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Auto sales – fall 23% YoY in July

Russian car and LCV sales fell 23% YoY to 180,767 units in July, according to AEB. This resulted in a YTD decline of 10%, with 1.41mn units sold in January-July

The July decline was the sharpest since late 2010, driven largely by drops across the standard foreign brands. Also, local names and the premium segment are both gradually worsening, weighing on the headline rate. The numbers were not a surprise and had been expected for a long time, given cooling private consumption. According to our macro team, this coincides with our forecast that household spending is likely to come to a standstill and that GDP might slide into the technical recession over the course of 2H14.

The acceleration of the car sales contraction raises a question about where the bottom is, and makes state support (as happened in 2009) more likely. We note that the Ministry of Industry and Trade has already indicated that it is planning to relaunch some sort of the 'cash-for-clunkers' programme. We believe that such a programme could be launched as early as this autumn, which will likely support the market.

Sollers sales declined 30% in July and 25% YTD, while Ford sales (carried out through a 50:50 JV with Sollers) were down 52% in July and 41% YTD. AvtoVAZ sales fell 25% in July and 16% YTD. Finally, GAZ's LCV sales were down 24% in July and 18% YTD.

We note that AvtoVAZ was the key beneficiary of the previous 'cash-for-clunkers' programme, which means that any new such programme could be a good addition to the ongoing internal restructuring effort. We continue to believe that both AvtoVAZ and Sollers remain attractively valued at current levels, although more clarity on state support is needed to unlock their fundamental value.

Vladimir Bespalov, Vladimir Kolychev, Daria Isakova
VTB Capital analyst

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