Devaluation and semi-legal schemes helped boost the market of used cars

Devaluation and semi-legal schemes helped boost the market of used cars
Photo: Konstantin Melnitsky

Ukrainians are forced to drive second-hand cars. Last year their share in the overall sales increased from 64% to 72%, said Director of AUTO-Consulting Company Oleh Omelnytskiy. He says last year sales of new cars have collapsed by 54% down to 92,400 vehicles, and sales of used cars dropped only by 33% down to 240,900 vehicles.

At year-end 2014 the leader of the used car market was the VAZ with a share of 22%. The TOP 5 also included the ZAZ, Daewoo, Toyota and Chevrolet. “The leaders are those brands that have been sold in large quantities in the segment of new cars over the past ten years,” explains Omelnytskiy.

No money

Foreign currency component is not as essential in pricing of used cars, as in the market of new foreign-made cars. Therefore, says market expert Mykola Roslychenko, the prices at the beginning of 2015 rose by almost 70% compared to the beginning of 2014. He added that in order to increase the demand, which is currently quite low, owners of used cars can afford to give some discounts unlike dealers of new cars, which have to work with purchase prices in foreign currency. For comparison, over the last year the prices of new cars rose by an average of 2 – 2.5 times in hryvnia, says Marketing Director at the AIS Group of Companies Serhiy Borovyk.

Prices of new cars in hryvnia were rising in parallel to devaluation of the national currency during the year, said General Director of Peugeot Citroen Ukraine Loic Sibrak. “Prices have risen, and people’s incomes in most cases remained unchanged. As a result, the buyers have to choose more affordable models [new cars] or look for used cars,” concludes Sibrak.

Omelnytskiy says there are cases of delivery of used cars from the ATO zone, but they have no mass proportions, so they have no significant impact on prices in this segment of the car market. Looking at the used car market in the ATO zone, we will see that the scope of proposals in Donetsk oblast decreased by 40%, in Luhansk oblast – by 50%, says Roslychenko.

Semi-legal schemes

Last year, the car market was strongly influenced by the factor of import of used cars with the help of semi-legal schemes, which also resulted in a drop in the share of new cars on the market. “Almost over the year used cars were de facto smuggled to Ukraine.

Passenger cars were imported under the guise of commercial and goods-carrying vehicles, notably, their cost was marked down by 7 – 10 times. With the help of such scheme importers paid less VAT and other taxes, and did not pay excise duty at all,” said Borovyk. The average price of these cars on the market is US $8,000 – 20,000, and approximately 70% of offers in the new cars market fall under this price segment.

In the second half of 2014 the amount of pre-owned imported cars equaled with the volume of the new car market – at the level of 6,000 vehicles per month, said Borovyk. “Close to 30,000 used cars were imported to the country following such semi-legal scheme in November – December alone. The failure in the new cars market in January (2,500 vehicles) is the result of pressure of such smuggling,” said the expert.

The main countries suppliers of contraband are Poland, Lithuania and the Czech Republic.

Borovyk says that the reasons for the growth of smuggling are legislative changes. In April, the Rada canceled the excise duty on remodeling of trucks into passenger cars. Therefore, it became profitable to import passenger cars as trucks or commercial vehicles from Germany and France. In such cars some seats are removed prior to customs clearance and then they are imported as load-carrying vehicles. Later the seats are put back and the cars are sold on the market as passenger vehicles.

Deeper and deeper

Omelnytskiy expects that the outflow of buyers of new cars into the segment of used vehicles will persist. This is indicated by the growth of the share in the sales of used cars in Q4 2014 to 75%, and in the last month of the year – December – up to 78%. Borovyk is more optimistic. He predicts that starting from January 2015 after adoption of several laws (introduction of excise duties on import of trucks, conversion of used freight vehicles into passenger cars) semi-legal schemes should disappear.

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