Russian light-vehicle sales post largest monthly decline of 2015 in November with 43% fall

The Russian light-vehicle market has suffered its worst monthly decline of the year, which comes after a year of consistent accelerated falls in sales as a result of the collapse of the Russian economy, resulting from the weak rouble, sanctions from the EU and the US and falling oil and gas prices. Sales in November fell by 42.7% year on year (y/y) to 131,572 units, which brought the year-to-date (YTD) sales momentum down further by 34.5% y/y to 1,454,253 units. Commenting on the difficult environment the head of the AEB's vehicle manufacturers' committee Joerg Schreiber said, "One year ago, the Ruble was plummeting and customers were storming dealer showrooms to put their money to use before car prices caught up with the new exchange rate reality. None of this happened in November this year, which explains the relative deterioration in year-on-year performance of the market. The year is not over yet, however expectations regarding December are rather modest, especially in comparison with the record sales achieved last year at the peak of a short-lived sales boom."

In terms of brand-by-brand sales, Russian market leader AvtoVAZ managed to comfortably outperform the market, partially helped by the launch of its brand new Vesta range-topping flagship during the month. However, this was not a particularly robust performance given that the Vesta added 1,748 units of sales to Lada's outright tally for November from a standing start. The brand posted a 29% y/y decline in November to 21,580 units, which almost exactly matched the company's sales trend in the previous 10 months of the year, with sales falling 30% to 245,634 units during that time, keeping it marginally above the overall market trend. As usual the Hyundai and Kia brands occupied the second and third places in the market. Hyundai had the second highest sales tally during the month and outperformed the market to a high degree, recording just a 7% fall in sales during November to 15,101 units. This was buoyed by the very strong performance of the Hyundai Solaris, which was once more Russia's best-selling car in November and which rose by over 1,000 units to 11,462 units as it continued to benefit from the various Russian government incentive packages like scrappage and subsidised car loans. This brought Hyundai's YTD sales down 10% y/y to 148,631 units. Kia was third in the brand sales stakes overall during November, although its performance was nowhere as strong as its stablemate Hyundai, with sales falling by 32% y/y during the month to 14,125 units. This was largely precipitated by an accelerated decline in the sales of the brand's best-selling Rio, which was down by 31.2% to 8,253 units. For the YTD Kia sales fell by 16% y/y to 175,491 units. Renault and Toyota in fourth and fifth spots respectively posted highly accelerated declines during the month, with sales falling 46% and 53% respectively.

Outlook and implications

The Russian light-vehicle market hit its lowest ebb in November as sales hit the largest monthly decline of a year in which high double digit declines have become the norm. There were a number of factors that conspired something of a perfect storm in terms of creating this 42.7% y/y decline. As we have already seen there was something of a rush 12 months ago, especially among wealthier Russians. to convert their cash into physical assets after something of an acceleration in the rate of decline in the value of the rouble. This conspired with the launch of the second round of car scrappage in September to lift sales to a relatively high level in November 2014. There was one bright moment for the mainstream Russian passenger car market in the shape of the launch of the brand new Lada Vesta. The new model will replace the Priora and will set new standards for the Lada brand in terms of design and quality. However, at the same time Lada, and Renault-Nissan, will be cursing their luck in terms of launching the car into such a weak market environment. In terms of the wider outlook for the Russian economy it continues to contract amid relatively low oil prices, high interest rates, strong consumer price inflation, sagging business sentiment, and virtual isolation from external financing in Western capital markets because of financial sanctions. The estimated 3.7% y/y downturn of GDP in the first three quarters of 2015 shows that the contraction has accelerated. Moreover, energy prices resumed their descent in the third quarter of 2015 and are expected to remain well below earlier peak levels in the near-to-medium term, while the physical volume of energy exports will stagnate at best given the cutback in investment in that sector due to sliding energy prices. Investment has suffered and capital flight accelerated at the imposition of economic sanctions following Russia's annexation of Crimea, and Russian backing of separatist militias in eastern Ukraine only worsened the business and investment environment. Estimates are that net capital outflow in 2014 amounted to USD153.0 billion, compared with USD61.6 billion in full-year 2013, and continued in the first three quarters of 2015 at USD45 billion. The economics ministry projects capital flight in full-year 2015 at USD87 billion. We now have GDP contracting by 4.0% in 2015 and declining a further 0.8% in 2016. A modest recovery is seen taking hold in 2017, with growth at 1.2%. This macro picture is obviously having a profound impact on the light-vehicle market, in 2015 IHS forecasts that for the full year IHS Automotive forecasts a 34.8% y/y fall in sales to 1.63 million units, with sales down again in 2016 to 1.60 million units.