Russia's Light-Vehicle Market Collapses by 49% in 2009; December Posts 38% Fall

The Russian light-vehicle market suffered the largest collapse of all the major global vehicle markets in 2009, with sales declining 49% year-on-year (y/y) to 1,431,542 units. According to data released by the Association of European Businesses (AEB) there was a slight improvement in the recent rate of decline in December, with volumes down 38% y/y to 80,086 units. However, this tells only part of the story as light-vehicle sales had already started to be hit by the global economic downturn in December 2008, so last month's sales were against a lower base of comparison than was the case in the earlier months of 2009. As a result, the AEB's claims that December's sales figures point towards a mild recovery in the market would appear to hold little water. The only factor that is likely to generate discernible positive growth in the Russian market is the proposed scrappage scheme. The chairman of the AEB Automobile Manufacturers Committee, David Thomas, said, "It is encouraging to see a slight improvement in December sales with a decline of only 38% compared to a full year drop of 49%. December has traditionally been a very strong month for car sales and I hope to see this positive development continue into 2010." However, Thomas admitted that 2009 had been something of an annus horribilis for the Russian automotive industry. He added, "2009 was an exceptionally challenging year for the Automotive Industry globally but particularly in Russia where we experienced year to year drops of nearly 60% in individual months." He also called for dialogue to continue between the manufacturers and the Russian government to ensure that the industry receives support to see it through the extremely challenging market conditions.

In terms of brand sales, local carmaker AvtoVAZ retained its customary position as the country's largest-selling passenger car brand in 2009. However, this rather masks the extremely difficult year that AvtoVAZ experienced as it struggled to avoid bankruptcy and survived only through hand-outs from the Russian government. As a result of its minimal exports AvtoVAZ is almost entirely dependent on the Russian market and thus suffered a massive decline in unit sales during 2009. For the full year AvtoVAZ marginally outperformed the overall market with sales of 349,490 units, a 44% decline on the previous year's figure. It also retained the top-four best-selling models in the market, with the Lada Priora, Samara, 2105/2107, and Kalina occupying those positions, respectively. However, these facts should not take attention away from the fact that AvtoVAZ has been close to collapse and that the company desperately needs massive structural reform and new models developed in conjunction with equity partner Renault. As a result, the company's plans to increase production by half in 2010 look ambitious to say the least, given the flat sales expected in the market (see Russia: 14 January 2009: AvtoVAZ Looks to Raise Production by 51% in 2010).

The best-selling foreign passenger car in the market last year was the Renault Logan, as highlighted by IHS Global Insight last month (see Russia: 31 December 2009: Logan is Russia's Best-Selling Foreign Passenger Car in 2009; Presents Opportunities and Problems for Renault AvtoVAZ Alliance). It appears that the economic downturn has favoured the Logan, with the combination of its Lada-challenging price point and modern design and engineering attracting customers. The model's basic price starts at 299,000 roubles (US$9,946), which although still significantly more expensive than the entry-level Ladas is much cheaper than the next cheapest foreign model. Although the Logan's overall sales volumes fell 27% to 53,869 units in 2009, this meant that it massively outperformed the fall in the overall market and enabled it to secure a substantial gain in market share. Indeed, in December the Logan's volumes declined by just 2% y/y. However, despite the Logan, Renault was only Russia's fifth best-selling group in 2009. In terms of foreign original equipment manufacturers (OEMs), it was beaten by Chevrolet, Ford, and Hyundai. Chevrolet and Ford suffered identical overall volume declines during the year of 56%, with their best-selling models—the Lacetti and the Focus, respectively—suffering big declines, although the Focus marginally outperformed the overall fall in the market. Hyundai suffered the largest outright sales volume decline of all the top-five manufacturers, recording a slump of 61% to 74,706 units as it suffered from not having a wholly owned and controlled manufacturing presence in Russia, something it is in the process of addressing.

Outlook and Implications

The global economic crisis that emerged suddenly in September and October 2008 wreaked havoc on the already wobbling Russian economy. Declining oil and gas revenues as a result of the global recession saw public revenues decline and hit the private sector hard. This was coupled with the collapse of the international credit markets, on which Russian financial institutions had depended heavily, and a corresponding decline in the value of the rouble, which raised the cost of foreign imports. All of these factors had a catastrophic effect on consumer confidence, and even those Russian consumers who still had money to spend suddenly became far more careful with their cash.

There is some light at the end of the tunnel for the Russian light-vehicle market in the shape of the government's scrappage scheme, which is due to be rolled by the end of March. There had been reports that the scheme was already being trialled in major cities such as Moscow and St Petersburg, but it now appears that a co-ordinated national roll-out will take place in March. Under the scheme, the government will pay owners of vehicles more than 10 years old 50,000 roubles to trade them in and replace them with a domestically built vehicle. It is hoped that this will provide the market with a greater boost than the subsidised loan packages applying to around 30 Russian or Russian-built passenger cars costing up to 600,000 roubles. However, it remains a subject of debate whether the Russian economy has recovered to the extent that the scheme will support growth. Even if there is a wide-scale take-up of the scheme, the 10 billion roubles being supplied by the Russian government will only support the sale of an extra 200,000 units, in a market that declined by 1.43 million units in 2008 in comparison to the 2.9 million units that were sold in 2008.

IHS Global Insight forecasts that 2010 will see a mild recovery in the light-vehicle market in Russia as a result of the positive effect of the scrappage scheme and a gradually more robust macroeconomic environment. As a result, we foresee an 11.1% y/y increase in the combined market this year to 1.6 million units