While the decline might look worrying at first glance, we believe that it needs to be treated with a degree of caution for the following reasons:
Unfavourable base effect: The Russian auto market was still on an uptrend in January 2013. Moreover, January 2013 saw a brief deviation from the prevailing trend at the time (a market slowdown).
Strong December 2013 lured some demand: We believe that the government's decision to unwind its programme of subsidised car loans from 1 January 2014 led to the redistribution of some demand from January 2014 to December 2013. In particular, we note that December 2013 saw a 4% YoY increase in car and LCV sales. We also note that total car and LCV sales for the past December and January were up 0.3% YoY.
In our view, there will be a better picture of the overall trend by the end of 1Q14, which we think is likely to point to auto market stabilisation on the back a more favourable base effect. Still, we believe that weak January sales, along with the overall poor consumer demand, are likely to put pressure on automotive stocks.
We also note that all Russian producers underperformed the market in January. Sollers' sales were down 25% YoY to 3,559 vehicles, while the sales of Ford vehicles (carried out through a 50:50 JV with Sollers) dropped 33% YoY to 4,250 units. Meanwhile, we note that the weakness was once again driven by Ford Focus, as the JV's sales, excluding Focus, were up 12% YoY. The latest trend supports our view that once Focus sales stabilise, the JV could achieve a better trend in overall sales, which could serve as a trigger for the stock.
GAZ's LCV sales decreased 21% YoY to 3,260 units, while AvtoVAZ's sales also fell 21% YoY to 23,647 units.