The Ukrainian car market, along with the national economy, has been stalled for the past two years.
But most market players believe the industry has already turned the corner, and will start on an upwards track again this year.
Ukrainian dealers sold 50,932 new cars in 2015, with the market’s value estimated at $1 billion, according to the Ukrainian Motor Vehicle Manufacturers Association. For comparison, 213,322 cars were sold in 2013.
The public is putting off new purchases as uncertainty lingers. Meanwhile, with the hryvnia’s value falling by more than two-thirds since 2013 and high interest on loans has acted as a further brake on demand.
But despite the recession, trade in new cars has been steadily picking up since June 2015. In January and February sales increased by 22.6 and 43.7 percent against the same months last year, inspiring moderate optimism among market players.
The reason for the uptick is delayed demand, according to Oleg Nazarenko, the general director of the National Car Importers and Dealers Association. In 2014 alone, Ukrainians withdrew deposits worth $33 billion from the banking system, and that money has not yet come back to the banks.
Some of it is going to be spent on cars, Nazarenko believes.
“People can’t delay purchases endlessly – eventually, cars start breaking down,” Nazarenko told the Kyiv Post. “The political and military situation in the country has calmed down… so people have begun living a bit more easily, and are starting to buy cars.”
Strained middle class
The drop in vehicle sales in Ukraine has been more dramatic than in Russia, which is also experiencing rapid devaluation of its currency and economic hardship. With a population a third of that of Russia, Ukraine sold 30 times fewer cars. Russians bought 1.6 million new vehicles in 2015, according to the Association of European Businesses.
“The situation in the car market is an indicator of the country’s middle class,” says Sergey Borovik, the marketing director of the AIS Group, which specializes in trading and servicing the mass market, low cost and corporate segments of the vehicles market.
Borovik told the Kyiv Post that demand for cars in Ukraine remains high, but Ukrainians have shifted to different segments — primarily second-hand domestic resales and second-hand imports. In 2015 there were a half-million resale operations, and nearly 50,000 used cars were imported.
Another reason that the public has resorted to the used vehicle market is because Ukraine does not have enough high-quality, cheap foreign brands. In Russia there are “20 factories manufacturing a lot of popular models made by Nissan, Toyota, Citroen, and Volkswagen, which are 30-50 percent cheaper than they are in Ukraine,” Borovik said.
This, in turn, is because Kyiv failed to develop car manufacturing in the country “in favorable times, so the big international automotive concerns didn’t come to the country,” he said.
Meanwhile, Ukrainian used car sales and revenues are mainly in the shadows. Importers of new cars pay 30-50 percent of a vehicle’s market price in duties to the budget. A second-hand car importer pays only 10-15 percent of a car’s value to the state, using various schemes to minimize VAT and import duties, Borovik said
These conditions are “disastrous for the official participants of the automotive market, who pay all their taxes, and who have invested any billions of dollars in Ukraine,” he said.
The AIS Group saw “big losses” in 2014 and 2015, Borovik said. The company increased its share on the market from 11.1 percent in 2013 to 11.8 percent in 2015. But sales decreased fourfold, to 5,900 cars last year.
AIS Group now expects car sales in the country to grow to 55,000 units in 2016.
“But that’s a very low figure compared with the volumes of trade Ukraine used to have,” Borovik said.
Premium car share
The economic crisis ate into sales in the premium vehicle segment too, but it shrank less than the mass car market. And since the start of 2016, sales have grown by 149 percent. In the first two months of the year 1,232 premium-class cars were sold, versus only 495 in 2015.
Premium-class car sales revenues have dropped by about three times since the crisis hit, said Petro Rondiak, the general director of Winner Imports Ukraine, the official dealer of Ford, Volvo, Jaguar, Land Rover and Porsche in Ukraine.
“In terms of profitability, 2014 was a difficult year for us,” he said in an interview with the Kyiv Post. “2015 was OK, so we were able to find a business model that works even in this economy.”
The company sold 3.8 times fewer cars in 2015 compared to two years ago, when it sold 11,155 vehicles. However, its market share increased from 5.2 percent to 5.8 percent.
Rondiak said the infrastructure built out by import dealers in Ukraine was sized for a much bigger market, so a lot of dealers have closed. Consumers are a lot more cautious about making purchases, and may delay them in anticipation of a more favorable currency exchange rate.
The profile of the company’s customers has changed too. Rondiak calls them “a new sort of Ukrainian” who are not afraid to come under scrutiny after purchasing a premium vehicle. “So these people have businesses, pay taxes, and are not afraid to buy a premium car,” he said. “Under prior regimes there were more government officials buying cars, but that has diminished significantly.”
At the same time, investors have become choosier about going into the car business.
Nevertheless, Rondiak said his company has managed to find people ready to build new dealerships.
Winner Imports has ongoing Volvo and Ford dealership construction projects in several big Ukrainian cities. It is also investing in a Winner college to train dealer and importer personnel how to repair cars, and school them in the sales process.
The company also hopes to improve sales by tapping into the used car market, which is currently closed to official dealers because they have to pay VAT on the whole value of the car, not just the profit made on a sale. Rondiak said the necessary legislation is ready, but still needs to get through parliament.
He said that once the law is in place, consumers are set to benefit because “the official dealer will check the car, and will be responsible for the car, while the government will make more money, because instead of being in the shadow economy, (the business) will be in the official economy.”
Correction: Winner Imports Ukraine is investing in Winner College. The company is planning to train personnel for all five brands which it officially sells.
