The Russian government is to allocate additional RUB 2.9bn for the 'cash-for-clunkers' programme this year and RUB 10bn next year, Industry and Trade Minister Denis Manturov was quoted by Interfax as saying.
Initially, the government earmarked RUB 10bn for this year (the 'cash-for-clunkers' programme started in September), but given good demand the funds have already been spent. According to Manturov, with additional funds the government estimates that more than 200,000 vehicles will be sold under the programme this year and some 170,000 next year.
We believe that the programme was instrumental in slowing down the rate of the YoY decline in car and LCV sales to a 10% drop in October from more than 20% in 3Q14. However, given the deteriorating macro outlook and weaker rouble, we do not anticipate the market returning to a growth trajectory in the coming months, especially given the unfavourable base effect (car sales in December 2013 and 1Q14 were relatively strong). In other words, while the programme might soften the market's decline, it is unlikely to help reverse the negative trend.
Overall, we believe that the car and LCV market will decline 12-13% this year and note that AvtoVAZ remains the key beneficiary of the programme, accounting for over 40% of sales. In our view, the situation is unlikely to change in 2015. Within Sollers, the key beneficiary is UAZ, while positive effects for SsangYong and Ford (the latter is produced and sold in Russia through a 50:50 joint venture with Sollers) are counterbalanced by the rouble depreciation.