Russian gov’t subsidies for car buyers will stimulate market growth, banks say

Russian gov't subsidies for car buyers will stimulate market growth, banks say

Russia’s two biggest banks are betting a resumption of subsidies aimed at helping the automotive industry will return car sales to growth, bolstering lending.

Car loans will increase 13 percent this year amid government help for consumers, the retail arm of VTB Group, the nation’s second-biggest bank, said last week. The program will support demand for credit, OAO Sberbank, the largest lender, added.

By comparison, financing through car loans and leasing contracts increased 4 percent last year in Germany, Europe’s largest car market, according to car-lending association AKA’s Web site.

The banks are counting on a resumption of state incentives to revive auto sales, after they slumped for the fourth straight month in June, amid the slowest economic growth since 2009.

Under incentive plans, the banks will be able to provide subsidized loans for customers buying cars priced as high as 700,000 rubles ($21,200) until the end of 2014, according to the Industry Ministry.

A Lada Granta starts at 279,000 rubles, according to the Web site of OAO AvtoVAZ, Russia’s biggest automaker. A Ford Focus retails from 542,00 rubles, the Ford Motor Co.’s Russia Web site says.

Car loans are more profitable than corporate lending, with a net margin of as much as 18 percent, compared with 5 percent for companies, said Nadezhda Bozhenko at UralSib Financial Corp.

“The government is trying to boost demand for automobiles and producers,” Rinat Kirdan, head of fixed-income research at Aton LLC in Moscow, said on July 4. “The measure will help in the short term, but as soon as the subsidies end, the market will decline.”

Government support

Prime Minister Dmitry Medvedev’s government plans to start supporting sales of budget vehicles this month, Yuri Koritsky, an Industry and Trade Ministry spokesman, said on July 4. The program will help sell as many as 250,000 additional cars initially, Industry Minister Denis Manturov said on state television last month.

Russia began assistance for the automotive industry in 2010, with a rebate program to encourage Russians to buy domestically-made cars to replace old models. Sales of new cars and light vehicles rose 30 percent in 2010, 39 percent the following year and 11 percent in 2012 to 2.94 million units, according to the Association of European Business.

Sales decreased by 11 percent in June, the group, which expects a decline of 5 percent for 2013, said on July 8.

Bank plans

Russia’s car loan market expanded 20 percent to $26.1 billion in 2012, according to an Ernst & Young LLP report. State-controlled Sberbank and VTB hold more than half of the market, data of Russian research company Avtostat show. VTB24 plans to increase its share of the auto-loan market, CEO Mikhail Zadornov, said in an interview in St. Petersburg in June. The bank increased the number of car loans it gave out by 32 percent in the first five months to 65,000, VTB24 said. VTB raised $275 million by securitizing car loans in August 2012, the bank added.

Sberbank provided 62,728 auto loans valued at 30.1 billion rubles in the first five months, a drop of 8 percent from the same period in 2012, the bank said. The lender aims to increase market share by year-end, it said, without specifying what it is now.

“The question now is whether the market can do better in the second half of the year,” Joerg Schreiber, chairman of the AEB Automobile Manufacturers Committee, said in the July 8 statement. “The chances for that have increased with the announcement of government plans to subsidize credit-backed vehicle purchases. We hope these plans will be implemented quickly, for the expected positive effect to be felt in the coming months.”