According to automotive intelligence provider LMC Automotive, events unfolding in Ukraine following Russia's annexation of Crimea will have an impact upon all sectors of the Russian economy, including the automotive sector.
27 Mar 2014 | 4235 Views | By Autocar Pro News Desk
According to automotive intelligence provider LMC Automotive, events unfolding in Ukraine following Russia's annexation of Crimea will have an impact upon all sectors of the Russian economy, including the automotive sector.
The ruble has weakened by 10 percent against the euro since the beginning of the year, making imported ...
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According to automotive intelligence provider LMC Automotive, events unfolding in Ukraine following Russia's annexation of Crimea will have an impact upon all sectors of the Russian economy, including the automotive sector.
The ruble has weakened by 10 percent against the euro since the beginning of the year, making imported goods much more expensive. This exposes component suppliers selling into Russia as well as companies producing in Russia who still rely heavily upon imported components.
Russian new car sales came in at just under 2.6 million units in 2013, representing a decline of 5.5 percent compared to 2012.
This year started slightly better than expected – sales were down by just 1 percent in February – but the perceived deterioration in the economy, combined with the weakening currency, is likely to encourage already jittery Russian consumers to pull sales forward from later in 2014 in a bid to avoid significant price increases.
So far, some manufacturers have managed to keep price increases to a minimum by selling off stocks of 2013 model year cars, but these are now running low and price hikes are likely.
Automakers exposed to currency weakness
In spite of the expansion in Russian car production in recent years, the share of imported cars increased in 2013, meaning that they accounted for almost 36 percent of the market. A further 46 percent of sales were accounted for by producers building foreign-branded cars in Russian plants and for some of these vehicles, local content is still relatively low.
Conversely, domestic producers will benefit from the currency depreciation by becoming more competitive. Russian sales for the largest producer, AvtoVAZ, fell by 19 percent in the first two months of 2014, but because its cars feature a low proportion of imported components, the brand may be able to claw back some lost market share in the coming months as its rivals are unable to avoid substantial price hikes.
The outlook for the Russian economy was already slowing prior to the annexation of Crimea but recent developments mean that there is now a very real chance that in the short-term Russia could be plunged into yet another serious financial crisis. Longer term, Russia could face the dual risks of isolation and economic stagnation.
Forecast revision for 2014
LMC's previous forecast, issued under the assumption of stabilisation and no further escalation of tension, saw a drop of 2-4 percent in new car sales in 2014. Since that forecast was released, the Russian authorities have announced that they have scrapped plans to support the market via another loan interest subsidy scheme during 2014. Similar schemes were introduced in 2009 and 2013 and were helpful in reviving the car market. LMC Automotive says budgetary constraints may be behind the latest decision which means that a decline of at least 8 percent for Russian car sales in 2014 is to be expected.
A bleaker scenario would follow from the extension of sanctions by the West. Such a development would squeeze the economy by accelerating capital flight and prompting a further run on the ruble thereby triggering a severe tightening of monetary policy. Under such conditions the car market could decline by at least 10-15 percent and possibly by as much as 20 percent in 2014.
Hopes that Russia might overtake Germany in 2014 have long since evaporated. This means that the timetable for Russia to become Europe's largest car market has already slipped to the end of the decade at best.
Photograph: A Renault showroom in Russia.