‘Takeovers of dealer companies are expected in Tatarstan, large ones will survive’

Leading expert of Finam Management Management asset management company — about a decline in sales, parallel imports, and the consolidation of Russian car market

Car sales in Russia have fallen by more than half — only 369 thousand cars have been sold in the country against 934 thousand last year. At the same time, the lion's share, 80% of the market volume, is now occupied by Chinese cars, since it is too expensive to bring European cars as part of parallel imports, industry representatives say. The lifting of a number of restrictions and the launch of parallel imports of the industry, of course, have provided support, but sales will still decline, predicts Dmitry Baranov, a leading expert of Finam Management sales management company. In the author's column for Realnoe Vremya, the expert analyses the market situation and warns that mergers and takeovers of dealer companies should be expected in Tatarstan.

Sales decline

The situation in the automotive market has not changed significantly for several summer months — sales continued to decline. Thus, according to the Committee of Automakers of the Association of European Businesses (AEB) in the Russian Federation, in January-July 2022, 368,850 new passenger and light commercial vehicles were sold in the country, which is by 60,5% less than in the same period of the previous year, when 933,896 units were sold.

In July, according to the AEB in Russia, the sales amounted to 32,412 cars, or by 74,9% less than a year earlier — 129,231 cars. According to Rosstat, the production of passenger cars in the country in January-May 2022 amounted to 267,627 units, or by 56,4% less than in the same period last year, when 613,763 units were produced.

The main factor that continues to influence the automotive market is the decisions taken earlier by a number of automakers to leave Russia, stop the supply of cars and the activities of production facilities. Another important factor is the difficult economic situation, which led to a reduction in the incomes of both citizens and companies. As a result, many people decided not to purchase cars, which affected the dynamics of sales.

But this did not lead to a shortage in the domestic automotive market, despite the fact that a number of foreign automakers left Russia. The demand was met due to the existing stocks of cars, as well as the activation of new car brands in the domestic market. Besides, the decline in car sales is explained by the coming summer season, the holiday period, many consumers used leisure facilities, refusing to purchase vehicles. Also, significant fluctuations in exchange rates in the spring and other macroeconomic factors had a certain impact on car sales, but they were gradually offset.

25 thousand cars within parallel import

Government actions, such as the organisation of parallel imports and demand stimulation programmes, as well as a number of other measures, provided some support to car manufacturers and the automotive market as a whole. According to various estimates, the introduction of the parallel import procedure has allowed to increase the import of foreign cars into the country by 5-15%, and although it has been started recently, it has good prospects, which will saturate the market.

There are already the first results of parallel imports: according to Autostat, 25 thousand cars were imported into the country in July, but the share of new cars was only 32%, the rest — used cars. Moreover, according to the agency, individuals import mainly used cars, while legal entities import new ones. Gradually, physical persons import more and more cars from abroad. For example, if in February of this year they imported only 2% of the total volume of imported new passenger cars, then in July this figure was 20%. Moreover, we are talking not only about the import of finished cars, but also spare parts and components, which will solve the problem of maintenance and repair of used cars, including brands that have left the country.

Resolution No. 1269 “On Amendments to the Rules for the Application of Mandatory Requirements for Individual Wheeled Vehicles and the Assessment of Their Compliance” will also ease the situation. It has changed the procedure for the import of cars by citizens and organisations from abroad. In particular, legal entities can carry out the necessary certification in a simplified manner without obtaining the permission of the copyright holder. The requirements for the technical equipment of cars are also simplified for legal entities, they can be imported without ERA-GLONASS devices until October 1, 2022, and for individuals — until February 1, 2023.

In Tatarstan, the rate of decline in sales will be less

Demand stimulation programmes are of great importance. Since July, the Ministry of Industry and Trade of Russia has implemented two programmes of preferential car loans: “First Car” and “Family Car”. A number of categories of citizens under these programmes can receive a discount from 10% to 25% on the first installment when buying a new Russian-made car worth up to 1,5 million rubles. The following preferential leasing programmes have also been launched: “Affordable rent”, “Russian tractor”, “Own business”, “Russian farmer”.

We can name other measures to support the automotive industry. Just a few days ago, the Ministry of Industry and Trade of the Russian Federation prepared a bill on amendments to the Federal Law “On Industrial Policy in the Russian Federation” regarding the regulation of special investment contracts. The project proposes to extend the SPIC (special investment contract) in the automotive industry for the period until December 31, 2033, which will increase their attractiveness to investors, increase the stability of the conditions for the implementation of such contracts.

The development of the automotive market in Tatarstan, of course, depends on the situation with the automotive market in the whole country. Most likely, the sales of new cars may decrease in the republic, but the rate of decline will be less than in the whole country, since incomes in the republic are higher, which will allow buying cars.

The automotive industry can grow in the republic, primarily due to a developed economy. Many machine-building enterprises in the region can start producing the necessary parts and assemblies for cars as part of import substitution, which will solve the problem of servicing the existing fleet of cars. It is possible that enterprises of other industries located in the republic may also start producing spare parts for cars.

As for the car trade in the republic, it will remain, but, most likely, mergers and takeovers of dealer companies can be expected, since mainly large players will survive. In the coming months, companies will probably trade used cars, but the number of sales of new cars will gradually increase, primarily of brands that previously did not exist in the republic at all or their sales volume was minimal.

Dmitry Baranov

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The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.