Analysts expecting car sales in Russia to sag in 2021

Analysts expecting car sales in Russia to sag in 2021
Photo: Tennen-Gas

In Russia, new car sales continue recovering after being hit by the coronavirus crisis earlier this year. However, experts warn of likely market contraction early next year due to remaining major economic uncertainty.

Rapid recovery in Russian car sales may presage a sharp fall, says Yahoo Finance citing Reuters. Although the local auto market has bounced back from the pandemic slowdown much faster than in other European countries, that may change next quarter. During the April-May lockdown, car sales in Russia fell by 50-70%, but the market returned to growth in September (3,4%), October (7%) and November (5,9%). Meanwhile, sales in Western Europe were flat in September and fell by 6,1% in October, according to LMC Automotive research company.

Industry analysts attribute the Russian market’s activity to pent-up demand from the spring lockdown and expectations of further price growth due to the weakening ruble. The latter has lost 22% against the US dollar this year, and current prices still don’t fully reflect the devaluation. Even locally assembled cars are sensitive to exchange rate, as auto parts are often imported. “We expect the next round of price increases in January,” commented Vladimir Miroshnikov, business development director of Russia’s largest car dealer Rolf. He also said that the market got a boost from cheaper loans when Russia’s key interest rate was cut to a historic low of 4,25% in July.

New car sales in Western Europe were flat in September and fell by 6,1% in October. Photo: Eirian Evans

However, the compensatory demand can’t last forever, considers Chief Economist of Renaissance Capital Sofya Donets adding that it usually carries on for one or two months. Although the Kremlin is not going to impose a second lockdown, household purchasing power is expected to remain depressed. Real incomes decreased by 4,3% from January to September.

According to Vladimir Bespalov, a VTB Capital analyst, the picture doesn’t look very optimistic. “People who had the money brought forward purchases, but there is still fairly major uncertainty in the economy, and you’re not going to run out to the car dealership if things aren’t clear on the job and income front.” He believes that first-quarter sales may fall by several percentage points, as some of next year’s demand has jumped forward to this year. Although it will probably cushion the drop this year, the prospect of market contraction early next year is high.

Russia’s car market was expected to become one of Europe’s largest in the 2000s, but in 2014, it suffered from Western sanctions and an oil price crash. Since then, annual new car sales have not passed the 2 million mark. The Association of European Businesses expects Russian sales to drop by 13,5% to 1,522 million vehicles this year.

By Anna Litvina