The iconic Lada is back as Russia’s best-selling car

The iconic Lada is back as Russia’s best-selling car
By Ben Aris in Berlin March 10, 2017

The iconic Lada is back as Russia’s best selling car in February as cash-strapped Russians trade down to cheaper models.

Russia’s economic stagnation that has been squeezing real disposable incomes has been a godsend for the beleaguered maker of the country’s most famous car, AvtoVAZ, owned by Renault of France.

Earlier this year, polls showed that Russians were starting to think about making big ticket purchases again after real disposable incomes finally turned positive in the second half of 2016 thanks to falling inflation.

However, with less money in their pocket, rather than splash out on a flashy foreign name, increasing numbers of Russian have turned back to the “Zhiguli” as Ladas are known in Russia, although they are buying the company’s new models rather than the well-known rip-off of the Fiat 124 that was AvtoVAZ’s leading car for decades.

Russia’s car and light commercial vehicle sales declined 4% year-on-year in February after the 5% y/y drop in January, according to the latest data from the Association of European Businesses (AEB).

“January and February are seasonally low months in terms of sales and are not that representative of prevailing trends, with more visibility likely to emerge in March and thereafter,” VTB Capital said in a note. Overall, analysts expect the Russian auto market to see a moderate recovery this year of 5-6% y/y after four years of decline.

However, the surprise from the new figures is that Russian brands all improved their standing in the ranking of best-selling cars, with Lada taking the number one slot for the first time in years.

Cars made by Lada (AvtoVAZ), UAZ (Sollers) and GAZ were among the top ten selling brands in February, and all showed growth both in the month and year to date.

Lada saw its sales go up 5% in February y/y to become the most popular model followed by Kia (8%) and Renault (9%).  Among the remaining top ten, Volkswagen was fifth after seeing sales go up 18% y/y, chased by UAZ, which makes a sort of Russian SUV-cum-Jeep (#9; +13% y/y), while Skoda (#8; +5% y/y) and GAZ (#10; +4% y/y) increased their sales by mid-single digits.

To highlight the popularity of the “made in Russia” brand, some of the foreign names saw double-digit declines in sales bring the overall sales down into the red for the month: Hyundai (#4; -11% y/y), Toyota (#6; -20% y/y) and Nissan (#7; -28% y/y).

“We would not read too much into this mixed performance in February, as well as the overall market decline during the period, as we expect a better picture to emerge in March-April when the low season, with its traditional volatility, is over,” VTB Capital said. 

AvtoVAZ’s improvement in sales is probably due to the introduction of two new models, the Lada Vesta (the third best-selling model in February) and the Lada XRAY (the twelfth best-selling model) along with persistent demand for the low-cost Lada Granta (the second best-selling model).

AvtoVAZ has been wracking up huge losses in recent years and in February announced it would issue RUB95bn (€1.5bn) worth of shares to help pay down outstanding debt.

But a note of optimism is returning with Carlos Ghosn, general director of Renault, quoted by Vedomosti as saying that AvtoVAZ will turn a profit in 2018 regardless of instability on the Russian car market based on the company’s mid-term development plan. The strong sales of the two new brands in February augur well for this plan, which come on top of a 5% gain in sales in January.

Even more ambitiously, the company hopes to increase its exports this year by half, mainly to other Commonwealth of Independent States (CIS) countries, which has become possible thanks to the falling cost of labour.

Still, the company recently released results for 2016 that show it is still losing money, albeit a little more than half as much as the year before.


AvtoVAZ 1H16 IFRS financial highlights





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Source: Company data, VTB Capital Research