Ukraine Autos Report Q1 2008

Ukraine's automotive sales and output are set to continue their upward trend over the next five years, supported by rising wages and strong investment.

In the first three quarters of 2007, Ukraine's car sales totalled 366,000 units, which was in line with BMI expectations. Monthly year-on-year (y-o-y) sales growth ran at over 25% throughout 2007. BMI estimates growth at around 28.3% for the whole year, with total sales worth US$13.88bn. Car sales growth is estimated at 30%, while commercial vehicle sales growth is estimated at 9.9%. In H107, the total value of the Ukrainian car market was EUR3bn, according to Auto Consulting Ukraine. Toyota had the largest share of the Ukrainian car market in terms of value, with a 10.9% share of sales (EUR330mn), followed by Russia's AvtoVAZ (9.9%, EUR300mn), Daewoo (9.3%, EUR280m), Mitsubishi (8.7%, EUR262mn) and Chevrolet (6.3%, EUR190mn). However, in terms of the number of cars sold, AvtoVAZ was the most popular brand.

BMI broadly agrees with the trends forecast by UkrAvto's Vice President Vyacheslav Povroznik in September 2007. He predicted automotive sales of 500,000 units by the end of 2007, rising to 600,000 units in 2008 and 1mn units 'in the long-term'. Growth will be fuelled by the increase in numbers of people able to afford a car and the replacement of the national car stock, currently estimated at 4mn units.

While BMI's forecast for 2008 is slightly above Povroznik's estimates, we do not envisage sales reaching 1mn units within the next five years. We believe that sales are likely to reach just over 838,000 units by 2012, with the Ukrainian market likely to be worth around US$22.3bn in 2007 prices.

The high rate of domestic sales and strong inward investment coupled with the depreciation of the hryvnia, which has made Ukrainian manufacturers more competitive on European markets, helped boost automotive manufacturing in 2007. In the first three quarters of 2007, by Zaporizhzhia Automobile Building Plant (AvtoZAZ) and Kremenchuk Auto Assembly Plant (AvtoKrASZ), LuAZ and Eurocar reported year-on-year car production output growth rates of 48.6%, 43.1%, 14.4% and 45% respectively.

Car output figures in the first three quarters of 2007 confirm BMI's estimate of 385,000 units for the year, raising total automotive output by 38.7% to 409,460 units. BMI believes automotive production will exceed 700,000 units by 2012, an increase of over 80% compared to estimates for 2007. Ukraine is establishing itself as a manufacturing hub, exporting to other markets in the CIS.

This quarter, BMI examines the Ukrainian 'grey market', which represents nearly 18% of total new car sales in Ukraine and affects the profitability of dealerships. Loopholes in import duties have enabled cars to be imported in 'incomplete' form, thereby incurring lower levels of duty, with final modifications to the cars made ahead of sale. BMI research finds that the 'grey market' is fuelled by a shortage of popular models in the formal sector, but varies according to region and brand. But the root cause is a lack of regulatory enforcement, which is partly related to corruption.