Page 1

Market for new light vehicles in Russia: outlook and analysis

Stanley Root January 2011


Contents

1. Global car production overview 2. Overview of the Russian new light vehicles market 3. Car component market in Russia 4. Prospects for the Russian automotive market 5. Concluding remarks


Global car production overview


Post-crisis growth of global car production Growth of global car production in 2011 is estimated to be around 6% compared to 2010. To a large extent this is due to growing demand in China and India together with recovery in the United States after record lows in 2009. The EU is recovering slowly, as numerous car scrappage programmes come to an end. Car production forecast, changes in production by region in the period 2010 to 2012, mln vehicles 85

81

80

North America (NA): significant recovery after record lows in 2009, partially due to improved credit availability

75.3

75

2.4

0.6

0.5

0.4

0.3

Asia-Pacific region (APR): continuing significant market growth at the same time as developed market recovery

0.1

71

70

Eastern Europe (EE): domestic demand has start to recover in some countries, and increasing localisation results in production growth

65 60 55

+ 4.4 mln vehicles

50 2010

APR

NA

Global production

EE

EU

SA

MEA

2011

2012

European Union (EU): after two years of contraction, some small growth is expected in 2010 to 2011 mainly due to export growth

Contribution to output growth by country

Source: PwC Autofacts PwC

Slide 4


Growth of production capacities and their utilisation Future growth will be fuelled by recovery in developed markets and acceleration of demand in emerging markets. Global car production outlook for 2000 to 2017, mln vehicles 110 105

Market overview 100%

Global production in 2010: 71 million vehicles (utilisation - 78%)

95%

100

90%

95

85%

90

80%

Global market • While the market will continue to grow gradually after 2010, utilisation levels will remain low due to slow reduction in excess production facilities. Developed markets

60%

• There was a massive production decline in most developed markets in 2009; thus their contribution to global growth will be significant during 2010-2011 as production level recovers. However, this effect will subsequently decrease.

60

55%

Emerging markets

55

50%

50

45%

• As well as China and India, more localisation of production in Russia and Thailand will also contribute to production growth in emerging markets.

85

75%

80 70%

75

65%

70 65

Production

Excess capacity

Utilization

Source: PwC Autofacts PwC

Slide 5


Emerging markets will overtake developed economies in terms of vehicle unit output in 2011 • The Asia-Pacific region will be the driver of production growth in emerging markets, while growth opportunities for developed markets will be limited in the foreseeable future. China's performance surpasses all possible predictions, largely as a result of effective government support and initiatives which will provide a basis for such growth. • Russia’s contribution to global production growth is estimated at approximately 7% from 2010 to 2017. Contribution to global production growth by region, 2010-2017, %

Global car production by type of market, 2000-2017, million vehicles AP 4%

India 13% Thailand 4%

China 34%

Emerging markets overtake developed

50 45

NA

40

1%

US 11%

35 EU

30

10%

25 20

SA

3%

EE

3%

Brazil 7%

15 10 5

Russia 7%

Developed

Emerging

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0 БВА 3%

0%

10%

20%

30%

40%

50%

60%

Source: PwC Autofacts PwC

Slide 6


Overview of the Russian new light vehicles market


Results for 2010 • In 2010, light vehicles sales grew 30% in unit terms, and by 31% in monetary terms as compared to 2009. • Growth in the Russian brands segment was about 46% in unit terms and 47% in monetary terms, driven primarily by government scrappage schemes. • Due to significant import substitution, sales of foreign brands produced in Russia grew by 73% in unit terms and by 100% in monetary terms. • Based on 2010 results, sales of imported foreign cars have not significantly changed; however this segment has also begun to demonstrate positive growth in recent months.

Car category

Thousand vehicles 2010

2009

Russian brands

555

380

Foreign cars produced in Russia

605

New car imports TOTAL MARKET

USD billion 2010

2009

Change

46%

5.0

3.4

47%

350

73%

11.8

5.9

100%

600

625

-4%

16.9

16.5

2%

1760*

1355

30%

33.7

25.8

31%

* Light vehicles market volume of 1760 thousand vehicles is in line with AEB data (1910 thousand vehicles which includes 150 thousand of LCVs) Sources: АЕB, Goskomstat, GTK, АSМ-Holding, Autostat, PwC estimates PwC

Slide 8


Monthly car sales • Recent months indicate that after a year of stagnation the market is beginning to recover both in unit and monetary terms, thanks to government support and increase in underlying demand. • During the past 6 months the average growth in sales has exceeded 50% by comparison with prior year. Car sales in Russia: July 2008 to December 2010 and prior-year comparison by month, thousand vehicles

300 250

-22% -4%

-11% -3% -10% -15%

200 150

Heavy discounting somewhat offsets collapse in demand

-24%

100

Scrappage scheme and subsidised loans help revive the market

Crisis period

First wave of the crisis

Discounting phased out

60% 62% 47% 51% 59% 79% 20% 32% 51%

-34% -44% -50% -56% -52% -44% -56% -58% -52% -54% -46%

-7% -33% -36%

50 0

2008

2009 New foreign brands

2010 Russian brands

Sources: АЕB, Goskomstat, GTK, АSМ-Holding, Autostat, PwC estimates PwC

Slide 9


Country comparison • In 2010 all BRIC auto markets showed significant growth. • Decrease in sales in Germany is mainly due to the termination of scrappage schemes. • US car market showed growth for the first time in the last several years. Car sales on key markets, mln units 18 16 2005 2006 2007 2008 2009 2010

mln units

14 12 10 8 6 4 2 0 India

China

Russia

Brazil

USA

UK

Germany

Sources: VDA, SMMT, CAAM, SIAM, The Economist, PwC estimates

PwC

Slide 10


Domestic production revives • The significant increase in demand for cars in the second quarter enabled car manufacturers to raise their production output significantly. • Overall growth in passenger car production in 2010 was about 100% as compared to 2009. • Based on 11 months results production of foreign brands (116%) was growing faster than traditional Russian brands (82%), despite the fact that scrappage schemes mostly support domestic brands. More than half (52%) of cars produced in Russia were foreign brands. • Russian Government plans to amend the industrial assembly scheme to stimulate large scale projects (more than 300 000 cars per year) and increase the level of localization required to 60% (based on added value) over the first 5 years of the project. Production of cars in Russia, thousand vehicles 450 400 350 300 250 200 150

393

403 341

331

332

100

123

50

164

136

174

156

4q 2009

1q 2010

336

376

0 1q 2008

2q 2008

3q 2008

4q 2008

1q 2009

* estimation Sources: ASM-Holding, Goskomstat, PwC estimates PwC

2q 2009

3q 2009

2q 2010

3q 2010 4q 2010*

Slide 11


Share of cars produced in Russia in total sales volume • Import substitution, encouraged by increased customs duties, together with government programmes had a positive effect on demand for locally manufactured cars: – 2009 was a turning point for car manufacture in Russia. The share of locally manufactured cars out of total sales, which in both unit and monetary terms had been decreasing for several years in a row, has improved significantly; – The share of foreign cars manufactured in Russia has been growing constantly in quantitative terms since 2002 and reached 34% in 2010. • We expect this trend to continue unabated as newly established factories ramp up production. Share of Russian-produced cars out of the total sales volume, % 100%

88%

85%

78%

80% 60%

58%

53%

71%

66%

60% 49%

43%

40%

54%

50%

36%

36% 28%

5%

20%

10%

11%

16%

50%

46% 27%

18% 21%

1%

26%

34%

0% 2002

2003

2004

2005

Share of cars in unit terms (Russian and foreign brands)

2006

2007

2008

2009

2010

Share of cars in monetary terms (Russian and foreign brands)

Share of foreign brands produced in Russia (in unit terms)

Source: PwC estimates PwC

Slide 12


Scrappage programme • The first two stages of the scrappage programme in 2010 included 400,000 certificates granted, about 380,000 sales contracts concluded, and 270,000 cars delivered to customers. • About 80% of cars sold under the scrappage scheme are AVTOVAZ vehicles. • In 2011 the Government plans to subsidize the scrappage of additional 100,000 cars. • The aim is to phase this programme out gradually during 2011 to avoid sudden disruption when the programme finishes (a situation that happened on other markets including Germany). • Some car manufacturers and regional governments have already announced their plans to continue the scrappage programme or similar initiatives with their own resources (other countries have similar experience, for ex. UK). Scrappage schemes milestones

Thousand units

1st stage (2010)

200

2nd stage (2010)

200

3rd stage (2011)

100

Total

500

Cars delivered to customers in 2010

270

Cars to be delivered to customers in 2011

230

Sources: Ministry of Industry and Trade, open sources PwC

Slide 13


Automotive credits are becoming cheaper and more accessible • Car loan interest rates decreased significantly by comparison with 2009 (it is now possible to get a standard car loan for up to five years at a rate of about 14%), and banks are more willing to provide such loans. • Though the share of cars sold on credit has not yet reached pre-crisis levels, when every second car was sold on credit, it is growing monthly. By the end of 2010 approximately one third of cars was sold on credit. • As of end December more than 355 thousand applications for government subsidized credits had been received; of these, almost 165 thousand were approved (compared to 71.5 thousand in 2009). About 6 bln rubles of subsidized credits were covered by federal budget in 2009-2010. • About 150 thousand subsidized loans plan to be covered in 2011 with 3 bln rubles allocated in the budget for that. • In addition, growth in the car lending market is fuelled by the expansion of major global car manufacturers' banks.

Sources: Ministry of Industry and Trade, open sources

PwC

Slide 14


Car component market in Russia


Car component market volumes The long term future of car manufacturing in Russia depends upon the successful localisation of component manufacturers. • In 2009 the car component market fell by 23% in money terms. This mainly was caused by 50% decline in the primary market, in reaction to a collapse in demand. • In 2010 the market exceeded the 2008 levels largely due to a strong revival in local production. Car component market volumes in Russia, USD billion 30.2 28.6

30 25

23.3 12

20

9.3

21.9

12.2

6.8

15 10 5

14

16.6

15.1

2008

2009

18

0 2007

secondary market

2010

primary market

Sources: Autostat, PwC estimates PwC

Slide 16


Critical mass of factors for the car component industry

Positive changes in 4 key factors that have taken place in recent years are creating "critical mass" in demand for high quality car components:

16 14

• Significant increase of foreign cars in the Russian car fleet;

12 10

• Growth of the car insurance market (mandatory and voluntary);

8 6 4

• Increasing number of foreign car component manufacturers locating in Russia;

2 0 2004

2005

2006

2007

2008

2009

2010

• Growth in the production of foreign brands in Russia.

Foreign car fleet, mln vehicles MTPL + CNC insurance premiums, RUB 100 bln Number of foreign car component producers, 10 entities Foreign car production in Russia, 100 thousand vehicles

Sources: PwC estimates, АSМ-Holding, PwC Autofacts, Autostat, Expert RA PwC

Slide 17


Prospects for the Russian automotive market


Scenarios of new light vehicles market development in Russia Our forecast of market development in Russia in 2011 is based on the following 4 scenarios: 1.

Base 2011 forecast on recent market trends in 2010;

2.

Comparison with a year which is similar to 2011 , namely 2007 (as major macroeconomic figures are similar);

3.

Analysis of key drivers of demand at Russian market;

4.

2011 as part of the market long-term development.

PwC

Slide 19


Forecast of light vehicles market development in 2011 Forecast of light vehicles market development in 2011, & comparison with 2010, % baseline

optimistic

555 (0%)

580 (5%)

Foreign cars produced in Russia

860 (40%)

1100 (80%)

New car imports

685 (15%)

720 (20%)

2 100 (20%)

2 400 (35%)

Russian brands

Total market Market limiters (baseline scenario)

• Fluctuations in global economy that have negative influence on propensity to spend of Russian customers (Russian economy is not immune from global economic conditions); • Insufficient road infrastructure; • Car producers will be cautious in planning future investments having suffered badly from sharp market decline during the recent crisis. Market boosters (optimistic scenario) • Prolongation of utilization & subsidized loan schemes by the Government; • Additional incentive programmes supported by car producers and some regions; • More accessible car loans; • Increasing share of foreign brands produced in Russia.

PwC

Slide 20


Long-term market development (1) • The global crisis had a dramatic negative impact on the Russian automotive market. However the initial causes were largely external. We see no long term impact on the market potential other than a delay in reaching that potential. The question is how long will that delay be. • Our long-term market development model was based on 4 key factors: – Market saturation level – we believe that our estimation of 400 cars per 1,000 people is reasonably conservative and requires no change (see next slide). – GDP level when market saturation will be reached –unchanged. – Estimated year when this GDP level will be reached – here we assume the crisis has delayed this by 5 years. – Rate of car disposal – changed, we have assumed lower levels of annual car disposal to reflect more cautious approach among car buyers • We assume that post-crisis there will be a period of 4-5 years return to pre-crisis growth followed by a period of slower growth as the market matures.

PwC

Slide 21


Long-term market development (2) From the table below we can see that • Czech Republic has more than 400 cars per 1,000 people with GDP per person around 20,000 USD • Bulgaria has more than 300 cars per 1000 people while GDP is less than in Russia Based on the indicators below we believe 400 cars per 1,000 people as a target for the Russian market when GDP is 20,000 USD is a conservative figure, with actual outcome likely to be higher. Average age of vehicle fleet

Scappage level

Car fleet, mln. units

Population, mln. people

Cars per 1,000 citizens

Per capita GDP, US$**

USA

9.4

5%

128.8

306.8

750*

46021

Germany

8.2

6%

41.7

82.8

504

40335

8

6%

19.3

33.7

573

39665

13.7

4%

4.3

10.2

423

18640

Hungary

10

5%

3

9.91

305

13020

Poland

10

5%

16.1

38.2

422

11280

Russia

13

4%

33

142

232

8680

Romania

13

4%

4

21,5

187

7510

Bulgaria

14

4%

2.3

7.5

311

6520

Canada Czech Republic

*Including light trucks that are very popular as individual transport in USA ** In current market prices Sources: The European Automobile Manufacturers Association (ACEA); EIU; The European Environment Agency (EEA) PwC

Slide 22


Long-term market development (3)

Strong growth

Market matures

4500 4000 3500 3000 2500 2000 1500 1000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Baseline scenario PwC

Accelerated growth Slide 23


Conclusion


Conclusion • In 2010 the market achieved 30% growth in unit terms by comparison with 2009 mainly thanks to various incentive measures of the Government, and the increased availability of automotive credits at more competitive rates. In addition, the second half of 2010 saw the modest beginning of a revival in underlying consumer demand. • Increased demand and import substitution led to a very significant increase in the assembly of foreign brands in Russia (more than 100% growth in 2010). • Foreign manufacturers' investment plans and industrial assembly arrangements are expected to continue to drive growth of production of foreign brands in Russia. • We anticipate overall unit sales growth of between 20% and 35% in 2011. The majority of this increase will likely be concentrated in local assembly of foreign brands. • Medium term we expect Russia to be a driver of growth in global car production. • This growth should contribute significantly towards generating the critical volumes necessary for the development of a modern automotive component industry in Russia. • And this is the key to the long-term sustainable development of the Russian car industry and the millions of skilled jobs that depend on it.

PwC

Slide 25


Thank you! Stanley Root Partner Automotive Industry Leader +7 495 967 6328 stanley.root@ru.pwc.com www.pwc.ru

This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this presentation. Unless otherwise provided for by Russian law member-firms of PricewaterhouseCoopers international network of firms, their members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it. © 2011 PwC. All rights reserved. “PricewaterhouseCoopers” and "PwC" refers jointly to ZAO PricewaterhouseCoopers Audit and PricewaterhouseCoopers Russia B.V. and the company PricewaterhouseCoopers Commonwealth of Independent States (CIS) Law Offices B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited (PwCIL). Each firm is a separate and independent legal entity and is not acting as an agent of PwCIL or any other firm of the network. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm in any way. None of the network firms is responsible for actions or failure to act by any other network firm, cannot control professional judgements expressed by any other network firm nor can bind another network firm or PwCIL by any obligation.

PWC 2011_Market for new light vehicles in Russia  

Market for new light vehicles in Russia

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