Expert opinions, FORECASTS

The automotive industry a mirror of the economy: Outlook for 2020

The year 2019 was difficult for the automotive market, with dwindling sales that forced car manufacturers to hike prices. In some cases, the prices went up by as much as 12% from January 1 following the increases in the VAT and excise taxes. State policies to support the demand have been unable to slow down the decline in the market’s capacity, mostly because this year’s subsidies have been almost halved – to RUR 10 bln ($160.5 mio) from RUR 18.1 bln rubles ($290.5 mio) in 2018. Next year is unlikely to bring any positive changes either, with people’s real incomes remaining low and state support shrinking further – from RUR 10.5 bln ($168.5 mio) in 2020 to RUR 5 bln ($80.2 mio) in 2021 and 2022. The results of 2019 confirm the negative trends.

Performance in 2019

At the end of eleven months of 2019, the car market sank 2.8%. The most popular car models were Lada Vesta, Lada Granta and Kio Rio – all the three were included in the state support programs this year. The SUV segment continued to have the biggest market share, 43%, the Korean Hyundai brand being the leader here.

Most buyers used car loans in 2019. As of October 2019, more than 0.5 mio loans have been issued worth a total of RUR 598.5 bln ($9.6 bln), compared with RUR 505.5 bln ($8.1 bln) in the same period last year. Moreover, most Russians used car loans to purchase budget models covered by state support programs. The subsidies were allocated twice this year – in March and in July. On average, they stimulated demand for about three months. In May alone, the number of cars and SUVs sold under the First Car and Family Car programs exceeded 63K. The extension of support programs stimulated the purchase of another 75,000 vehicles.

Outlook for 2020

The outlook for the next year is less than bright. People’s real incomes have shown no growth for five years. Government policies also play a role. While the government is implementing preferential car loan programs, the market will be negatively affected by the rise in the disposal fee approved in November. Furthermore, along with the Russian market, there is a general decline in new vehicle sales observed in other countries – by 1.6% in the US, by 6.7% in the UK, and by 5.8% in China. On the other hand, demand is growing in Europe – in October, that market showed a ten-year high, with sales going up 8.6%. However, the demand figures in European countries are largely driven by a new market segment – electric cars. There is no demand for those in Russia now, so their sales may grow by 30% by 2025 (not a significant change in absolute numbers) on the back of government policies such as raising the disposal fee.

Overall, car sales can be expected to drop by another 2-3% in 2020, with the economic situation in Russia playing a role. The shrinking automotive market actually reflects the state of the economy – the decline in industrial production and low incomes.

By Konstantin Avakyan, Project Manager for Business Processes, AvtoSpetsTsentr Group

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