This document forecasts new passenger car sales in Russia from 2017 to 2020. It considers factors that influence car sales like household income, currency exchange rates, oil prices, and GDP. The document presents three possible sales scenarios based on how market players may respond to rising prices through compensating with higher car prices, stabilizing prices, or significantly reducing prices. The forecast aims to determine an accurate sales curve based on the actions of market participants.

1. New Passenger Car Sales Forecast in Russia
for
2017-2020
8 March 2017 1New PC sales forecast for 2017-2020, Y.Nalivko

2. PC Sales Forecast Challenges
factual sales
2016 PWC forecast
Source: Government’s Automotive Industry Development Program 2020; stats of AEB; PWC forecast
8 March 2017 2New PC sales forecast for 2017-2020, Y.Nalivko
“Program 2020” forecast

3. Main Factors Considered in Forecasting
Volume of
sales
Level of
automobilization
Ruble exchange
rate
Oil price
GDP
Postponed
Demand
Government
incentives
Level of production
localization
8 March 2017 3New PC sales forecast for 2017-2020, Y.Nalivko
Source: Government’s Automotive Industry Development Program 2020; BCG, EY and PWC forecasts

4. What Determines The Car Sales Curve?
8 March 2017 4New PC sales forecast for 2017-2020, Y.Nalivko
Source: stats of AEB
-
75 000
150 000
225 000
300 000
375 000
July-10 July-11 July-12 July-13 July-14
Sales, units
Sales, units

5. The Main Factor Is Household Income
8 March 2017 5New PC sales forecast for 2017-2020, Y.Nalivko
Source: stats of AEB, government’s stats
-
75 000
150 000
225 000
300 000
375 000
July-10 July-11 July-12 July-13 July-14
Sales, units
Household's
earnings, 100 mln
rub

6. Basic PC Sales Model:
Volume of
sales
Overall
household
earnings
Average car
price
5%
8 March 2017 6New PC sales forecast for 2017-2020, Y.Nalivko

7. Volume of Sales Results From Players
Actions:
Volume of
sales
Level of
automobilization
Ruble exchange
rate
Oil price
GDP
Postponed
Demand
Government
incentives
Level of production
localization
Overall
household
earnings
Average car
price
5%
Market
players
actions
8 March 2017 7New PC sales forecast for 2017-2020, Y.Nalivko

8. Price Strategy and Product Mix Determine
Car Sales
Source: AEB stats
8 March 2017 8New PC sales forecast for 2017-2020, Y.Nalivko
-
10 000
20 000
30 000
40 000
50 000
60 000
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Brand 1 sales
Brand 2 sales
Brand 3 sales

9. Price Growth Surpasses Household Income
Growth (2008 = 100%)
Sources: AEB stats, government’s stats, independent sources.
8 March 2017 9New PC sales forecast for 2017-2020, Y.Nalivko
0%
50%
100%
150%
200%
250%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Brand 1 sales changes
Changes in household's earnings
Brand 1 prices changes

10. Proposed Model:
Volume of
sales
Ruble exchange
rate
Oil price
GDP
Government
incentives
Level of production
localization
Overall
household
earnings
Average car
price
5%
Market
players
actions
Product mix
Financing
Programs
8 March 2017 10New PC sales forecast for 2017-2020, Y.Nalivko

11. “Running knot” of cost plus profit pricing
Increasing PC
price
Decreasing sales
and component
orders
Increasing
component price
due to high
overhead costs
Increasing COGS,
profit decreasing
8 March 2017 11New PC sales forecast for 2017-2020, Y.Nalivko

12. It needs to release the “halter”
Reducing PC
prices
Increasing sales
and component
orders
Decreasing or
stable
component
prices
Extra profit from
additional sales and
decreasing COGS
8 March 2017 12New PC sales forecast for 2017-2020, Y.Nalivko

13. Possible PC Sales Scenarios:
Basic conditions*:
 No change in overall household income
 Annual inflation is at 5-7% level
Scenarios:
1. Players compensate sales and a profit decreasing by car
price increasing
2. Players stabilize car prices
3. Players will have significant car price reduction
8 March 2017 13New PC sales forecast for 2017-2020, Y.Nalivko
*Source: Government’s forecast for 2016-2018

14. Possible PC sales scenarios
Scenario 1
Scenario 2
Scenario 3
Note: a real PC sales curve will be defined by market players actions
8 March 2017 14New PC sales forecast for 2017-2020, Y.Nalivko
Source: Government’s Automotive Industry Development Program 2020; stats of AEB; PWC forecast