Russia’s car and LCV sales declined 30% YoY to 140,161 units in June and 36% YoY to 782,094 units in 1H15, according to the latest data released by the Association of European Businesses (AEB).
The June result was exactly in line with our expectations. In our view, the moderation in the decline was driven by a more favourable base effect (as the market decline accelerated in the summer of 2014), as well as government support measures (such as ‘cash-for-clunkers’ and subsidised car loans) and price discounts on the back of FX stabilisation and promotions. We also believe that consumers are gradually getting used to new price levels after the recent rouble depreciation-related price shocks. In our view, this trend will continue, with the full-year decline coming in the range of 25-30%. Our forecast is more upbeat than that provided by AEB (i.e. the consensus forecast of the auto market players). In particular, AEB expects the market to decline 36% YoY to 1.55mn units, which effectively means that it will be slightly weaker in 2H15 vs. 1H15, despite positive seasonality.
Sollers’ sales in Russia declined 17.5% YoY in June and 27.5% YoY in 1H15. We note that this decline was driven by a sharp drop in SsangYong sales, as the company stopped importing kits so as to avoid losses after the rouble depreciation made SsangYong assembly unprofitable. In particular, SsangYong sales have dropped 73% YTD and we expect the situation to persist, as Sollers and SsangYong have so far failed to find a solution to the problem. Meanwhile, UAZ sales were up 13% in June and down just 2% in 1H15. We also note that the performance of Sollers’ 50:50 joint venture with Ford is gradually improving, as June sales were down 33% (almost in line with the market) compared with the 56% decline YTD due to the weak performance at the beginning of the year. In our view, the recent launch of Ford Fiesta assembly and sales in Russia is to support the JV’s sales in the coming months.
AvtoVAZ’s sales in Russia were down 12% YoY in June and 27% YTD (these numbers were also released by the company itself earlier this month). In our view, the planned launch of the new Lada Vesta in September will also support the company’s outperformance in the coming months.
We believe that both Sollers and AvtoVAZ, which are outperforming the market, remain attractively valued.