Localization is the guarantee of stability
The bid of domestic automakers on the budget segment in crisis fully paid off. Now, to preserve the stability of the market, it is necessary to increase localization and volumes of production. About these and other industry trends we were told in the Kazakhstani Association of auto business.
For a total of seven months of the current year 25,400 vehicles of different segments have been sold in Kazakhstan. The summer months are a traditionally off-peak period in the automotive market, but sales results in July of the current year (3,237 cars) indirectly suggest stabilization of purchase interest and pent-up demand ending period. In relation to certain brands differently directed trends were seen. So, the most strongly "dropped" in July were Daewoo, Isuzu, Datsun, Mini, Lexus, Peugeot, Mercedes-benz Trucks, Infinity, Skoda and UAZ. The loses of the popular Lada totalled 23.28%, while Toyota sold 25.14% less than in June. On the other hand good results were shown by Porsche (+300%), Lifan (+250%), Iveco (+209.09%), Kamaz (+188.33%), BMW (+60.87%), Audi (+57.14%), Hyundai (+44.53%) and Jac (+22.73%).
If we talk about commercial vehicles, for the first half of 2016 by Kazakhstani Auto Business Association members (KABA) there were sold 3, 104 units of such vehicles, including 446 minibuses, 127 minivans, 503 distribution vehicles (compact and light trucks with lower loading height), 14 buses and 2,014 trucks.
Representatives of the Association noted, that commercial vehicles sector in our country is slightly better than in the markets of the neighbouring CIS countries, although, of course, the crisis and the decline in business activity had an adverse impact on it. Kazakhstan reduced investments for technical fleet renewal, and this despite the fact that the average age of commercial vehicle is 21 year. In particular, 38% of all buses and 66% of trucks are operated for more than 20 years.
According to KABA estimates, vulnerability of the car market as a whole, especially of manufacturers, which became apparent in 2014, influenced the situation of the current year, because pent-up demand was formed for 18 months. However, the period of stagnation has already exhausted itself and the Association counts on the recovery of production and sales indicators in the future.
Factors, that had a negative impact on the situation at the automotive market, include the following:
- Saturation of the market by Russian cars, due to the disparity of the rate (in the period of 2014-2015, 312 thous. cars were imported from Russia, under an average annual market volume equal to 100 thous.).
- Economic crisis and decline in business activity (influencing corporate sales), as well as the population solvency (retail).
- The decline in consumer lending by banks of the second level.
According to the forecasts of the Association, indicators of the second half of 2016 will greatly depend on oil prices development as a base factor of stability of the Kazakhstani economy and market revival. According to estimates of the World Bank, the IMF and the Economist Intelligence Unit, the average oil price at the year-end will be $40-44 per barrel, which gives the possibility to expect the preservation of the first half of the year trend. In such circumstances, the sales of new cars will come to about 45,000 units.
In prospect of three years, KABA experts also expect sales growth for new cars in official dealer centres (up to 65 thous. in 2017 and 105 thous. in 2018), upon condition of oil prices rising in accordance with forecasts of international organisations.
In addition to external factors, which should have a beneficial impact on the automotive market, KABA representatives see a number of intro-industry factors, which should support the market. Firstly, it is an incremental decline of import duties, within the approved WTO tariffs. Secondly, the value reduction of cars of foreign origin.
Upon that, the deviation from the baseline Association forecast is possible in the case of implementation of events, which were not taken into account. In particular, it can be economical and political crisis phenomena, both globally and locally, as well as regulatory changes in the industry.
As for prices, according to KABA this year they will remain at the same level. During the previous two years official dealers were forced to reduce the cost of selling cars to the maximum, to keep the company from bankruptcy. Negotiations about each brand, presented in Kazakhstan, were carried out with parent structures, and it was very complicated process. The price decline of some brands in dollar terms reached 60%, i.e. company-dealers and companies having such brands, went to extremes, working at a loss.
So, in 2016, there were no more possibilities to reduce the price. However, according to KABA, discount system and other incentive tools (trade-in, instalment, finance lease for commercial auto, etc.) are of great interest to the dealers and perhaps in the near future it will be a possibility for their further development. According to polls, to date, 71% of Kazakhstani auto dealers do not have a trade-in program, with 62% of respondents, noted that this direction is prospective.
With regard to domestic manufacturers, according to the Association representatives, the bid on the budget segment was the only correct strategy, enabling to preserve Kazakhstani auto industry. However, this segment initially has a small marginality, which must be compensated by the ramp-up. Now, automakers are running a special campaigns for sales stimulation, but the basic strategy on price stability retention involves only increasing local content (localization) of production. At the moment, localization level of commercial vehicles comes to 50%, and the level of the passenger cars to 30%.
Thus, it can be expected that, although it is planned to run a special campaigns for sales stimulation before the end of the year, a substantial prices reduction is not predicted.
Finally, let's consider the basic tendencies which, according to AKAB, are being formed in the domestic automotive market:
1. Kazakhstani people increasingly prefer the budget segment, first of all this includes cars of domestic origin.
2. Kazakhstani people are ready to accept new brands in the market, if it will be cars of domestic origin.
3. Kazakhstani people are interested in the tools for sales stimulation, lending and instalment.
4. Kazakhstani citizens are increasingly interested in efficiency, design, equipment packages, level of comfort and safety when selecting auto in the budget segment. A consumerism is forming actively. Therefore, there are tendencies towards the change of traditional sales leader.
5. Even now, vehicles of domestic origin account for 30% of the total sales volume, which doubles indicators of the previous year. So, in prospect, Kazakhstani vehicles has all chances to become dominant on the market of the country.