6 Jul 18

Recovering Russian car market could slow down after tax increase

In the first six months of 2018, 849,221 new cars and LCVs were registered on the Russian market, reports the Association of European Business (AEB). Nevertheless, the car market could suffer from a planned VAT increase.

The Avtovaz-Renault-Nissan group registered 288,462 new vehicles, a 15% increase. Market leader Lada grew by 21% (169,894 units). Kia also did particularly well, improving sales figures by 31% (111,214 units). Volkswagen registered 51,708 new vehicles (+21%). PSA group also progressed, Peugeot going up 33% to just under 3,000 units and Citroën 7% to just over 2,000 units.

Joerg Schreiber, Chairman of the AEB, said: "Thanks to strong sales in the preceding months, vehicle inventories are rather lean across the industry, dampening sales growth if only temporarily. All in all, the first half of 2018 has been successful for the Russian car market, and there is good reason to believe that the positive momentum will continue in the coming months."

VAT increase

This optimism isn't shared across the board as the Russian government approved an increase of value added tax to pay for President Putin's ambitious projects.

Earlier this week, the Russian authorities decided to raise VAT by 2 percentage points to 20% from 1 January 2019 in a bid to raise an additional 600 billion rubles per year.

Crimean crisis

The move comes at a time when the Russian car industry started to recover from years of stagnation. The Russian automotive sector entered a period of crisis after the Russian annexation of Crimea and the subsequent sanctions on Russia imposed by the West. This provoked a fall in the value of the ruble and a rise in car prices. Before the start of this crisis, the Russian car market had been one of the fastest growing in Europe and car makers had been scrambling to invest in the country.

"Production costs will rise automatically by 2 percentage points. The price increase for customers will also be automatic," a Nissan Russia spokesperson told Reuters.

Some analysts expect car sales to increase this year as buyers try to avoid the VAT increase, adding a market slowdown is unavoidable after that date.

Image: Lada dealership in Samara, Russia.

Authored by: Benjamin Uyttebroeck