Gone backwards: the number of car dealerships could shrink by a third
The high key rate and high borrowing can lead to bankruptcies of car dealerships, according to the Russian Automobile Dealers Association. Small and medium-sized companies are at risk, market participants note. In a year the number of dealerships in Russia may decrease by one third, experts predict. Details - in the material "Izvestia".
Debt pit
The current economic situation threatens the bankruptcy of some dealership centers. This was stated by the executive director of the association "Russian Automobile Dealers" (ROAD) Igor Chikin. According to him, the growth of the key rate (now it is 21%) affects the cost of credit not only for buyers, but also for the car business. Taking into account the high level of indebtedness in automobile retail, such changes in the economy may lead to loss of profitability, staff reduction and bankruptcy of enterprises, believes the executive director of ROAD.
According to Renat Tyukteev, Deputy General Director for New Car Sales at Avilon AG, the first signals indicating the potential risk of insolvency of some market participants are already visible. A number of dealers (so far, however, they are few) "have an unhealthy trend" on the prospects of work for the next year, he noted. One of such trends the expert calls the refusal of franchises on Chinese car brands.
- First of all, small dealerships that do not have a large number of brands in their portfolio are at risk. They have no opportunity to balance losses at the expense of brands that give stable income. But at the same time they have covenants (additional obligations - "Izvestia") to banks, serious credit load and lack of revenue as a basic condition for payment of interest and internal payments. An enterprise may have no profit, but if it has no revenue, this is a knockout criterion. Large holdings have a safety margin that stretches for years, while smaller ones - for months," Tyukteyev told Izvestia.
The increase in the key rate complicates the situation on the automobile market and in other sectors of the economy, agrees Svetlana Vinogradova, first deputy general director of Rolf Group of Companies. However, efficient companies prefer to keep both bank loans, bonded loans and other financial instruments in their credit portfolio, she believes.
- This means that efficient companies have every chance to be optimistic about the future. We believe that difficult times will come for inefficient businesses - such companies are really in the risk group," Svetlana Vinogradova told Izvestia.
Pressure from both sides
Along with expensive loans for business, the high key rate leads to an increase in interest rates on car loans, which is not good for sales. Thus, according to the United Credit Bureau, in October compared to September, the issuance of loans to buy a car decreased by 37%.
The high cost of loans limits the availability of cars for consumers, which, in turn, reduces sales, says Irina Frank, Managing Director of Frank Auto. If the trend continues, dealerships with high indebtedness and low financial reserves may find themselves in a difficult situation, she believes.
- Dealers selling Chinese cars already did not have high profitability. And today, when the key rate has skyrocketed and a gradual increase in the scrappage fee is expected, not all dealers will be able to stay afloat. It is likely that in the coming months the profitability of car dealers will fall to a minimum level. Zero profitability and lack of financing for some market players will cause bankruptcy, - says Irina Frank.
In her opinion, small and medium-sized dealerships, which have less financial reserves compared to large market players, are most at risk of bankruptcy. Also in the "risk zone" companies that work with only one brand, are located in regions with low demand for cars and a high level of competition, the expert believes.
Not to push to the limit
The situation with financial stability is individual for each company engaged in car sales and service, emphasizes the general director of GC "Avtodom" Andrei Olkhovsky. He does not rule out that in case of a significant market slump due to the restriction of car lending, a number of companies will experience difficulties in servicing their loan portfolio.
- But in general, bankruptcy is an extreme measure for a bank, in which losses are incurred by everyone, including the bank. Therefore, if the bank can afford restructuring of loans and the owner is ready to fight for the business, most likely, all parties will look for a way out of such situations, - believes Andrei Olkhovsky.
If the Central Bank maintains the course on rigid CDA, the market will start to fever and some dealers may default, he notes. Everyone who has a high debt load and does not have reliable financial partners is at risk, says the general director of Avtodom.
"Let's go back a year"
At the end of October, according to the analytical agency Avtostat, there were 4,040 dealers in Russia for the sale and servicing of passenger cars. Over three years, they have increased by about 900, the agency's experts have calculated. At the same time, the share of car dealerships of Chinese brands increased more than three times - from 21 to 65.1%.
In the most unfavorable scenario, the number of dealers may decrease to the level of 2021, i.e. to 3000-3200, says Maxim Kadakov, editor-in-chief of the magazine "Za Rulem". And the reduction is possible primarily due to companies selling cars from China, he believes.
According to him, Chinese car companies are increasing their share in the Russian market extensively - by increasing the number of their dealers. As a result, the number of dealers in large cities is already off the scale, believes the head of "Za Rulem".
- The high creditworthiness of car dealerships, coupled with a potential decrease in sales volumes, both due to rising car prices and extremely high interest rates on car loans, may lead to a very sharp decline in the number of car dealerships. In the most pessimistic forecast, the increase in the number of dealers over the last three years may be "eaten up" literally within a year," Maxim Kadakov told Izvestia.
Earlier, Alexei Podshchekoldin, President of ROAD, told about the high "density" of car dealerships of Chinese brands. According to him, because of this dealers of one car brand often compete with each other.
What will be left for consumers?
Car buyers should not fear a mass departure of dealers in the near future, says Renat Tyukteev, Deputy General Director for New Car Sales of Avilon Group of Companies.
- If bankruptcies start to appear, the main burden, both reputational and financial, will fall on the shoulders of manufacturers. Buyers are insured in this sense," he notes.
The general director of Avtodom also adheres to a similar point of view. According to Andrei Olkhovsky, the departure of a dealer is not terrible for the customers, provided that the transactions were made within the framework of market relations.
Irina Frank, Managing Director of Frank Auto, has a different opinion. According to her, the bankruptcy of dealers may lead to a decrease in the availability of new cars, especially in the regions.
- In this case, car prices may increase, as competition between the remaining players in the market will decrease. In addition, there may be problems with warranty service and repair," she believes.
The reduction in the number of car dealerships of one brand in large cities will be relatively painless for consumers, says Igor Morzharetto, a partner of the Avtostat analytical agency. But buyers in the regions may find themselves in a difficult situation, he believes.
- If two or three dealers out of five or ten showrooms of one brand close down in the city, it is not especially critical for the car owner. But if the only showroom of a particular brand goes away, and the nearest dealer is hundreds of kilometers away, the issue of repair or maintenance in this case will be very problematic," he notes.
