VAZ REFUSED

Perhaps, this year will see an end to the three-year downturn on the automotive market of Azerbaijan. For example, in January-August this year, the import of cars into the country increased by almost half compared to the same period last year. The dynamics of the secondary market where the growing supply drives down prices and stimulates demand also significantly increased. It is believed that the catalyst of all these processes was the decision to limit the importation of cars that are not equipped with safety devices and do not meet the Euro-2 standard and the ban on the use of such cars as taxis.

Depression

With the onset of the global economic recession on the Azerbaijani automobile market, the decline in sales began to dominate, and this trend mostly affected the segment of passenger transport. According to the State Customs Committee (SCC), in the most prosperous year 2008, over 89,000 cars were imported into the country, but the following year deliveries declined by almost a third - to 63,427 cars. In 2010, the downward trend only increased - 51,816 cars were imported, while just under 30,000 cars were imported last year. Thus, last year's market demand for cars fell to one third of the level of the pre-crisis period.

This phenomenon has an objective nature in general, and similar trends were observed both in Europe and on the emerging markets of Asia and Latin America. A decline in automobile sales was experienced by every single post-Soviet state. For example, in Azerbaijan, like in other CIS countries, the high demand for passenger cars in the pre-crisis period was not always maintained by the real purchasing power of the population. The high level of sales was largely fuelled by the availability of bank loans and the policy of discounts by world auto giants which had the lag to reduce production costs and the final price for local distributors due to the enormous volume of production. With the beginning of the global crisis, the purchasing power of the world's population and the corporate segment significantly decreased. In Azerbaijan, most banks introduced conservative mechanisms to control loans, stopping or significantly complicating the granting of credits for the riskiest types of car loans.

The decline in domestic demand and in imports had a negative impact on the pricing policy of local car dealerships that sell new cars. With significant consumer demand, dealerships import more cars, getting bonuses from manufacturers. This, in turn, leaves the lag for a price discount. Moreover, with declining sales, the cost of running dealerships working at half capacity, service centres and their staff increases, which should be compensated as well. All these processes together did not contribute to the growth in consumption.

Meanwhile, the government of Azerbaijan did not deem it necessary to stimulate the sales of imported cars through zero customs duties on their import on the example of neighbouring Georgia and partly Belarus. Nor did it abolish the excise tax on the cubic capacity of the engine, which was introduced in 2007. After all, the cancellation of these payments would have caused substantial damage to the state budget. In addition, such measures would have destroyed the nascent domestic car industry.

Stimulating through a ban

Nonetheless, our country has been taking administrative measures aimed at the gradual replacement of the outdated fleet. They are designed to increase the demand for new cars and thus boost the dynamics of imports. To reduce the import of used and technically obsolete cars, the country introduced the Euro-2 ecological standard on 1 July 2010, which regulates fuel quality and the concentration of harmful substances in the exhaust gases of imported cars. These measures significantly changed the balance of power on the secondary market: the beginning of last year saw a marked decline in the interest in products of the former Soviet and Iranian automotive industry and technically outdated car models of other countries because of the increased level of investment risk.

Another administrative measure to replace the model raw with safer and more modern cars was the decision of the State Committee for Standardization, Metrology and Patents (SCSMP) to ban the import and production of cars without the anti-lock braking system - ABS - and at least one airbag (state standards AZS 635-2012) from 1 May. These measures first affected products of the Russian car industry, namely common models of the Volga Automobile Plant (VAZ). In particular, the importation of the popular model VAZ-2107 was suspended from May of this year. At the same time, the supplies of VAZ-2114 and VAZ-2115 cars continued until 1 October within the framework of the Azerbaijani-Russian agreements under state guarantees, which were valid until this period. "Despite the fact that the ban came into effect in October, these models of the VAZ factory were not imported into the country in the last three or four months due to the lack of market demand. However the restrictive measures against these vehicles are now totally valid," the chairman of the State Customs Committee, Aydin Aliyev, said recently. In the future, Azerbaijan can import only updated versions of the VAZ models and only if they are equipped with the required safety devices.

The only exception, which is not subject to the requirements of the SCSMP, is the VAZ-2121 Niva car and UAZ four-wheel drive models - the latter are being imported into the country mainly for the needs of the law enforcement agencies. It is also obvious that Azerbaijan is not planning any restrictions on the import of new models of cars assembled in Russia and other CIS countries under licences from American, European, Japanese and Korean automakers. The vast majority of these cars are already equipped with basic safety systems and eco-friendly engines.

The positive trend

In general, in the middle of 2012 more than 1 million cars were registered in Azerbaijan and about 400,000 of them are models with a low level of security. According to statistics, more than two-thirds of accidents ending in deaths or serious injuries are also caused by vehicles not equipped with airbags, ABS, etc. Today, Russian producers are the main suppliers of technically imperfect, extremely dangerous, but relatively low-cost cars. Such cars come from Turkey, Iran and China in much smaller numbers, but the SCSMP restrictions will certainly affect them too. At least from May 1 this year, the licences of all taxis that do not meet the state standards AZS 635-2012 began to be revoked in the capital on the initiative of the Ministry of Transport. It is expected that in the coming year all cars used as taxis on the streets will be replaced by TX4 London Taxis, Toyota, KIA, Hyundai and other modern and most importantly, safer models.

The measures taken by the government affected the structure of the automobile demand in the country as early as this year. In particular, they stimulated the importation of new foreign cars and contributed to changes in the structure and cost parameters of the secondary market. These trends are already quite noticeable: According to the State Customs Committee, in January-August this year Azerbaijan imported 56,700 cars worth $ 733.705 million, which is almost 50 per cent more than in the same period last year. It is possible that by the end of the year, our country will reach 2010 indicators and maybe even exceed them in the import of new cars.

At the same time, according to a study by the NGO Property Market Participants, restrictions on the use of old cars in Baku as taxis and the ban on the import of outdated VAZ models have led to a five-per-cent increase in supply on the automotive market and accordingly, a small decline in prices.

Another positive factor is the trend of easing bank lending to buy cars observed since the end of last year. It continues to this day: the banks that are partners of the country's leading dealers reduced initial fees and interest rates and extended the term for the payment of the main debt. Today, buying a car on credit is possible with an average initial fee of 10 per cent and with an annual rate of 14 per cent with a maturity of five years. For comparison, a year and a half ago, it was necessary to pay a fifth of the cost of the vehicle, while the time of the full payment of the loan was limited to three years with a rate of 18-20 per cent or more.

Apparently, by the end of the year, all of the above trends will only strengthen and have a positive impact on the sales of the automobile market in general.