Car Sales Drop Off As BMI View Plays Out
Passenger car sales in Ukraine declined 21% year-on-year (y-o-y) in the first three months of 2014, to 38,016 units, following a substantial decline of 51% y-o-y in March ( see graph). Following relatively buoyant sales increases in the first two months of 2014, BMI maintained that a sharp downward correction was due as 'the ongoing political unrest in the country impacts consumer sentiment in general, and more specifically, the passenger car segment', over-riding the low base effects from the poor sales in early 2013, as well as pent-up demand in the market from sustained declines in recent years ( see 'Sales To Drop Despite Early Growth', March 10). This played out.
|Sales Plummet In Line With BMI Expectations|
|Ukraine Monthly Passenger Car Sales, Units|
BMI currently forecasts a 5.0% sales decline in the segment in 2014. We caution, however, that recent political unrest, which may be protracted, is likely to weigh on consumer sentiment in the country, and presents considerable downside risks to our forecast.
Indeed, BMI has become increasingly bearish on the country's consumer story following recent political unrest, and we believe this will weigh on passenger car sales over the coming months. Moreover, the dramatically weakening Ukrainian hryvnia, rising unemployment, and slowing real wage growth, will likely temper appetite for big ticket purchases such as new cars, over the year.
However, the extent and duration of political unrest is uncertain, and it remains unclear how this will affect consumers' demand for passenger cars. We are therefore reticent over revising our forecasts at this stage. Moreover, lower base effects in the latter part of the year may help temper the rate of decline from the sharp drop witnessed in March.
Although some domestic auto manufacturing does exist, the majority of this is exported to Ukraine's near abroad, and the domestic market is primarily served by imports. Therefore, the weak local currency, in addition to high import taxes for automobiles, will weigh on sales growth over the year as imported cars become increasingly expensive.
In 2013, passenger car sales in Ukraine declined 10.2% y-o-y, to 213,322 units. Following strong growth earlier in the year, we previously highlighted that we expected the market to fall in the final few months of 2013 on the back of an increasingly weak macro picture and artificially strong growth in 2012. This played out, and we expected this negative momentum to continue into 2014. Recent developments, however, have prompted us to hold an increasingly more bearish outlook.