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Analysts: hard-hit Russian car market will take years to recover

February 10, 2015, 18:29 UTC+3 Alexandrova Lyudmila
© Vitaly Nevar/TASS

MOSCOW, February 10. /TASS/. The automobile is not a luxury but a means of transportation. This slogan-like quote from a once popular Soviet-era satirical novel published during the first pre-World War II horseless carriage boom has been a catch phrase in this country for decades. It looks like these days it is about to undergo a reverse reincarnation: the automobile is becoming a luxury again, mass media say.

Indeed, just eighteen months ago almost every resident of a Russian megapolis who was really eager to buy a car could afford to do so: lax credit terms and the availability of cars at reasonable prices offered such an opportunity to many residents of Russian big cities. The rouble’s steep dive last autumn and the surge in bank interest rates that followed put an abrupt end to that brief period of earthly paradise for both car sellers and buyers.

True, last December saw a quick surge of demand for cars, when people were rushing around in search of an opportunity to promptly spend their rouble cash that was losing value with every single day. Panic buying soon gave way to a very different kind of consumer sentiment: pessimism about economic prospects forced people to start saving for more crucial needs.

In the end, as the Association of European Businesses said on Monday, the Russian market of automobiles in January slumped to the crisis level of 2009 - the sales of new cars were down by 24% to 115,000 pieces. As the economy has entered a period of stagnation, experts’ forecasts look ever gloomier: PriceWaterhouseCoopers expects this year’s sales to shrink by 35% to 1.152 million cars. According to some experts the import segment will be the hardest hit to shrink by 55%.

According to the AEB’s news release, all ten best-selling models are made in Russia. January’s most well-sold car was Hyundai Solaris (8,200), placing 500 pieces ahead of the Russian market’s traditional leader Lada Granta. Sales by the Russian car market leader AvtoVAZ fell by 26% to 17,500 cars.

According to PwC, the segment of imported vehicles will see the worst fall of all by 55% to 290,000.

The rouble prices of US-made brands saw the greatest hikes from September 2014 to the middle of January 2015, and their sales dropped most significantly: Opel (price hikes averaged 56%), Chevrolet (52%), and Ford (45%). Japanese car makers raised prices by 25%, and European brands (Volkswagen, BMW, Audi, and Land Rover), by 15%-20%. South Korean vehicles kept expanding their share of the market to have raised prices by no more than 15% or less: Hyundai by 7% and Kia, by 14%.

The car market situation may get still worse with the sharp rise of the costs of owning a car in Russia, such as higher interest on loans and soaring prices of fuel, insurance, repairs, maintenance, etc."

Some experts predict that a number of foreign brands will have to leave the market. "Within the risk zone one finds mostly producers with relatively moderate selling statistics in Russia," one of the PwC’s leading experts, Sergey Litvinenko, said in a commentary for the daily Novyie Izvestia.

The director of the Higher School of Economics’ Centre for Business Tendencies Studies, Georgy Ostapkovich, believes that car sales in Russia this year may see a 50% drop. "As a rule the automobile market is the first to be hit: it happened in 1999 and in 2009, but then the situation gradually improved," he told TASS. The expert forecasts last year’s situation will continue throughout this year and well into next year. "There will be no real improvement over 21 months to come," he believes. Then the market will gradually recover, because the unsatisfied demand will be still there.

Ostapkovich said the decline in real incomes had forced Russians to save for the rainy day, so the hope for buying a new car will be the first to die. Or be postponed.

The decline in the import of foreign makes is unlikely to bring about import substitution and a significant increase in the sales of Russia-made cars.

"The moderate income customers have always preferred domestic makes anyway, while people of means are unlikely to ever have them," he said.

Nevertheless, the expert is certain that the European and US manufacturers will not quit the Russian market. "If they dare do so, Asia will be quick to take their niche. And getting back for them will be hardly possible," Ostapkovich believes.


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