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Prices Go To & Nbsp; 2020: How Much Will Cars Rise In Price And & Nbsp; Why

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Prices Go To & Nbsp; 2020: How Much Will Cars Rise In Price And & Nbsp; Why
Prices Go To & Nbsp; 2020: How Much Will Cars Rise In Price And & Nbsp; Why

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The cost of new passenger cars by the end of 2020 may grow by 5-10%, according to experts and market participants interviewed by Avto.ru. The main factor was the increase in the rates of the utilization fee. Also, the cost is influenced by inflation, exchange rates and government policy. The rise in prices also determines the sales of new cars, which, according to market participants, will continue to fall in 2020

Consumers have barely gotten used to car prices after the VAT hike in early 2019, when a new price hike awaits them in 2020. In addition to traditional factors such as inflation and model year updates, the cost of cars in 2020 will be significantly influenced by an increase in scrappage rates. Moreover, prices will be raised by localized producers, who are compensated for the payment of duties from the budget. At the end of the year, cars may rise in price by 3-10%, depending on the model, predicted by Avto.ru analysts.

Other market participants are also expecting a rise in the cost of cars in 2020. According to Maxim Malkov, Director of the Strategic and Operational Consulting Group at KPMG in Russia and the CIS, in 2020 the price increase for cars will be 5–7% and will happen gradually over the course of the year. The forecast of the Russian Automobile Dealers Association is close to that of KPMG: a gradual increase throughout 2020 by 5%.

Alexander Zakharov, Head of Key Accounts at the AutoSpecCentre Group of Companies, notes that the price increase in 2020 will not be as significant as last year due to the VAT increase, and will amount to 5–10%, depending on the brand. Segmentation will play its role, he said: mass models will rise in price less, premium ones - more. The level of localization will also affect. Valery Volodchenko, General Director of the Nizhegorodets Group of Companies (Nizhny Novgorod Region), believes that cars will rise in price by an average of 90-100 thousand rubles. The promotion will not be one-time, but will take place in 2-3 stages, but during January-March. “It is expected that the main players in the automotive market in the mid-price segment will gradually raise prices by 2-3% per month, and the overall growth will be about 7-8%", He adds. According to Volodchenko, an increase in prices for new models by February-April will automatically lead to an increase in the cost of used cars.

The Rolf group believes that the rise in price will be about 10%… Ilya Zharsky, managing partner of the Vet expert group, agrees with this assessment. According to him, prices may rise by 4-6% in the first quarter. Irina Zelentsova, COO of SUZUKI MOTOR RUS, suggests that the level of price increases in 2020 is likely to exceed the standard range in 5–10% due to new fees.


How new cars have become more expensive in the last 5 years

From 2013 to 2019, the weighted average cost of a new car, according to JATO Dynamics, increased by 80%. “This not only compensated for the fall in the ruble exchange rate, but also significantly surpassed it, given the strengthening of the Russian currency in 2019 in relation to the main Western ones,” says Sergey Baranov, an analyst at the JATO Dynamics car market. In 2019 alone, the growth was 8%. In 2019, the VAT rate increased from 18 to 20%, as a result of which most manufacturers indexed prices at the beginning of the year.

Experts and market participants interviewed by Avto.ru cite the increase in the rates of the utilization fee, which is collected from all cars, as the key reason for the rise in car prices in 2020. JATO Dynamics car market analyst Sergey Baranov confirms that the government's decision to increase the utilization fee will be directly reflected in the price lists, but it cannot be said that this will be a very critical growth. Based on the experience of 2018, when there was a previous change in the collection rate, we can expect price adjustments within 2%, the expert notes.Auto.ru analysts predict a one-time growth of up to 5% only due to waste collection.


What is waste collection?

The scrappage fee as payment of the state's expenses for recycling the car after the end of its service life was introduced on January 1, 2012. At first, only importers paid the fee, but since 2014 it has been extended to all market participants. However, localized carmakers received scrap compensation in the form of industrial subsidies.

On November 15, 2019, the Prime Minister of the Russian Federation Dmitry Medvedev signed a government decree on increasing the waste collection for cars from January 1, 2020. Rates will rise by an average of 110.7%. In the most popular segment with engines from 1.0 to 2.0 liters - by 112.4%, with engines from 3.5 liters (SUVs, premium sedans) - by 145%. To compensate for the increased rates, the Ministry of Industry and Trade has developed new conditions for receiving compensation for local producers, which will operate in the period 2020–2028. The mechanism is going to be tied to the actual level of localization of cars, Vedomosti wrote.

The least change in the rates of waste collection can affect the cost of vehicles with a high degree of localization. This is confirmed by the words of the head of the Ministry of Industry and Trade Denis Manturov: on November 25, he said that cars produced in Russia should not rise in price, since the state is providing support to the corresponding car factories. In the cost of imported cars, the share of indexation of waste collection does not exceed 5%, so the Ministry of Industry and Trade does not expect a significant increase in prices for these models either.

Nevertheless, a number of foreign manufacturers announced a rise in price due to waste collection at the end of 2019. The Volvo brand has warned that from January 2020 the recommended retail price of all new cars in Russia will increase by 30,000 - 110,000 rubles. On average, Chery's lineup has risen in price by 5%. BMW raised prices by 2% to compensate for the increase in scrappage rates. Subaru cars will rise in price by 3-6%, depending on the model and configuration. Despite the high degree of localization, due to economic factors, at the beginning of the year, the price of the domestic brand Lad and the Renault model rose by about 2%. According to the results of price monitoring for the first half of January carried out by the experts of the Auto Price website, 18 out of 52 brands have changed the prices for cars. Among them are those that have full-fledged assembly plants in Russia - Hyundai, Skoda, Volkswagen.

“The increase in the scrappage fee will be the main motive for the rise in prices in early 2020, especially in the segment of cars with engine over 3.5 liters. Ki has only one model (the K900 sedan) falls into this category,”confirms a Kia spokesman. Nissan said that the new scrappage rates should not have any effect on the value of the brand's cars, since all models sold in the country are manufactured in Russia. Suzuki said the price increases for their cars will depend "on the overall market situation and the level of demand for the brand's products." Most manufacturers do not disclose in advance plans to raise prices in 2020.

In addition to waste collection, the cost of new cars is affected by inflation, exchange rate differences, production and labor costs, government policy, experts say. “Another important point that will also stimulate prices is the transition from industrial assembly to SPICs and the associated increased requirements for the localization of production,” Zharsky said. The dependence of the domestic auto industry on imported components remains at a high level, which in turn affects the cost of the car, the expert notes. “But manufacturers cannot work at a loss, so the increase in the cost of imported components and the costs associated with an increase in the level of localization will inevitably continue to push prices for cars up,” concludes Zharskiy.


From industrial assembly to SPIKs

Since 2018, car manufacturers in Russia have begun to conclude special investment contracts (SPICs) with the state in exchange for incentives.Prior to that, they worked in the industrial assembly mode, which was recognized as unprofitable for the state, since this mode did not imply deepening localization and investment in R&D. The very first agreements on industrial assembly presupposed rather lenient conditions for both investment and production. Now, the conclusion and fulfillment of the SPIC conditions is necessary to obtain state support, but its final volumes will depend on the degree of production localization and a number of other factors.

The rise in car prices will inevitably affect the dynamics of sales, experts say. Therefore, many manufacturers and dealers are expecting another drop in 2020. “The main reason is the decline in the availability of a new car. Prices continue to rise, incomes of the population are declining, and as a result, the car literally becomes a luxury,”says Baranov from JATO. According to Zharsky from Veta, sales may decline by 4-5% in relation to 2019. ROAD President Oleg Moseev previously predicted that in the current economic situation, the decline in the market for new passenger cars in 2020 could reach 8%.

According to the forecast of AvtoVAZ, which the automaker presented on January 12, about 1.7 million cars could be sold in Russia in 2020 (-3.4% with sales in 2019 of 1.76 million cars). The AEB believes that the negative dynamics in the market will continue, but the fall will be slightly less - by 2.1%, to 1.72 million units. Auto.ru analysts admit a decrease in the Russian car market up to 5% by the end of 2020.

How the market fell in 2019

At the end of 2018, the car market grew by 12.8% to 1.8 million cars. Then the AEB predicted that next year there will be a slight improvement and it will be possible to sell about 1.87 million units. But already in February 2019, the market began to fall, and after a slight increase in March, car sales began to decrease evenly every month. As a result, publishing the September results, the AEB adjusted the forecast for the year - the market volume was announced at the level of 1.76 million units. Following the results of 11 months, the decline was 2.8% (1.58 million vehicles). At the same time, in an interview with Izvestia, the head of the Ministry of Industry and Trade Denis Manturov said that the decline in sales for 2019 will not exceed 2.5-3%. As a result, this is what happened: the car market decreased by 2.3%, to 1.759 million units at the end of the year.


The AEB traditionally speaks of the need for active support of demand from the state. The majority of market participants are of the same opinion. For 2020, the Ministry of Industry and Trade has budgeted 5 billion rubles to support demand - we are talking about the programs of preferential car loans "First Car" and "Family Car". The programs resumed from January 1, 2020, but due to the annual rise in the cost of cars, these measures will not be enough.

“2019 has shown that the current volume of financing for state sales subsidy programs is insufficient for smooth operation, the fund's funds were spent long before the end of the year. Therefore, we support the idea of ​​increasing funding and including more models,”said a Kia spokesman. Nissan confirms that government support in today's environment is extremely important, and this is about sales support, and about production and export support.

Development Director of Rolf Group Vladimir Miroshnikov adds that it is possible to stop the market decline by launching subsidy programs in the segment of 1–2 million rubles, where there is deferred demand. “If there are no new programs, then a decline of 8-10% per year looks realistic,” he said. Zakharov from AutoSpecCentre also agrees with his colleague: "without comprehensive and large-scale government support programs, the market is unlikely to show growth."

At the same time, Malkov from KPMG believes that state support can only partially improve the situation in which automakers find themselves in connection with a negative trend in the Russian market. But this will be a short-term measure. The main driver of demand at the moment is the level of income of the population, the expert concludes.

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