Daily analyst comments
Avtovaz seeks to sell 100,000 cars in ‘cash-for-clunkers’ program
08.02.10 10:02
We regard Avtovaz’s plans to sell up to 100,000 cars through a ‘cash-for-clunkers’ program as overly optimistic, even though a RUB 50,000 discount would be a significant incentive to purchase an Avtovaz car, which fall into the low-end car category. The main obstacles are sluggish consumer demand and the weak pace of growth in disposable incomes.
Avtovaz targets sales of 100,000 automobiles under a ‘cash-for-clunkers’ program, Maksim Nagaitsev, Avtovaz vice-president for marketing and sales, stated on February 5. The official has also unveiled a total car sales target for 2010, set at 450,000 units.
We estimate the target to sell 100,000 cars as overly optimistic. The government has earmarked RUB 10 billion for the implementation of this program in 2010. RUB 50,000 compensation per car means that the program is sufficient to cover 200,000 automobiles and that Avtovaz seeks to win a 50% market share under this program. In our view, the carmaker has a chance to win half the market, given that a RUB 50,000 discount would offer a significant discount on the purchase of an Avtovaz car, as they are at the lower end of the market. However, we doubt whether all of the 200,000 cars targeted under the program will be sold in 2010. According to our estimates, consumer demand will remain soft this year, growth in personal disposable incomes should be low and consumer lending is estimated to grow at a moderate pace; factors which could exert pressure on demand for cars.
Our rating for Avtovaz shares is under review.