Political turmoil engulfing Russia and the Ukraine could trigger advanced automotive sales as consumers rush to put finance into hard goods rather than see it devalued by rouble pressure says a Moscow-based analyst.
The Russian currency has come under sustained attack this week with the rouble plummeting 10% as the stand-off between Moscow and Kiev concerning the autonomous province of Crimea continues unabated.
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“I think there will be a pull-ahead in terms of sales volumes because if you look at the recent currency devaluation – the drop of 10% – I think you will see people taking currency and putting [it] into hard assets which is traditionally something Russian have done for many years,” Ernst & Young CIS automotive sector leader William King told just-auto from Moscow.
“It is better than having money that could be devalued. I suspect what we will see is people [saying]: “Maybe we should get that car now before the inevitable price increases come through. It is coming – absolutely guaranteed coming.”
The Moscow analyst echoed comments made to just-auto yesterday (6 March) by Association of European Businesses (AEB) Automobile Manufacturers Committee chairman, Joerg Schreiber, who said “sooner or later” import prices would rise, leading a rush of those planning to buy a car, doing so earlier.
“Particularly foreign OEMs, their degree of localisation ranges from 20% to maybe 55%,” said King. “The salient point is if you are importing parts, these parts are more typically denominated in Euros.
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By GlobalData“After the pull, there could be downturn. With prices going up, people [were] very, very concerned even before this started with Crimea and Ukraine.”
The Russian government has attempted to cushion the impact of that downturn with mechanisms such as interest rate reduction for vehicles, typically for B class models of around US$23,000, but the ending of credit subsidy at the end of last year could have a negative effect.
“They [Russians] have a history where they have had crises,” said King. “You go back to 2008/2009, this automotive market fell by 50%, there is precedent[but], I would be very surprised if it fell to that extent.”
Despite concerns surrounding the Russian market – which dropped 5% last year according to the AEB – it is relatively calm compared to Ukraine noted King.
“Obviously it [Ukraine] was in turmoil before this came out and you would not be surprised to see a 50% reduction,” he said. “Uncertainty and the end of clarity – are we going to get taken over by our neighbouring country – it is a really uncertain time.”
The analyst also highlighted potential inflationary factors, for example, if companies imported 40% of their goods in a devaluing currency, prices would “by definition” go up.
“It is in groceries already,” said King. “No question, it will have an impact.”
