Russian Passenger Car Sales Decline by 32% in February; Scrappage Scheme Introduced

The Russian light-vehicle market suffered another marked decline in February with sales plummeting by 32% year-on-year (y/y) to 91,922 units, according to the latest data set released by the Association of European Businesses (AEB). This was the 16th consecutive month that monthly sales volumes have declined in the Russian light-vehicle market following the onset of the global credit crunch, which had a devastating effect on what was, prior to the crisis, one of the fastest growing major passenger car markets in the world. 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. Despite the stabilising macroeconomic environment, passenger car sales have still not recovered. January's sales total was the lowest since the onset of the crisis and February's sales were little better. The cumulative year-to-date (YTD) sales total for January and February was 165,862 units, a 34% decline on the 252,895 units posted last year. The AEB claimed that this comparison was somewhat artificial as there were a large amount of market incentives fuelling the market from various OEMs in January and February last year. However, it should also be noted that despite these market incentives, January and February 2009 still recorded a double-digit decline, so the comparison was also already against a significantly lower base.

On a brand-by-brand basis AvtoVAZ retained its position as the Russian market leader and actually managed to outperform the overall decline in the market, with a 31% fall to 20,147 units. The best-selling Lada Priora significantly outperformed the market decline with a 13% y/y fall in sales of 6,569 units, and second-placed Lada Samara saw its sales fall 30% to 5,280 units. The best-selling foreign OEM General Motors (GM) suffered a worse decline than the overall market, with its volumes falling by 45% y/y during February, while sales of Ford and Nissan passenger cars more than halved during the month. Ford's sales declined by 60% y/y to 7,376 units, with the best-selling Focus model suffering as a result of its relatively high price in comparison to other models. Nissan also collapsed at a significantly more rapid rate than the market, with a 54% y/y fall to 6,315 units. Hyundai, Renault and Kia all grew their share of the market, with their models' lower price points helping them in a highly difficult market environment. Sales of the Renault Logan rose by 18% y/y to 4,085 units and it was the third best selling passenger car in the market in February.

Outlook and Implications

There is little doubt that a 34% y/y cumulative YTD decline for January and February's combined sales total is a dismal set of figures for the Russian light vehicle market. The Russian government will now be hoping that its scrappage scheme, which was launched on 8 March, will generate a significant increase in consumer interest in the local automotive market and a corresponding increase in sales. The Russian government 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. The voucher must be spent on a Russian-manufactured vehicle including a large number of foreign brands, including Ford, Chevrolet, Renault and Volkswagen (VW). AvtoVAZ is looking to generate a significant uplift in demand, something it has to do as it is almost entirely dependent on the Russian passenger car market. The company's Lada branded range of passenger cars will have their prices slashed as a result of the scheme.

According to a Vedomosti report, AvtoVAZ is looking to clear inventory of its entry-level 2105 by offering the model for just 99,000 roubles when bought with the scheme, while the more modern B-segment Kalina will be offered for 199,000 roubles. These prices will apply to vehicles manufactured before 15 February, with the specific intention of reducing excess inventory. According to the report AvtoVAZ had 55,000 units of spare inventory by the end of January. There is enough initial funding to help the purchase of 200,000 units and the scheme will continue until the funding runs out, or 1 November, whichever comes first. However, despite some stabilisation from a grim macroeconomic picture in 2009, the Russian economy is still suffering from poor consumer confidence and a tight credit market. It remains to be seen whether the economic underpinnings currently exist in Russia to support a significant uplift in the market. At this stage IHS Global Insight does not see that this will be the case, with the forecast for 2010 combined light vehicle sales only rising by 5% to 1.55 million units.