BMI View: This quarter, BMI has revised down its forecasts for the Russian auto sector. We now anticipate a 9% drop in the passenger car segment, from a 5% decline previously, and a 9.4% decline in light commercial vehicle (LCV) sales, from 5.4% previously. Accordingly, we expect total light vehicle sales to decline 9.0% in 2014.
Our decision to revise down our forecasts comes against a backdrop of a worsening domestic political and economic situation. On the political side, the ongoing crisis in Ukraine has hit consumer confidence and led to the imposition of economic sanctions by Western nations. This in turn has fed into what was already a fairly bleak economic outlook, with ongoing weakness in private consumption of particular concern to the autos sector.
Over H114, light vehicle sales declined by 7.6% year-on-year (y-o-y), to 1,229,839 units. Looking at July 2014 monthly sales data, Russia saw a 23% annual decline in new vehicle sales, to just 180,767 units, according to data released by the Association of European Businesses (AEB). Leading Russian car manufacturer AvtoVAZ registered a 25% decrease in sales of its Lada cars, to 28,014 vehicles, over the month.
Looking forward, BMI expects to see further erosion in private consumption throughout 2014 as inflation remains elevated, the currency weakens further, unemployment creeps upward, real wages dip, and access to credit slows. These dynamics have weighed on sales over the year to date, as consumers remain reticent over big-ticket purchases such as new cars. Moreover, we expect to see a more pronounced deceleration in private sector spending in the second half of the year, as capital outflows and political uncertainty weigh on fixed investment while elevated inflation erodes consumer purchasing power. These dynamics have informed our bearish light vehicle sales forecast revision for the year. Beyond the current year, BMI remains downbeat, targeting further falls in new vehicle sales over 2015, before...