Russian car sales up by a quarter in February as recovery continues

Russian car sales up by a quarter in February as recovery continues
By bne IntelliNews March 7, 2018

The sale of cars in Russia was up by a quarter y/y in February, as the recovery of the sector continues its strong growth, the Association of European Businesses (AEB) reported on March 6.

Russian car and LCV sales continued to recover strongly in February, with a 25% y/y increase to 133,177 units, according to AEB, which tracks the sales.

“This brought January-February sales to 235,641 units, up 27.5% y/y,” says Vladimir Bespalov, an analyst with VTB Capital (VTBC). “The car sales trend points to an increasingly upbeat consumer outlook, according to our macro team. While some slowdown is likely in the coming months on the back of a higher base (the auto market began to recover in March 2017), the strong start to the year points to the likelihood of double-digit growth this year, with our forecast implying an 11% y/y advance in 2018F.”

Russian car sales are leading the way and growing faster than the sector’s aggregate. The iconic Lada is still Russia’s best selling car and Russian-made cars saw sales increase 31% in January, and Russian brands captured a quarter of the country's car sector in 2017, Autostat agency reported on January 17.

Avtovaz saw its Lada sales increasing 37% y/y in February and 33% YTD, which made Lada the leading brand with a 20.5% share in January-February (20.6% in February),” said Bespalov. “Meanwhile, Sollers' UAZ sales declined 24% y/y in February and 12% YTD, which was a major disappointment.”

The share of cars in the Russian assembly in the sales of cars in Russia in 2017 increased by 4pp from 79% to 83%, according to consultants PwC, reports Vedomosti – an absolute historical record, which was largely achieved thanks to state support of the sector and subsidies for car loans. At the same time the government has imposed rules that give tax breaks and other benefits for increasing the localisation of production, according to Oleg Malyshev, head of the department of transaction support for PwC in Russia. As far back as in 2012, the share of cars in the Russian assembly accounted for 65%, according to PwC.

In total, 1.475mn cars were sold last year. Of these, 255,000 were imported, which is 7% lower than in 2016. Sales of Russian brands increased by 14% in 2017 and now account for 22% of the market, while foreign brands that are assembled in Russia saw production rise by 19% in 2017 and now account for 61% of the market, PwC says.

The auto market recovery was still driven by the mass segment in February, while premium brands continued to show a mixed performance.

Among the Top 5 brands, Lada (#1; 20.6% market share) saw sales increase 37% y/y in February, KIA (#2, 13.4%) and Hyundai (#3; 10.1%) advanced 44% y/y and 43%, respectively, while Renault (#4; 8.5%) rose 17% and VW (#5; 5.3%) was up 11% y/y, VTBC reports.

Among premium brands, BMW (+12 y/y), Mercedes (+8% y/y) and Porsche (+1% y/y) increased sales, while Land Rover (-6% y/y), Audi (-11% y/y), Jaguar (-20%), Volvo (-22% y/y), Infinity (-24% y/y), and Lexus (-27% y/y) were down.

“According to our macro team, the improvement in car sales bodes well for the increasingly upbeat consumer outlook. In the recent CBR survey, 26% of those polled see the current conditions as favourable for making sizable purchases (a level not seen since the start of the 2014-15 recession),” says Bespalov.

“We believe that the improvement in consumer confidence can in general be traced to the stable labour market conditions and in particular to the current (real wages are up +6.2% y/y in February) and expected recovery in real wages, in both the private and public sectors,” Bespalov adds.

However, other Russian carmakers are not doing as well as Avtovaz. Despite the strong market trend, Sollers' UAZ sales plummeted 24% y/y in February. This weak performance also brought YTD sales trend into the red.

“We believe that the company is still struggling to improve its fleet sales on the back of some state support programmes being unwound,” says Bespalov. “On a positive note, Sollers' joint venture with Ford continued to improve its performance, with Ford sales increasing 50% y/y in January and 45% YTD. Still, we note that Ford sales in absolute terms, which stood at 7,566 units in January-February and 50,360 units in FY16, remain relatively small compared with the total annual capacity of the JV's three plants (350,000 units).”

Among other Russian producers, GAZ LCV sales increased 20% y/y in February and 16% y/y YTD, reports VTBC.