Rocky Road For Russian Auto Sales – US-FOREX.US
European carmakers which had been pinning their hopes on tasty opportunities in the Russian car market will have to look elsewhere in the short term. “We do not expect any substantial improvements in the sales figures in the coming months while the government doesn’t plan to implement any additional incentive measures for car buyers,” analysts at Merrill Lynch-Bank of America warned in a note on the Russian car industry. The evidence points to a dismal picture of the Russian car market. July sales of new cars dropped 58% year-on-year, to 1.24 million compared with 2.8 million cars sold in 2008, according to the Association of European Businesses. The decline actually accelerated in July, after a 56% year-on-year decrease in June.The share of cars purchased on credit is currently between 25% to 30% compared with between 10% to 15% at the start of the year, according to business daily Vedomosti. But the figure is still below the 50% enjoyed before the financial crisis.“Sales on credit have improved because of subsidizing car loan programs but not enough to boost the total car market,” Merrill Lynch-Bank of America added.An ailing Russian economy isn’t making things easier for the sector. On Tuesday, the Federal Statistics Service said Russia’s gross domestic product shrank 9.8% in the second quarter – the highest drop on record. The collapse of oil prices from 147 a barrel a year ago to 32 in January has had a damaging effect for oil-dependent Russia, undermining consumer confidence and forcing the government to dip into the massive reserves it built up during the commodities boom years.
“For the sector to turn around, the market needs to see clear signals of recovery in the Russian economy as a result of successful rescue measures by the government and/or increasing oil prices,” Merrill Lynch-Bank of America said.Still, despite the current drop in demand, some analysts have said that Volkswagen
, the only European manufacturer known to have plans to develop production in Russia, should stick to its plans as demand is bound to pick up in the long term. “The plants will have an output of between 100,000 to 150,000 per year and although demand has dropped sharply, Russia offers a great long-term growth in the future. But it is hard to give a precise figure,” said Gregor Claussen, an analyst with Commerzbank Corporates and Markets.