Sales of new Light Commercial Vehicles (LCV) in Russia declined by 14.4% y/y in January-July 2016 to 0.78mn units, according to the August 8 press release of the Association of European Businesses (AEB) monitoring the industry.

July car market results disappointed analysts who question the previous outlook on possible recovery towards the end of 2016 and the state of demand in the economy as a whole.

Car sales have been improving in the beginning of 2016, but since May the decline rate had accelerated. In July alone, the sales of the LCVs were 16.6% smaller y/y at 0.109mn, declining faster 2.1pp faster then in June and 8.1pp faster then in April.

“The market as a whole is still nowhere near the shape needed to at least consolidate at last year’s modest level,” chairman of the AEB Joerg Schreiber commented.

The number of customers willing to spend money on a new car is limited despite stable prices, high purchase incentives and continuing government support the basic, Schreiber argues, adding that long-term demand potential remains to be unlocked, but it is not clear when will the turnaround occur.

AEB neither reiterated neither revised the market outlook in July press release. Previously in June the association reiterated its forecast of 10.3% decline in the market for 2016 overall, which implied improvement of the negative sales trend to 6%-7% decline in the second half of the year.

“The market will continue to decline, albeit slower than last year,” UralSib Bank analysts forecast, arguing that weak consumer confidence and higher car prices are not supportive for sales volumes.

“This is the weakest month this year,” ATON research commented on August 9, arguing that July data “shows no signs of the recovery we had hoped to see in 2H16” and is “is a bad indicator for the entire Russian economy”.

VTB Capital on August 8 also questions what the car sales number mean for demand that is still to catch up with modest recovery of output seen recently.

“In our view, weak consumer demand, the persistent macro uncertainties along with continuing gradual increases in car prices keep putting pressure on demand for new vehicles,” the bank writes.

Overall, the bank believes the current car market environment remains unfavourable for automotive stocks. VTB see downside risks to the current projection of the market shrinking 5%-10% y/y for 2016 overall and believes that the full-year decline could be in the lower teens, unless there is a notable improvement in the underlying trend in the coming months.

“The sales dynamics lag behind the targets for this year, which will not facilitate the investors' interest in the sector,” BCS Equity concludes.

One of the players that outperformed the market in July was car assembler Sollers, but BCS attributed this to base effects and emptying the stock ahead of launching a renewed UAZ Patriot model this fall.

ATON also remained sceptical.“Although Sollers outperformed the market, we do not expect to see any reaction in its stock price,” the analysts wrote.