Producers Will Lean On State As Demand Fades
BMI View : The government's recent loan guarantee to KamAZ is a precursor to further handouts and bailouts for struggling autos manufacturers in Russia. We believe issues of overcapacity in Russian automobile production, spurred by past government incentives, will place manufacturers under considerable pressure in the near future as sales of commercial and passenger vehicles continue their decline.
Following Russia's recent loan guarantees to truck maker KamAZ, BMI expects to see a series of similar government handouts and bailouts to other domestic vehicle manufacturers in H214, H115 and H215 as further sales declines worsen Russia's overcapacity problems. The deal approves a state guarantee to KamAZ of up to RUB35bn (USD968mn) for up to 15 years and comes as the truck sector continues to battle weak demand for heavy trucks (KamAZ's chief executive, Sergei Kogogin, estimates that heavy truck sales have fallen by 18-20% recently).
BMI maintains that the state guarantee highlights the dangers of a structural imbalance in the Russian autos market. We believe that recent increases in productive capacity will continue to be met with declining domestic demand in both the commercial (CV) and passenger vehicle (PV) segments. This will lead to greater demands from domestic and international manufacturers for government bailouts and subsidies respectively.