Last fall, most Russian banks began to take a stricter approach to the consideration of applications for car loans. As a result, the proportion of failures increased: while in the summer, according to experts, it amounted to 2-3%, then by the end of the year it increased to 8-9%. Many banks did not stop there and tightened the conditions and procedure for issuing car loans, and some even raised rates. These negative changes for potential buyers of credit cars have already affected the activity of New Year’s sales.
The financial crisis continues, therefore, in 2008, negative trends in the car loan market will develop and may affect the dynamics of the entire Russian car market.
According to a review of the results of the development of the Russian automobile market, published by PricewaterhouseCoopers (PwC), a total of 2.79 million passenger cars were sold in Russia in 2007, of which 2.41 million were new. Russian buyers spent 53.4 billion dollars on them. It is estimated that sales growth in quantitative terms and in value amounted to 35 and 67%, respectively.
An expert at the company, Stanley Root, said: “If in 2006 the share of expenses on cars was 4.4% of household income, then in 2007 it increased to 5.2%, despite a noticeable increase in the average price of a car.” Russian consumers are determined to support the high dynamics of motorization with a labor ruble, but they spend money selectively.
More than half of the total amount of costs - $ 34.1 billion - accounted for new imported cars (sales growth at a cost of 87%). In the same category, the largest quantitative growth was also observed - by 67%, up to 1.2 million vehicles. Simultaneously with new foreign cars, sales of used imported cars increased by 46% (up to 380 thousand cars).
The growth in sales of foreign cars was accompanied by an increase in the volume of issued car loans - in 2007 the amount increased to $ 16 billion, or almost doubled. However, further growth in car lending this year seems at least problematic.
Many experts agree that in 2008 banks will further tighten the conditions for obtaining a loan for the purchase of cars, increase the time for consideration of the application, and become more demanding on the documents provided. As for the main conditions of the loan agreement - the size of the down payment, the loan rate and the terms of the loan - it is rather difficult to predict their change, these parameters are interrelated.
Due to the increase in the cost of foreign financial resources and the difficulty of attracting them in early 2008, the bulk of banks will raise the lower limit of rates on dollar loans. If liquidity problems in the global financial system continue further, this could result in a more substantial increase in rates.
The size of the first installment is a certain filter for assessing the solvency of the client, therefore, in the face of increasing risks, it also tends to increase. But the loan terms, on the contrary, should be reduced in the current conditions. These processes will be influenced by rising inflation, the value of cars themselves, and the dynamics of the dollar. As a result, the market must formulate a new offer on car loans adequate to the changed situation. According to experts, this proposal as a first approximation will on average look like this - 20% of the down payment for a three-year loan agreement at a rate of 8–9% in foreign currency.
Corporate loan time
A somewhat different situation is expected in the market of loan offers from subsidiary banks of the automakers themselves. The fact is that most importers are fighting for sales volumes, and not for short-term economic efficiency, so they are ready to offer more attractive conditions for buyers.
Five companies (Ford, BMW, Toyota, Renault, Nissan) have already launched their subsidiary banks on the Russian market. Soon one more will join them. Stephen Le Gevel, CEO of Peugeot’s branch in Russia, said Peugeot Citroen wants to open PSA Finance in Russia. The concern plans to build its own assembly plant with us, so the use of our own credit programs should help overcome today's weak sales dynamics. Work is already underway to obtain a license, and before that, the company will work in partnership with Bank Societe Generale Vostok (BSGV).
Corporate lending programs in Russian conditions are quite effective. So, thanks to the success of Ford's financial programs, cars of this brand are becoming even more accessible to Russian buyers. In 2007, more than 26 thousand Ford cars were purchased precisely thanks to corporate loan programs.
If buyers of premium cars have the opportunity to attract the missing amount to buy a car, not only through a loan, but also in other ways, then for less affluent citizens, a loan is the only way to buy even a budget model. Therefore, changes in the situation on the Russian car loan market will primarily affect mass-market buyers.
Bankers hope that dealers, as the ones most interested in increasing sales volumes, will get into position and offset the increase in the cost of car loans through discounts.