Expert: Reduction of state support is unlikely to significantly impact the automotive market trends

22 march 2019 | Rossiyskaya Gazeta

"The Analytical Center predicted an increase in the car market sales in 2018 by 9-11 percent back in late 2017," Grigory Mikrukov, Head of the Department for Sectors of Economy of the Analytical Center, told the Rossiyskaya Gazeta. "The high growth rate of the automotive market at the beginning of the year was a result of the low base effect and deferred demand. The second half of last year saw sales of cars and light commercial vehicles go up on expectations of the increase in the VAT rate, the key interest rate of the Bank of Russia and variability in the exchange rate of the Russian ruble. All these factors conspired to prompt buyers who had originally planned to only buy new vehicles in 2019 to make their purchases earlier."

Grigoriy Mikryukov
Grigoriy Mikryukov
Department for Sectors of Economy

According to Mr. Mikrukov, the decrease in the sales of commercial motor vehicles was also to be expected seeing how the market had shot up in 2017 including as a results of many customers making purchases earlier than planned. In addition, the increase in the disposal fee and fluctuations in the ruble exchange rates also caused sales to slow.

As for the current year, the Analytical Center forecasts 3-5 percent growth in car sales this year while the first six months may see a slight drop in sales as compared to the same period of 2018. Sales of trucks and light commercial vehicles are most likely to remain at the same level as last year (0-2 percent) provided that the Bank of Russia keeps its key interest rate constant and the price of diesel fuel finally stabilizes.

Meanwhile, Mr. Mikrukov does not think that the planned reduction in state support in certain industries in 2019 is likely to significantly impact the automotive market trends. Most of the subsidies related to supporting job creation, development of innovative technologies in the automotive sector are going to remain in place. As for subsidies aimed at promoting demand in the car segment, it seems like none are needed any more. The cutting back of industrial subsidies may adversely affect the financial performance of some automakers seeing how their operating profits are not enough to ensure financial stability at the moment. Nevertheless, the automakers need to boost efficiency in order to stop being dependent on the state support, the Analytical Center expert is sure.

Mr. Mikrukov also predicted that the large buses segment is probably going to go back to the 2017 level, contracting down to sales of 11.4-12 thousand units. The output is going to slow down compared to last year, however, the drop in sales should primarily affect sales of foreign machines.

"Demand for new equipment in the buses market will depend first and foremost on the overall economic situation and specifically the financial performance of transport companies. Additional measures to prop up demand, for example through subsidies, can be warranted in some cases but they have negative consequences for the market as well," he noted. "As a rule, propping up the demand usually result from the customers making purchases earlier or replenishing their fleets earlier than planned. Therefore, the result is that by boosting sales now we often end up causing it to contract in future."

In addition, according to the expert, companies and customers can get addicted to support: the customers over time come to expect to get various support programs, discounts, promotional campaigns. Nevertheless, in some cases, it makes sense to provide subsidies to replace very old vehicles, but such measures must make economic sense: improving the quality of public transport should make it more attractive and boost the number of passengers.

Source: the Rossiyskaya Gazeta The market has leveled offThe doors are closing

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