse of the currency which is putting up showroom prices, the price of completely built up (CBU) imports and imported components. In addition the ongoing tension between Russia and the West continues to undermine confidence while the sanctions placed on Russian financial institutions by the EU and the US are also damaging consumer lending. IHS forecasts that the effect of sanctions will send the Russian economy into recession in 2014, with a decline of 0.5%, and limit the rebound in 2015 to just 0.9%. We have cut our projection for 2016, as well, from 2.5% growth to just 1.5%, but thereafter growth rates are projected to recover to the 3.0%+ range through the medium term. The investment climate remains highly unsatisfactory. Russia, along with other emerging markets, experienced a sell-off of assets by foreign investors in early 2014 amid poor end-year growth reports from the BRIC (Brazil, Russia, India, China) countries and the announcement that quantitative easing by the US Federal Reserve, which had fuelled investment in emerging markets, would be wound down. Russia is also continuing to experience capital flight, with funds leaving the Russian private sector on a net basis through 2013, to the tune of USD62.7 billion, according to the Central Bank of Russia.

Overall the environment for the Russian light-vehicle market and the OEMs operating in is deteriorating and this has led to a host of plant stoppages and manufacturers look to balance inventory with demand. The accelerated decline recorded in September was marginally helped by the Russian government's vehicle scrappage scheme (see Russia: 29 August 2014: Russian government will allocate RUB10 bil. to second scrappage scheme, according to minister) which was introduced at the beginning of the month. The scheme will run from 1 September until the end of the year, and will provide RUB10 billion (USD273 million) in order to help subsidise the purchase up to 170,000 new passenger cars, LCVs, trucks and buses. This is one of the main differences from the first scrappage scheme, which only supported the purchase of passenger cars. Buyers of new passenger cars will be eligible for a discount that starts at RUB40,000 when scrapping their old vehicles, while the discount for commercial vehicles will start at RUB350,000. However, it is quite likely that such is the level of macro weakness in the Russian market that the effectiveness of the scheme this time around will be somewhat limited. This may also be the case because of the success of the first round of the scheme which was launched in 2010. However, the scrappage scheme did have a positive impact on the Lada brand's performance in September during which it at least comfortably outperformed the decline in the overall market. For the full year IHS Automotive's current forecast marginally undershoots that of the AEB; our latest figure puts the market at 2.40 million units, which is a 16% fall on last year's 2.79 million units. We also forecast sales falling further to around the 2.2 million market in 2015 and 2.3 million in 2016, before rising back to almost 3 million units in 2020. the figure, besting the previous market peak of 2.96 million units posted in 2008.