Russian Car Sales Expected to Fall by 25% in 2015

The Russia-based Association of European Businesses (AEB) says the Russian car market will take a huge hit this year

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Russia's flagship brand, the Lada, made by AvtoVAZ

 This article originally appeared in Business New Europe

Sales of cars in Russia will crash by about 25% in 2015, says the closely watched forecast from the Russia-based Association of European Businesses (AEB), but the fall will not be as big as in 2009 when they halved.

Car sales recovered somewhat in 2014 after the Russian government restarted its cash for clunkers scheme, subsiding loans on new car purchases if buyers traded in an old car.

Russian car and light commercial vehicles (LCV) sales rose 2.4% year-on-year to 270,653 units in December, reports VTB Capital, but that still led to an overall fall in sales of 10.3% to 2.5mn units in 2014, according to AEB.

The December uptick was driven by the rapid devaluation of the ruble as Russians scrambled to convert their free cash into some sort of fixed asset that would hold its value in a time of crisis, but could be easily sold again when things calmed. The boost in sales from the devaluation effect is expected to evaporate as soon as this month.

"The auto market is sliding into a double-digit decline [in 2015], in our view," VTB Capital analysts said in a note released on January 15.

Car producers have done their best to catch up with the falling ruble value and have introduced significant ruble-denominated price hikes in the last few weeks that will only add to the downward momentum in sales.

"The first quarter of 2015 will be especially challenging, given that it will take time for consumers to get used to new price levels along with the unfavourable base effect (first quarter of 2014 was relatively strong) and the pull-forward demand in late 2014. According to AEB, Russia's car and LCV sales will fall 24% to 1.89mn in 2015, while our forecast implies a 15% drop to 2.1mn," VTB Capital said in its note.

Russia's flagship brand, the Lada, made by AvtoVAZ, did worse than the rest of the sector in 2014, despite being a big beneficiary of the cash-for-clunkers scheme. Sales of Ladas fell 9% year-on-year to 35,315 units in December and an overall fall of 15% to 387,307 units in 2014. Russian consumers are now almost entirely focused on foreign brands after a decade of income growth and easy access to credit.

However, as Russia's premier Russian brand with 81% of its components made locally, AvtoVAZ is well positioned to outperform in 2015, say analysts, as it will be much less affected by the devaluation than its competitors. Under the duties reduction deal struck at the start of last year, most of the foreign manufacturers with factories in Russia still import some 40% of their parts from abroad. Moreover, Avtovaz, which is now owned by the Renault-Nissan joint venture, is planning to launch a new model, the Lada Vesta, in the autumn of 2015.

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