China is a new Korea: a sudden eastward turn of Russia’s car business in the last year
The growth of the sales share of Chinese cars is breaking all records, while low-cost cars are taking the lead in the second-hand car market
Tens of representatives of car dealers from Tatarstan, neighbouring and even remote regions gathered at The Highest Transmission conference held by Avito Auto in Kazan. Market players discussed topical tendencies of the market, ways of boosting sales, exchanged experience and contacts. The trends are: 40% more new cars are sold than a year ago. 42.6% of them are Chinese brands. In the last year, their share has more than tripled. What’s more, sellers notice a sudden reinforcement of positions not only in their number but also in the quality of cars. The average price for a new car in the Volga region is 3,250 million rubles, that of the second-hand car is 1.2 million rubles. Read more about it and comments from a market player in Realnoe Vremya’s report.
New cars: sales 40% up, demand is 31%, price is 3% down
Head of Avito Auto’s group working with key clients Vladislav Ivanov illustrated and analysed trends and dynamics (from May 2022 to May 2023). His report started with new cars.
Nowadays there have been posted 14,000 new car sale offers in the Volga region, their number is 40% higher in the last year. The demand dynamics are a bit behind: it grew by 31%. The average price for a new car in the Volga region is 3% down — from 3.350,000 to 3.250,000 rubles. The biggest dip in the average price was seen in October: 3.150,000 rubles.
The share of Chinese brands more than tripled in the last year — from 13.2% to 42.6%. They are followed by Russian producers (the growth was from 24.5 to 30.7%). The amount of other foreign cars reduced more than twice — from 62.3 to 26.7%. The competition between Chinese brands is growing, there are various price segments here. And even premium Chinese cars today aren’t oxymoron but reality. Market players said in the corridors: “China is a new Korea,” they mean the popularity of car brands from the Celestial Kingdom and their big footprint in the Russian market today can be compared to the boom of the Korean automotive industry that started in the 2000s.
At the same time, buyers’ behaviour is changing slower: the share of contacts about Chinese cars rose from 14 to 27%. In other words, we see that the share of ads tripled, the share of contacts doubled. This means supply is ahead of demand. And to change buyers’ behavioural stereotypes, the expert of Avito Auto said that car dealers should explain what a Chinese car is and what interesting details it has.
“Chinese cars are a trend, and our task is to turn this trend into real sales,” said Vladislav Ivanov.
The average second-hand car is 21% pricier
The demand for second-hand cars rose by 26% from May 2022 to May 2023 and reached the level of February 2022. Now this category has 215,000 offers in the Volga region — it is 3% less than in May 2022. But the average car price increased by 21% and is 1.2 million rubles today (a million rubles in May 2022).
Individuals post 56% of sale offers on Avito in the Volga Federal District. Dealers account for 21.6%, resellers do 22.3%.
The breakdown in car prices individuals post looks the following way: low-cost cars have the biggest share — 62,564 cars are offered for a price under 500,000 rubles. 82,501 offers were posted for cars from half a million to a million. The price bracket from a million to two millions has 18,880 cars, 5,913 — from 2 to 3 millions, 2,450 — from 3 to 4 million rubles and 2,294 cars plan to get from 4 millions.
The exposition term of second-hand cars in the bracket from 500,000 to 2 million rubles reduced by 17%, the premium segment (4 million and more) started to stall: the exposition term augmented by 10%.
Growing parallel import, Germans are in the lead
Now Avito Auto has 3,415 sale offers of new cars brought to the Volga Federal District via parallel import. 121 companies are dealing with it. The top 10 models imported through parallel import from a perspective of demand looks this way: Audi Q7, BMW X7, Mercedes-Benz G-klasse, Volkswagen Touareg, Skoda Superb, Kia Seltos, Lexus LX, Hyundai Tucson, Chevrolet Cobalt and Mitsubishi L200.
Parallel import on Avito is divided into two segments. The first one is cars made in 2023 with zero kilometre driven. The second segment of parallel import is cars that are offered with a performance of up to 1,000 km. A sudden rise in this type of sales started in January, the regional market already has about 11,000 offers. To compare, there were around 6,500 offers in November 2022. The number has grown in the last six months, and trends for a fall aren’t so far seen.
Two-thirds of parallel import offers on Avito are sold by dealers (in both categories) — 38% in new cars and 33% in second-hand cars. Professional sellers hold another 20% of the market, individuals have 9%.
“People are looking for good cars whose amount is decreasing on the market”
Realnoe Vremya talked with one of the speakers of the conference and director of Second-Hand Cars division of Dialogue Auto car dealership Filipp Izhikov about real trends car dealers see. He spoke about another clearly seen tendency: about half a million second-hand cars were up for sale in Russia just several years ago, and now this number is 2.5 times smaller, the market has fewer cars, especially good ones. The second-hand car fleet is old, the medium age is 10-12 years. The expert explains:
“All this is happening because people are changing cars less, exchange them via trade-in less. Two million new cars were sold in 2021, a million was in 2022. The main demand now is for good cars. The segment under 2 million now has few really good cars in the so-called A Category. For instance, now we focus on this category when buying out cars too. Earlier, we hoped to buy cars for 80-90% of its market price, now this raised the purchase price to 110% of the market price because we can sell it for 120%. The demand market is taking shape: people are looking for good cars whose amount is decreasing on the market. This is happening because Western brands are leaving and the situation in the country in general. People feel uncertainty about tomorrow. Consequently, people spend less money on new cars. So they sell their second-hand cars less.”
The demand market is taking shape: people are looking for good cars whose amount is decreasing on the market. This is happening because Western brands are leaving and the situation in the country in general
There wasn’t a an upsurge in the number of second-hand car sale offers last year. However, it happened in the sale price. A Chinese car that cost 2.5 million last year is now 4 million. A car sold for 800,000 two years ago is now sold for a million. At the same time, one should understand that the car is two years older now, its mileage is higher and the price is 15% more expensive. There is no paradox here: all this also has to do with the deficit of good second-hand cars in the market and the fact that the purchasing power of money is down.
“The deficit is dictating conditions to the seller. But I think this is going to stop in the near future: firstly, these second-hand cars will simply run out in the market, secondly, Chinese cars are actively entering our market,” says Filipp Izhikov.
“I think they will seize the market soon”
The expert of Dialogue Auto confirms his colleagues’ opinion that the expansion of the Chinese automotive industry in the Russian market is very similar to what happened to Korean cars in the past. It is at least going through the same development stages: distrust first, then practical usage, first reviews and improvement of models and default characteristics as a result. And at last, stable sales are achieved.
Izhikov draws another analogy: Samsung or LG equipment that was considered low-quality 15 years ago.
“Chinese very actively work on electronics, richly equip their cars — the functions are crazy. In other words, mid-class cars already have panoramic windows, all seats are electric, the whole cabin is coated in leather, cruise control, multimedia, screens. I think they will seize the market soon. The buyer approves it. At the same time now the thing is not if they are ready to pay 4 million for a Chinese car. They are simply not ready to pay 8 million for a BMW with the same functions. The Chinese automotive industry became more expensive in Russia not because this is the real cost of these cars. The case is that everybody is now taking advantage of the situation. Take the same Changan Uni-K, its price in China is 2.5 million, here it costs 4.5 million. But even its sale price is twice lower than the German car. While its quality is as little as 80% of German quality. And this makes the client buy it,” the expert explains.
Dialogue Auto is one of those sellers who have seriously gained momentum in the last years, not mainly thanks to a more active work with second-hand cars. Experts talked about this in the corridors too. Filipp Izhikov himself explains that today it is certainly necessary to learn how to work with second-hand cars if a car dealer want to enter this promising niche. While the prospects are real:
“Statistically, legal entities account for just 25% of second-hand car sales. 75% are professional sellers and individuals. The total potential of this market today is 5-6 million sales a year (judging by 2022). About 4 million cars here are what is sold by individuals and resellers. Clearly, I don’t count dealers can grab this all. But if they take one half, the market has huge potential. Unfortunately, we don’t really know how to prepare second-hand cars for sale. We prefer factor in a very big profit preferring not to buy a car one cannot earn more than some threshold. But even then the potential is huge, the niche is big, there is still a lot of work. By the way, we have things to learn from the same resellers who paint, clean and polish cars. I think this field has a lot of prospects in the next 5-7 years.”
At the same time now the thing is not if they are ready to pay 4 million for a Chinese car. They are simply not ready to pay 8 million for a BMW with the same functions
“I don’t remember cars, petrol and flats ever cheapen”
The expert also reflects on the trends that should be expected in the short run. So everybody already learnt how to sell new cars. Today car dealers are learning how to work with second-hand cars. In Filipp Izhikov’s opinion, now they will improve online sales when a dealership showroom will be as small as possible and a client will order a car on the Internet (like phones we buy today). It goes without saying that it will be protected by expanded guarantee terms and the possibility of returning a car. A test drive can be organised on a small site where the dealer will keep several cars representing the most popular models.
“You did a test drive, come home, open the configurator (like in German brands). Choose a model and start to choose necessary options: the colour, cabin, wheels, electronics, insurance type. The cost is calculated and you place an order. I think the future lies with it, it is a matter of a few years,” Filipp Izhikov dreams.
As for how much cars will keep appreciating, the expert is obviously sure that there is going to be a rise: “I have never see cars, petrol and flats cheapen.” However, he doesn’t dare to make more accurate forecasts, for instance, the intensity of this growth: everything strongly depends on the economic situation in the country while predictions are a thankless job.