Overview of car market in Kazakhstan

What's the story of Kazakhstani car market, what are its perspectives, and how the current economic crisis affecting it. Eric KINZHALIN finds out.

Down to credit crunch Kazakhstani automotive market showed the impressive growth — nearly or more than 25% every year. It's 5-6 times better than in any mature economies. For the country developing in enabling environment this indicator is a rule rather than exception.

Whereas in the early 00's a lion's share of the sales (80%) was due to Almaty, the biggest city of the Republic, then in 2005 the regions gained near a half of overall new cars retail. Well along to recession the Almaty dealerships sold every fifth.

The effect of the running economic crisis appearing to be more destructive for the car retail on the open economies of the former Soviet Union, than in the developed countries like Europe and US. The average decrease rate of the new car retail in 2009 in Russia, Ukraine and Kazakhstan is ranged between 30 and 40 per cent, to be based on the various estimations. According to Qncepto consulting company, sales under the blue flag in 2008 were less by one third than the year before (36845 units). In 2009, dealerships are expecting the continuation of the recession down to 15 to 25 thousand units, or even the default of the whole market.

The largest factor of the recession in sales is the essential tightening of the credits and requirements for borrowers by Kazakhstani bankers. Automotive landing here has another point of interest, which is worth to mention. To buy a car through the bank, initial contribution must be not less than 10%, but most of the borrowers bought their cars with the average rate of 40 to 50 per cent. That's absolutely beyond belief for the European bankers, but Kazakhs don't want nor do they like to show their sources of income to fiscal services. They prefer to sink a loan in the short while, or not to take it at all.

The used car market, which was very popular within the middle class, has almost run off the rails. Given that earlier the internal market had been buying nearly half of the million used cars each year, then now under «for sale» stamp is about the same amount of cars standing.

There are 11 companies those officially selling 40 global automotive brands on the market. In which case, three of them are to be accounted for about 80 per cent of the tax revenue. Mercur Auto and Astana Motors from year to year are trying to tackle the garland from each other (more than 35% of the market share). Zhetisu, the company affiliated to Toyota, is ranked third in the sales statistics, and less than 20 per cent is due to other companies. In spite of the international brands, Russian AvtoVAZ is proactively operating through a few dealers, the largest of which is Bipek Auto. In the last two years the sales of the Russian automotive brands were down almost by the half, and this tendency will probably continue. Market's raising level of expectations for the product grade and warranty services of the cars are badly comparable to the Russian idea of quality.

Furthermore, Asia AUTO, the semi knock-down factory capable to make 45, 000 units a year, was built in Ust-Kamenogorsk city in the North-West of Kazakhstan. Initially, the factory was intended to assemble vehicle sets of the Russian AvtoVAZ, but its management has stated for a few times about parallel assembling of the Skoda and Chevrolet cars. Still, there are no talks about the industrial sizes — in six years the facilities of the factory are still busy on 13-15%.

We can mark another interesting feature of the car retail in Kazakhstan. Society is hugely biased on heavy offroaders, which official sales contained the half of overall car sales at one time. This can be explained by the bad quality of the roads, but from the other side almost all of this 4×4's are used in the urban and suburban territory. The key to this phenomenon is hiding in affection of Kazakhs for particular car, the Toyota Land Cruiser. This was, in fact, the bestselling vehicle in Kazakhstan in the number of years.

]The other side of the coin is weakly developed automotive culture. Decision about buying a car is carrying in a single file, when people are intending to buy the same things as their familiars, relatives and colleagues.

The other pole of originality of the Kazakh automotive market is complete rejection of the compact cars priced between 10 and 15 thousands of US dollars., Yet unformed Middle-class, as the main consumer of the dealerships, would rather have more spacious used cars with low mileage. As the result, minis and super minis are primarily to be bought as the corporate cars. This feature is also the direct offshoot of the primitive automotive culture, which has not enough positive influences. The main factor of influence on the forming mentality of the dealership's target audience is the availability of useful information about cars, its consumption and servicing culture.

Even when buying a car from the official dealerships, most of the clients are usually servicing their cars out from the dealer's warranty, because they think this kind of way is cheaper, i.e. practical. Choice of the brand is the same situation. For example, Toyota brand is globally recognized, but any Middle Kazakh can't reasonably explain this priority. Even when comparing to the other established brands like Hyundai, which sales are incomparable with Toyota. This is the result of lack or unavailability of information from the dealerships, which are unwilling or guiltless to spend money on advertizing or PR-actions. TV spots of cars are rare on the main television channels, and the radio publicity is translating through radio stations with narrow contingent of the listeners — Russian speaking, Old people etc. Well-known automotive paper media can be counted by the fingers of one arm, and the quality of information in them is low.

The State powers consider the Kazakhstan car market basically as the source of tax revenue. However, in the last few years the government came out with several initiatives about increasing of customs duties and curtain measures for the car import. In 2005 government accepted the enactment about bounding the right-handed vehicles. The 15th of July this year is the starting date for imposing the EURO 2 emissions standard, which brings under the regulations the CO2 and toxic emissions in the exhaust gases.

The society, dealerships and mass-media has met this announce negatively, arguing its position by the right of freedom of free choice. The silence from the government is giving to understand the unwillingness to follow the voice of the people, as previously happened in other cases. According to guess by Alexey Ikonnikov, the journalist from Continent magazine, making of this decision is connected to some conditions of creation the customs union with Russia, which will support more vehicle sets to said Asia Auto factory. If these duties will be introduced (30%), then the costs of imported vehicles will grow up to 20-25 per cent, and Kazakhs will have to drive Russian legacy Ladas. This will have a negative impact on the sales of official dealerships and eventually on the freedom of consumer's choice.

Nurlan Smagulov, the head of the Astana Group, which part is Astana Motors, also doubts in the success of the local automotive industry. «We are not against the establishing of it», he argues, «Until we have no living industry with at least 50 per cent localization cycle, there's no sense in increasing the custom duties». In these duties will be implemented anyway, Mr. Smagulov reckons that the local auto traders will look for other «grey» options for customs proceedings.

The Kazakhs, by virtue of their nomadic nature, are valuing the freedom of movement on the same level as the shelter. This deference to the wheels has survived to the present times. Because of this matter, car market of Kazakhstan will gain further growth and perspective despite of episodic influences. The question is, how this market will be compared to the rest of the world, and to the needs of the final buyer...