Cars, Machinery

Car dealers’ policy at the beginning of 2016

Together with the other market segments, the Russian automobile market goes through a bad stretch now. Under the existent conditions, the car manufacturers and their dealers are trying to adjust to a dropped volume of sales of both the new cars and the cars with mileage. The market participants are trying to optimize the resources to a maximum effect and to build a good policy in the market as well.

The Research Center «Effet» has carried out an analysis of the situation among the major dealers and of recent tendencies in the market sentiments.

According to a financial report for the first half of the 2015, a major national manufacturer “AvtoVAZ” has restructured its assets under the current conditions. The company cut down substantially the expenses by cutting down the cost of sales, directed funds to minimize the exchange risks and increased the volume of long-term credits. As on June, 30, 2015 the company didn’t meet the conditions under the credit contracts signed with a number of banks totaling 20’268 million rubles, whereas the long-term credits and loans of the company increased from 29’116 million in 2014 to 50’316 in 2015.

The increase of financial obligations forces manufacturers to conduct a tough policy among their dealers. For instance, the expenses were cut for the ”AvtoVAZ” dealers: the manufacturer changed their incentive system in February. Now when a dealer makes a prepayment, except for basic discount of 6 per cent, the former will receive a discount of 2 percent additionally from the manufacturer, whereas earlier it was 4%.

Some of the dealers fail to meet the competition and leave the market. For instance, one of two “Alan-Avto” dealerships in Moscow has withdrawn from the “AvtoVAZ” network.

The uncertainty under the economic reorganization, cutbacks to funding and decline in demand set new tasks before major car dealerships. Those companies whose things are not so bad direct their energies at gaining the market share by opening new dealerships, cooperating with other participant, and also by starting promotional campaigns. For example, the “Rolf” company has recently opened two new dealerships as part of the St. Petersburg location “Rolf Oktyabrskaya”, and on March, 1, 2016 there was a consolidation of “Rolf” and “Pelikan Avto”, which allowed gaining the market share to 4 percent.

It should be noticed, that “Rolf” shows to good advantage in the market. In the interview to the “AvtoBusinessReview” magazine, the director of “Rolf” Tatyana Lukovetskaya said: “We continue to go against the market tendency in 2016: we have achieved a growth by 10 percent, whereas the market of new cars has declined by 29 percent, and we have also achieved 2 percent in February”.

The major dealership’s “Genser” sales showed a decrease by 45 percent in 2015 in comparison with 2014. In order to improve the situation, the company focuses its efforts on changing locations. On February, 20, 2016 the fourth dealership “Genser Nissan” appeared on the Novoryazanskoe highway in Moscow, whereas the sole dealership in Tambov withdrew from the network.

According to the “AvtoBusinessReview” information, the “AutoSpecCenter” dealer has sold 12’486 vehicles in 2015, which is less by 22 percent than in the previous year. The company is planning to add to its strength by advertising and attracting client with entertainments and discounts

“Business Car” became the winner in a category “Best dealer on sales organization in mass segment” in the frame of professional competition “Dealer of the year-2015”. Three “Toyota” dealerships gained prizes, and one from Moscow was voted the best in the capital. According to mass media, “Business Car” is planning to open new “Toyota” dealerships in Siberia in the near future.

A big Moscow dealer “AvtoGermes” intensively expands its activity. The company opened two new dealerships of “KIA” and “Lada” in Moscow in November, 2015. Earlier these locations belonged to “Strim-Avto”.

According to “AvtoBusinessReview”, the dealer has taken the tenth place in the top-10 of the biggest companies in terms of new cars sales, and it has sold 11’313 of new cars by the first half of 2015. However, the sales volume of the dealer has decreased by 17 percent in comparison with 2014.

The big dealers change their policy refusing to cooperate with the unprofitable brands and turning to those, which models stay popular.

For instance, a dealership network “Avtomir” has decreased the sales volume by 52 percent in 2015. The company is optimizing its resources by ceasing cooperation with “Mazda” and “Opel”, and it opens new dealerships, such as “Skoda” in Novosibirsk and “Toyota” in Moscow.

Moreover, the ad wars take place among dealers under the competitive conditions. For example, “AutoSpecCenter” replied to a provocative billboard by “AvtoVAZ” featuring a new Lada Vesta and offering everyone to “leave NOTVesta”.* The dealer replied with its own billboard, saying: “Our NOTVestas don’t break down”. After that, “Ford” unexpectedly joined this exchange of fire. The latter published an ad video in a social media, saying: “While all argue about NOTVesta, we have Fiesta!”.

*(Note: in Russian, NOTVesta sounds as “bride”)

Some of major car market representatives remarkably yield their positions: following the results of the first half of 2015, the British group “Inchcape” has absorbed losses to the value of 0.4 million pounds sterling, contrary to the 0.6 million benefit for the same period in the previous year. According to “AvtoBusinessReview”, “Inchcape” has sold slightly over 6’000 new cars. The decline of sales has led to closing out of three “Peugeot” dealerships in St. Petersburg.

Other big dealers are looking for new opportunities by expanding the brand portfolio, trying to increase marketability. For example, the “Major-Auto” company is beginning cooperation with the national brand “UAZ”.

On the whole, the major dealers are focusing their efforts on retaining their shares or expanding the presence in the market, and they use the following methods:

  1. merger with other participants;
  2. discounts, carrying out demonstrations, entertainment events for clients;
  3. advert reinforcing;
  4. geographical optimization (closing unprofitable dealerships and opening the new ones in the places with more benefit, such as big cities;
  5. brand portfolio expansion in order to attract new clients.

According to the Association of European Businesses, the car sales declined by 13.4 percent in February 2016, or by 17’232 vehicles, in comparison with the same month in 2015. Nevertheless, this figure is the least in the past 14 months, which tells us about a small improvement. The table below contains statistics on car sales according to brands for February 2016 and 2015, as reported by AEB.

Dynamics of sales according to brands (includes only top-15 brands).

BrandFebruary 2016February 2015Trend, %
Lada19’03523’639-19%
KIA11’49212’563-9%
Hyundai10’51013’233-21%
Renault8’8239’100-3%
Toyota7’9537’14311%
Nissan7’3199’447-23%
Volkswagen5’3995’804-7%
Skoda4’0765’618-27%
Ford3’4181’399144%
Mercedes-Benz3’3334’151-20%
GAZ3’2672’97010%
UAZ3’0992’26037%
BMW2’7503’550-23%
Chevrolet2’4433’255-25%
Mitsubishi1’9353’323-42%

Taking into account the current situation, the banks, which provide loans to the dealers, can often renegotiate the loans, and the companies have to agree on loan restructuring on unfavorable terms. As a result, many companies fail to cover the increased financial cost and leave the market.

“AvtoBusinessReview” together with ROAD (The Association of Russian Automobile Dealers) have carried a research, where they indicated the dynamics of changes within dealer networks.

The leader in terms of number of closed dealerships is the “Lada” network. The company closed 36 locations in 2015, whereas the number of opened location equals to 24, and the whole share of the dealer decreased by 3 percent. At the same time, “UAZ” opened 34 locations and closed 15 locations for the past year, and it increased its share by 12 percent. More detailed information on dealers is represented below (as reported by ROAD).

Top-5 brands, closed dealerships

Brand2015Network share, %
Lada369
Chevrolet3522
GM-AvtoVAZ2314
Peugeot1521
UAZ159

Top-5 brands, opened dealerships

Brand2015Network share, %
UAZ3421
Lada246
Datsun2338
Lifan1711
DFM1572

Despite the decline of sales, the number of dealerships has decreased insignificantly. According to the research, 292 dealerships stopped existence for the year 2015, whereas 258 new dealerships opened, and the figure decreased by 1 percent approximately.

Under the unstable circumstances, the situation in the car market opens up fresh opportunities for some dealers and weakens the positions of the other. It largely depends on the market condition, what there will be with the dealers in the near future.

Sources: Researching Center Effet, AvtoVAZ, AvtoVAZ, AvtoVAZ, AutoBusinessReview, Vedomotsi, AutoBusinessReview, AutoBusinessReview, Nissan, Association of Russian Auto Dealers, AutoBusinessReview, Toyota BusinessCar, Ksonline.ru, AutoBusinessReview, AutoBusinessReview, AutoBusinessReview, Ksonline.ru, Ksonline.ru, Mazda, Opel, Avtovzglyad.ru, AutoBusinessReview, AutoDealer Spb, UAZ, Association of Russian Auto Dealers, Association of Russian Auto Dealers, Association of Russian Auto Dealers.