Just-in-time and under shelling: new car sales dropped by 35%, premium class shrunk the least

The Ukrainian car market has been experiencing a crisis. Its source was the full-scale war that has been underway in Ukraine since 24 February. After the russia’s army had crossed the state border of Ukraine and turned the war into its full-scale phase, they started to systematically destroy the national infrastructure, estate property that had belonged to businesses working at the car market among others. These were office buildings, auto shops, service centres and warehouses. Warfare escalation in the shape of air raids, artillery and missile strikes made further larger damage. The rf aggression has already inflicted, according to various estimates, over $1.5 billion losses to the national car market. Mind found out who suffered the most, who recovers faster, and what dealers and buyers expect.

What were the first losses?

In the first months of active phase of the war, virtually no fuel or repair station, showroom or parking depot for cars and spare parts (cleared or not by the customs) remained intact alongside of the roads through which convoys of russian invaders thrusted (and in the immediate proximity to their routes). Hundreds of objects, completed with expensive equipment are in question. All this was exterminated, looted, turned into piles of bricks, ashes, and crippled metals.

Nobody tries to voice the precise amount of damage. When preparing the material, we managed to find just one data that shows indirectly the reasons for the collapse. In the first months of the russian aggression over 500,000 automobiles, lorries (and special vehicles on the basis of them), and buses owned by distributors, dealers, and private entrepreneurs were destroyed, Mind cited Oleg Omelnytsky, AUTO-Consulting Director as saying. These vehicles were either for sale or for rent in the car market in Ukraine.

How were sales affected by the war?

Ukraine is a very complicated situation because of military and civil casualties, economic destabilisation as well as losses (both renewable and irrecoverable). Sales of new cars have fallen critically, says Maksym Morgunsky, an automotive expert. The slump will probably be up to 35% of the pre-war level in the year's calculation. Beside the drop in the consumer sentiment index, the level of effective demand is seriously affected by rapidly increasing inflation and rundown in the exchange rate of the national currency.

Refugees moving from the country, drafting a considerable number of active men to the Ukrainian Army, relocation of some businesses and idle standing of other ones as well as general decrease of business activities in the country also contribute to the appreciable reduction in the effective consumer demand level.

We can also speak of the change in the automotive business geography: sales in the whole Left Bank Ukraine dropped nearly to zero point, while in western regions the rundown is going to be less visible for some time than in average across the country.

What is much in demand?

At the end of the summer, the market in its commercial segment (lorries and buses) started to slowly give first positive signs. The AUTO-Consulting statistics testifies that August 2022 was the first month after the beginning of russian invasion when bus sales started to restore. The number of deals has been very small yet, but experts already record the first progress – several operators have stirred to activity.

So, according to the August results, Ukraine-made Ataman is leading the Ukrainian market, being chosen by more than a half of consumers. Next to it is the Turkish Otokar. The Etalon Plant in Chernigiv has also resumed selling, says Oleg Omelnytsky.

Moreover, Turkish Guleryuz and Temsa have already supplied buses to the Ukrainian market. Some cities of Ukraine also resumed purchasing buses (that is they signed contracts), which gives promise to recovery of this segment in future. Important is that purchasing school buses has been slowly resuming, the need in which is just enormous.

The situation with trucks may be considered rather better. But this relative success was possible only thanks to both linehaul and construction “EuroBlechs” (trade-in). And no one needs Euro-5 and Euro-6 camions (as well as construction and agricultural ones) in the course of war so far.

The situation around selling passenger cars was and remains vague. Every distributor and dealer without exception feels very hard, and there has been no sign of progress yet. The Ukrainian market of new passenger cars started steady deep transformations in August. As of numbers, in that month 3200 new cars were sold, which is 18% less than in July and 62% less than in last year’s August.

Though, service (repair stations) and spares segments slowly gather pace.

What trends have shown up?

Car market trends (by segments) are mostly unfavourable. But probably the major one is related to the automotive industry: Ukrainian bagan to forget about home-built vehicles (heavy lorries and buses, cars and motorcycles), says Oleksandr Bozhko, owner of the AutoPartsDnUa dotcom.

In his words, this is the more sad, given that such a vast European country, as Ukraine, must have its own machine-building industry that creates jobs and contributes taxes to the budget. The war with russia only emphasised the negative effect of job scarcity and limits of regional budgets. And the purchasing power of citizens has become very low in the current year, so any clear trends for growth or at least slow progress cannot be seen.

But a positive thing appeared for small business in general and car market salespeople in the midst of the war vortex: for instance, now payments for ordering spares are made on transaction accounts en masse and without particular problems. Most clients understand that such a payment is protected and pay on delivery will be more expensive. In peacetime, ordinary customers and small wholesale clients would more often tend to POD – the market was then more guaranteed and competitively well-balanced.

How quick can the market recover?

At the same time, the need for motor transport for business (cargo and passenger transportation) steeply decreased both due to economic decline because of the war, and unreasoned and inconsequent taxation.

“A big problem will be that after the victory, a considerable part of active citizens is going to start a business, purchase vehicles and realty abroad, not in Ukraine. This will  by no means promote growth of the national car market as well as procurement of motor vehicles for the needs of the Armed Forces. It has unfortunately been occuring abroad so far and does not stir up our market at all,” says Taras Chornovil, politician and public man.

Given such circumstances there could be two basic survival strategies for distributors and official dealers, thinks Maksym Morgunsky. These are increasing the marginality of sales and service or preserving maximal turnover at the expense of lowering prices for importers and dealers of premium brands.

The former one is more successful, in the expert’s opinion. Car importers of the middle price segment will probably have to balance on the edge (or even beyond the edge) of profitability, trying to somehow retain the scope of sales at the level that would not lead to rapid shutdown of the dealer’s network. The low-budget segment may not have sufficient margin for such a strategy. Affordable cars suppliers will have to focus their efforts on promoting cheap crossovers which sales decrease slower than selling of new urban A, B, C, and D-class sedans and hatchbacks.

In every segment, brands able to offer attractive crediting in national currency to their clients will get advantages. Though, including all the risks resulting from this in the country at war.

Nobody should expect the increase in sales, but market shares can be redistributed. Importers whose maternal companies would be able to set special prices for the Ukrainian market and support their offices with loans and subsidies might be highly successful.

But quite probably that some brands would prefer a stand-off instead of fighting for a position in the swooping car market. Importers and dealers’ stock reserve is going to be minimal for a long time, there will not be enough cars in showrooms, so sales will turn to an “on order” or “just-in-time” system.

Dmytro Baranovsky, Director of the Niko Avtoalliance and Niko Centr Kyiv companies, commented that the prospects of the Ukrainian car market will depend on further abilities of importers (distributors and dealers) to safely supply and store cars in Ukraine. Risks still remain high because of continuous missile bombardments. Thus now only those cars mostly reach the customer that were produced for Ukraine before the war and “got stuck” en route – for instance, in the producers and border guards' warehouses  or in the process of getting customs clearance.

But with new production for us, each manufacturer and foreign exporter has its own vision and policy. So we have only to wait for them making resolute moves and unequivocal decisions concerning the resumption of targeted manufacturing for Ukraine and arrangement of regular supplies.

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