Reduction of Car Sales is Gaining Momentum

In August, sales of new cars and light commercial motors in Russia – both imported ones and assembled at Russian motor works fell by 26% to 172,000 cars. On the basis of eight months of 2014, the market fell by 12% to 1.58m cars.

Such a reduction of demand was observed earlier only in the crisis year of 2009 when in May sales dropped by 57% as compared to May 2008.

Source: The Association of the European Businesses (АЕB).
Fig. 1. Sales of new cars and light commercial motors in the Russian Federation, units

A permanent decrease in sales has been observed since March. Demand on new cars fell by 29%; on the basis of the results of March 243,335 cars were sold, while at the end of August, the mere 172,015 cars.

The above situation can be explained by negative economic trends which have had an adverse effect on the Russian motor market for a number of months. They include slowdown of economic growth rates, a complicated foreign economic situation, growth in prices on cars due to depreciation of the ruble exchange rate and growth in interest rates, as well as a lack of state support programs.

Due to unstable economic situation, Russian banks not only toughen their requirements to borrowers, but also raise interest rates on auto loans by 2 p.p-3 p.p. Taking into account the fact that in 2013 in Russia over 50% of cars were bought on credit, growth in interest rates -- which were already rather high even before that – will in no way stimulate sales of new cars. The evidence of that is the statistical data of H1 2014 which shows that the number of auto loans provided by banks fell by 19% as compared to H1 2013.

It is unlikely that that trend will radically change in the near future, at least, till the end of the year. The Russian motor market expects support from the state, however, the new state program on utilization of old cars -- which program has been in effect from September 1, 2014 and on which implementation Rb 10bn of budget funds was allocated – may be insufficient to overcome the existing situation and by the end of the year sales of new cars will fail to exceed those of 2013.

Dina Larionova, Expert of the Structural Research Center