OREANDA-NEWS. February 12, 2015. PwC Russia has published a report on the 2014 results in the automotive market, both globally and in Russia.

The year 2014 was quite eventful, with many developments having a significant impact on the Russian economy, including the automotive industry. The drop-off in sales that was evident throughout most of the year was suddenly replaced by panic buying in November-December. In just a few short weeks, sticker prices on cars and many other consumer items rose sharply. In this latest report by our Automotive Advisory practice, PwC takes an in-depth look at major market trends, analyses the cost of owning different classes of cars in various Russian cities, and discusses potential government support measures for the industry, as well as a host of other topics.

Key findings:

The shape of Russia’s automotive market in 2014 was influenced by a range of divergent factors, not least of which were the country’s complicated macroeconomic situation and the significant weakening of the Russian rouble. New passenger car sales in Russia (excluding LCV) continued their downward trend, totalling 2.3 million units (representing a y-o-y decline of 10.1% against 2013). Similar to the previous year, slumping sales were also recorded by other BRIC countries (with the exception of China). At the same time, mature markets in the US, Europe and Japan demonstrated positive growth trends.

PwC experts note that the rising new car prices seen in late 2014 will continue into 2015, which will have a negative impact on market behaviour. A number of automakers have already raised their prices by ten percent or more. Against this background, car owners and potential buyers have now begun to pay more attention not only to the car’s brand and road performance, but also to the cost of owning it. Moreover, some consumers are even considering whether they can afford a specific car model, or whether it has now become an unaffordable luxury that’s beyond their means. PwC’s analysis of the cost of car ownership provides answers to a number of relevant questions, such as: What kind of expenses will motorists incur for the upkeep of cars in different categories; which related expenditures will be most significant; and which could potentially be cut?

Examining the 2014 market trends , PwC experts have identified three main stages:

  • A market slowdown in the first quarter that resulted from the wind-down of preferential auto loan programmes;
  • A mid-year sales slump driven by market uncertainty resulting from the imposition of sanctions amid increasingly strained political relations with a number of countries;
  • The fourth quarter of 2014 saw Russian consumers rushing to buy new cars as the value of the Russian rouble plunged amid expectations of rising prices. At the year-end, the Russian auto market received some much-needed support from the government’s car fleet renewal programme (generating scrappage and trade-in subsidies), as well as from exports to Kazakhstan and Belarus. Buyers from these two Customs Union countries purchased about 90,000 cars in Russia, about half of which were new models.

The sales decline expected in 2015 may prompt some auto brands to abandon the Russian market altogether. At greatest risk are those automakers with relatively small sales volumes in Russia as compared to global sales for the same makes and models . In the current situation, those automakers with a high degree of manufacturing localisation in Russia, mainly domestic Russian automakers, have found themselves in a more advantageous position. Indeed, given the recent weakening in the Russian rouble, car companies have gained additional incentives to localise production. However, any corporate decisions on investing in local production will depend to a significant degree on the overall market volume. Moreover, 2015 may see a fundamental shake-up of the market in favour of Russian brands, as well as those manufacturers with a balanced, consistent business development strategy for the Russian market.

Sergey Litvinenko, Director in the Automotive Advisory practice at PwC Russia, comments:
“The year 2014 was quite challenging and rather uneven for the auto industry. In this context, governmental support for the market plays a vital role. The continuation of the Russian government’s successful car fleet renewal programme into 2015 will help prop up the market. However, the funds allocated will probably last for only a few months. As a means of softening the blow from slumping sales, we think it would make sense to consider extending the preferential car loan programme, or assisting those banks that issue car loans. Other potential relief measures for the auto market might include cutting the transport tax, allowing ‘maternity capital’ grants to be used for car purchases, and boosting government procurement of Russian-made cars. According to our projections, if the market is given sufficient support, the overall drop in sales for the year may be just in the 20-25% range; otherwise, it could well hit 35%.”

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