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Russian light-vehicle market decline remains unrelenting in May with 14.5% y/y fall

09 June 2016 IHS Markit Automotive Expert

The Russian light-vehicle market's rate of decline was faster in May than April, which suggests any kind of sustained recovery is still a way off.

IHS Automotive Perspective

  • Significance: The Russian light-vehicle market has undergone another accelerated decline in May, which defeats the notion that some kind of moderation was occurring in the extremely weak market environment with a 14.5% y/y fall to 104,785 units.
  • Implications: After the fall in the market moderated slightly to a single-digit percentage rate for the first time in over a year in April, there was some hope that this represented the beginning of a mild recovery, especially given the low level the market is already at. However May's sales figures indicate the market continues to bump along the bottom and any kind of sustained recovery remains some way off.
  • Outlook: The macro conditions that provide the foundations of Russia's light-vehicle market remain strained to say the least with IHS Automotive forecasting a market for the full year of 1.41 million units, down from 1.61 million units last year.

The Russian light-vehicle market fell faster in May than it did in April with a 14.5% year-on-year (y/y) decline to 107,665 units, which would indicate that any hope of consistent moderations in the market's decline were premature. Given the current low sales level, this has to be seen as a disappointing result and it leaves the year-to-date (YTD) sales tally at 548,119 units with an almost identical fall of 14,7% y/y. There is evidence the wider economy has reached the bottom of its cycle, but it will take a while before this translates to sustained improvements in the country's vehicle market. Commenting on the current state of the market and the disappointing accelerated decline in the market in May the head of the AEB vehicle manufacturers' committee Joerg Schreiber said, "Total sales result in May demonstrates that the road towards market stabilization remains bumpy. As the car market keeps struggling, the macroeconomic picture gives reason for cautious optimism: The prevailing view among the experts appears to be that the country's economy has passed the low point, and that the outlook until the end of this year is stable at least, or even positive moving into 2017. Such perspective is encouraging of course, but yet has to materialize in consumers' minds before it can translate into growing confidence and purchase activity. For now, patience remains the order."

The fall in the wider market was marginally beaten by Russia's leading vehicle maker Lada, although this will be slightly cold comfort given the company's current unprecedented rate of model renewal; it recently launched the new Vesta and the X-Ray crossover. The brand's sales fell by 10% y/y in May to 20,957 units, while the brand's YTD decline also just managed to outperform the overall fall in the market, with an 11% y/y decline in sales to 114,270 units. This corresponded with the company's entry-level model, the Granta, topping the sales chart during May, down by 504 units y/y to 7,967 units. Kia was one of the best performing brands in Russia during May; its overall sales only fell by 3% y/y during the month to 11,997 units, and YTD sales moderated in terms of their decline with a 9% fall to 56,986 units. The Rio was the third best-selling car overall during the month, selling 7,549 units, up by 109 units y/y. The top three in May was made up of the usual triumvirate, the Solaris took second spot with sales of 7,627 units, although this represented a huge decline of over 3,000 units from last May, when it enjoyed a particularly strong month as sales were helped by the Russian government's scrappage incentive and other manufacturer incentives. This hit the Hyundai brand's sales with a 22% y/y decline during the month to 10,603 units, with an equivalent decline during the YTD to 52,333 units. The Solaris remained the best-selling car in the Russia for the YTD but has lost nearly 7,000 units on last year's tally in line with the difficult market conditions and the fact the model is getting on in its model cycle. Renault, Toyota and Volkswagen (VW) were next up in fourth, fifth and sixth and all outperformed the market significantly with single-digit percentage declines of 5% and 9% in the case of the first two brands while VW did well to match last year's May result exactly. Strong sales of the Renault Duster and the Polo helped these results.

Outlook and implications

There is some evidence that the wider macroeconomic environment in Russia is starting the slow process of recovery after weathering the impact that low energy prices, sanctions and the weakness of the rouble have had. The current slight recovery in the oil price will help the Russian economy marginally but the structural issues and lack of investment that is a feature of the economic environment will not change in the short and medium term under President Vladimir Putin's administration. The Russian economy was already in recession at end-2014, and the downturn accelerated in 2015, with a 3.7% y/y decline in GDP. Moreover, energy prices resumed their descent in the third and fourth quarters of 2015 and into early 2016. A "flash" estimate of GDP for the first quarter of 2016 put it down by 1.2% y/y. Despite a modest rebound in the second quarter, oil prices are expected to remain well below earlier peak levels in the near-to-medium term. The policy interest rate, boosted dramatically to dampen inflationary pressures and defend the currency in the final quarter of 2014, is only haltingly being lowered in the face of concerns about renewed inflationary risks. Strong inflation, propelled by a weakening rouble, has cut into households' purchasing power. Investment has suffered and capital flight accelerated when economic sanctions were imposed following Russia's annexation of Crimea and Russian backing of separatist militias in the east. Estimates are that net capital outflow in 2014 amounted to USD152.9 billion, compared with USD60.3 billion in full-year 2013, and continued in 2015, but at a slower pace to reach USD58.1 billion. We now have GDP contracting a further 1.9% in 2016. A modest further contraction is expected in 2017, with a return to growth in the second half of that year. So while there are a few positive indicators in overall terms, it is going to be a long and sluggish recovery in store for both the Russian economy and passenger car market For 2016 IHS Automotive is forecasting light-vehicle sales of 1.41 million units, a decline of 14.4% which is almost exactly in line with the fall we have seen in the first five months of the year.

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.


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