TO EACH ACCORDING TO HIS CAR

For the second year running Azerbaijan's motor vehicle market has shown a steady trend of growth in supply against a background of ever increasing demand. This is basically to be expected bearing in mind the economic stability and increase in people's incomes in the country in recent years. According to statistics for the first ten months, by the end of the year the record rate of vehicle imports that was achieved in 2012 will be maintained.

It has to be said that in the past decade Azerbaijan has been pretty successful in building up its fleet of motor vehicles. For example, whereas in 2012 there were about half a million vehicles of all types in the country, today this number has reached 1.2 million, two-thirds of which are in the capital. In short, in just over ten years the number of vehicles has increased 2.4 times. There are now 330 cars for every 1,000 people in Baku, and in this regard the country has drawn closer to European countries.

An incentive for growth 

The growth rate in the number of people owning cars has suffered a number of ups and downs in the past. But in the last two years there has been a real car boom in the country. This is not surprising when you consider the extremely low level of inflation and the high rates of growth of real incomes. In the first three quarters of this year personal incomes in Azerbaijan increased by 7.6 per cent and reached 25.4bn manats, and the average monthly wage grew by 7.4 per cent to 417 manats. 

The stable increase in people's purchasing power has been reflected most obviously on the growth rate of the sale of new cars. And this trend was most obvious last year when over 101,000 vehicles were imported into Azerbaijan at a cost of over 1.119bn dollars. The imports were mainly light cars - over 89,600 of them with a total cost of over 760m dollars.

So the record figures of last year appreciably superseded those of 2008, a good year when 89,000 vehicles were imported. By way of comparison, in all the years since the global crisis the number of cars imported into the country has been consistently reduced, and in 2011 imports fell to below 30,000. And it was only last year, after a more than threefold increase in import volumes, that the protracted period of slump ended.

Clearly, the threefold increase in supply could not have happened by itself and the expansion of car sales was the result of the emergence in the country of a huge section of the middle class who, in order to maintain their social status, required at least one car per family.

Bank statistics of recent years confirm that today nearly two thirds of light cars bought in showrooms are obtained on 3-5 year credit. This reflects the generally favourable economic situation which encourages people to take such a difficult decision as buying an expensive car on hire purchase. This shows that people are confident in the long-term stability of the development of the non-oil sector of the economy (a growth of 10.4 per cent in the first three quarters), in which three-quarters of the country's able-bodied population are employed.

One of the significant aspects of the car boom was the factor of deferred demand in 2009-2011 when sales of new cars were held at a relatively low level. The demand for new light cars which has been apparent since last year was also strengthened by the decision adopted last year to restrict the import of vehicles that were obsolete or not fitted with safety devices (mainly Russian-made) and the ban on using such vehicles as taxis.

The latter is an extremely important point if you bear in mind that of the 1.2 million light cars registered in the country about 40 per cent are obsolete models and have, as a rule, a low safety level (no air bags, body protection assembly, ABS and EBD systems, and so on). And this is very important because, according to statistics, more than two-thirds of accidents which end fatally or with serious injuries are caused by cars not equipped with active and passive protection. It is not hard to calculate what an impressive sales market opens up for the importers of modern cars equipped with all protection systems and other necessary elements.

Bonuses and discounts 

The objective demand for regenerating the outmoded pool of motor vehicles, supported by a steady effective consumer demand, was this year again the main trend of development in the country's motor vehicle market. According to the State Customs Committee (SCC), in January-October this year about 84,800 cars were imported into the country. Almost the same number of vehicles were imported in the same period last year. The total import of cars and spare parts for them exceeded 1.235bn dollars in monetary terms, and this was only 1.66 per cent behind the volume of imports for the first ten months of last year. If the current trend is maintained, by the end of the year roughly the same number of vehicles will be imported as in 2012, which was a peak year for the domestic market. The next months will show whether these predictions are correct.

Already today the growth in domestic demand and the increase in imports have had a very positive impact on the pricing policy of local car dealers trading in new vehicles. With such an effective consumer demand dealers are importing a large number of vehicles, obtaining bonuses from the manufacturers. Besides this, with large sales the cost of maintaining a full strength of employees at dealers and service centres is reduced. And this in turn leaves room for a price discount. Since the middle of last year local distributors of popular Korean, Japanese and American cars have been conducting discount campaigns for potential clients, at the same time offering free insurance, car accessories, and so on, as a bonus. All these processes put together also attract people towards buying more cars.

It is significant that credit organizations, which are a most important catalyst of retail demand in the country's vehicle market, are playing a considerable role in the process of boosting car sales. Since the end of 2011 there has been a distinct trend towards an easing of bank credit conditions in the purchase of motor vehicles. For example, the bank-partners of the country's leading car dealers have reduced the size of down payments and interest rates and extended the deadlines for the payment of the main loan. In some cases buying a vehicle on credit is possible with a down payment of 10 per cent and an APR of from 12 per cent with a term of five years. Just three years ago one had to pay one fifth of the value of the car straight off and the period of the full payment of the loan was restricted to three years with over 20 per cent interest. In the opinion of a number of experts, easing the conditions of bank credit to buy a car could become a long-term and steady trend, ensuring a stable growth in the market.

It is expected that from next year further administrative measures will be taken in the country to gradually replace obsolete vehicles. This means, effectively, the transfer from January next year to a new standard of fuel - Euro-3 - and, as a consequence, this will affect the restriction on the import of vehicles whose engines do not conform to this specification. The effectiveness of this measure should not be underestimated, bearing in mind the positive experience of three years ago. On 1 July 2010, the Euro-2 ecological standard was introduced into the country, regulating the quality of fuel and the content of harmful substances in exhaust gases in imported vehicles. This decision helped to reduce the import of technically obsolete second-hand cars and substantially altered the alignment of forces in the second-hand market. At the beginning of 2011 there was a marked reduction in interest in the country in the output of the Soviet and Iranian car industry and in the technically obsolete models of cars of other states because of the increase in the degree of investment risk.

The Euro-3 standard, which was developed and introduced in the European Union back in 1999, has more strictly regulated the content of harmful substances in exhaust gases of vehicles with diesel and petrol engines. With the introduction of the new standard in Azerbaijan the import of outmoded vehicles produced in the former Soviet countries, China, Turkey or Iran will inevitably be reduced and, naturally, the restrictions will also affect the import of second-hand foreign cars whose engines do not conform to the Euro-3 standard. Thus, the reduction in the import of obsolete models and second-hand vehicles will be the catalyst for an increase in the import of state-of-the-art output of the car industry for years to come.