Dinara Iskakova: As the dollar exchange rate rises, prices for new cars will rise

After the automotive market of Kazakhstan grew by a record 60.2% in 2023, analysts and dealers predicted a decline in sales in 2024. The year is coming to an end, and Dinara Iskakova, CEO of Orbis Auto Automotive Group, talks about the results of the industry, the main trends and expectations related to 2025.

Dinara, we traditionally summarize the results at the end of the year. What was the outgoing year like for the automotive market, if we compare it with 2023?

— The growth of the market in 2023 was largely dictated by pent-up demand, which also did not arise immediately, but was formed over the course of three years. Kazakhstan did not receive enough cars first due to the pandemic, then — due to logistical problems and a shortage of semiconductors on the global market — in 2022 due to the difficult geopolitical situation. It wasn't until 2023 that we received the cars we ordered. In addition, many partners have redirected cars manufactured for the Russian market to Kazakhstan. In fact, the market has received more cars than it needs, and the queues have been disbanded. But if we had a shortage of cars at the beginning of the year, then — overstocks, which are a serious problem for dealers.

Last year, all dealers made every effort to unload warehouses: in addition to traditional car loan and trade-in programs, they offered customers big discounts — sometimes they reached up to 5 million tenge — and sold cars below cost. As a result, cars were purchased even by those who had not planned a purchase. This year we have balanced warehouses, so special offers for customers are no longer provoked by an oversupply of cars. We make discounts wisely, within our marginality.

At the end of last year and up to August 2024, there were signs of a drop in sales, but according to the Kazakhstan Automobile Union, sales of new passenger cars and commercial vehicles amounted to 179,628 units in 11 months of 2024, which is 2.6% more than in the corresponding period of 2023. What is the reason for the decline in sales and how did we manage to recoup the backlog?

— The car market is subject to ups and downs, which are largely seasonal in nature. During the end of the third and the entire fourth quarter, the market traditionally gains momentum. So, until the middle of 2024, there was some volatility in the market. At first, buyers responded to favorable offers, then from time to time they suspended their activity, possibly expecting additional price reductions. But then sales leveled off and by the end of October, we managed to catch up with the backlog. Plus, the market leaders «got involved» and increased sales.

According to your forecasts, how many new cars will be sold in 2024?

— In the first half of the year, we predicted that sales would decrease by about 5%, but now there is every reason to believe that the market will close at the level of last year. In 2023, sales of passenger cars and light commercial vehicles amounted to about 198,000 units, in 2024 we expect the same result or 1-2 thousand more, which will depend on the New Year's Eve activity of buyers and new special offers from dealers who strive to fulfill plans and optimize warehouses by the end of the year. We can already say that the growth will be due to the passenger car segment, as sales of commercial vehicles decreased by about 10% compared to 2023. The passenger car segment as a whole is growing: if 187 thousand units were sold in Kazakhstan in 2023, then this year we expect a result of 191 thousand

What trends would you highlight in the past year? Perhaps some have moved on from 2023, and some have appeared for the first time?

— Of the trends that emerged in 2023 and persisted in 2024, I can note the stagnation in the premium car segment.

It sounds very unusual, because the demand for a premium product remained stable during any crisis…

— This is true, but now the situation has changed and there are at least two reasons for this. Now the market is growing at the expense of mass brands. Accordingly, the share of the premium segment relative to the overall market is automatically reduced. At the same time, in quantitative terms, sales of premium cars may remain at the same level. This is exactly the conditional stability that you mentioned. But there is another important point — many of those who wanted and were ready to purchase a premium car have already done so.

In recent years, the share of the premium segment has been about 4%. In 2021-23, as in the market as a whole, sales were supported by pent-up demand, which arose in the wake of pandemic shortages and supply chain disruptions. In 2022, 5,232 cars were sold in the premium segment, and — 7,322 in 2023. After such high consumer activity in 2024, sales of premium brands decreased in physical terms. This prompted distributors to provide special conditions for buyers. Nevertheless, according to our expectations, all these factors will somehow lead to a reduction in the share of the premium segment to 3.3%.

As in previous years, there is a tendency for car sales to grow in the price segment to 11 million tenge. In my opinion, the segment of new cars worth up to 11 million tenge has very good prospects, due to such cars, the fleet will be updated. In fact, over the past two years, the market has grown from 123 thousand to 198 thousand units due to the expansion of offers in this particular price segment, and, remarkably, all these offers are presented by manufacturers from China. Due to the high technology and good equipment, even in the basic configuration, Chinese brands are eating away a share of the pie from well-known manufacturers who have held the lead in the budget price segment for many years.

What market share do cars from China occupy and will new Chinese car brands appear in Kazakhstan? By the way, is it possible to judge how the «Chinese» manifest themselves in exploitation, what do consumers say?

— In 2023, Chinese car brands accounted for an average of 25.2% of the total market, and this year they accounted — for 38.3%. According to our estimates, growth will continue and in the future it will reach 50% in a year or two, and if earlier the share grew due to an increase in the number of new brands, then in the future this growth will occur due to the loss of market share of other automakers losing their positions. In other words, the «Chinese» have established themselves and will now strengthen their presence in our market.

At the same time, in my opinion, it is unlikely that more than two or three new brands from China will enter the market, since all the leading brands are already here; perhaps one brand will leave, and another will replace it. But there will definitely not be such an active expansion of Chinese automakers as in the previous two years. Today, there are 25 Chinese brands represented in Kazakhstan, and our market is unlikely to withstand more. The market capacity is not infinite. In addition, do not forget about the Japanese and Korean automakers, which have been represented in Kazakhstan for a very long time and intend to defend their positions.

As for operation, the situations are different for warranty cases, some brands have shown themselves to be more reliable, some less so, but in general there is no collapse.

Chinese brands have significantly changed the landscape of the new car market over the past two or three years. Has the appearance of a large number of Chinese cars affected the «secondary» market? How did the used car segment feel in general?

— Used cars have dropped a lot in price this year, — perhaps prices for Chinese brands have dropped a little more, but there is no critical difference. This is partly the result of the fact that we managed to cope with the shortage of new cars. When choosing a car, the key factor for a buyer is price, and if you can buy either a new car or a used car at comparable prices, then the choice is obvious. For the same 11 million tenge, you can buy a used Japanese sedan on the secondary market or a new Chinese crossover from authorized dealers and with favorable warranty conditions. There are a lot of offers on the «secondary» market, but most sellers have high expectations about the price. In fact, they have to make big discounts to sell even the nicest cars. In my opinion, used cars will continue to get cheaper. Perhaps the situation will stabilize by the end of next year.

The secondary market has also been affected by changes in lending rules. Stricter requirements for calculating the debt burden ratio have led to a decrease in the number of approved car loans. Today, 20-30% of 100 loan applications are approved on average, and in the segment of used cars, the share of sales on credit reached 80%. In general, loan rates are very high: 21-24% or 26-27% on used cars — that's a lot. I would like people to have the opportunity to upgrade their car on more favorable terms and have access to cheaper financing.

New rules for the import of cars under three years of age have been in force in Kazakhstan since December 1. Has anything changed in this regard for Kazakhstanis who want to import a car from other countries?

— There have been no major changes for individuals — one person, as before, will be able to import one car per year for personal use by obtaining a specialized VDSC permit («Vehicle Design Safety Certificate»). However, it is expected that the control measures for «personal use» will be significantly strengthened. In particular, if the same individual tries to bring another car within a certain period of time, he will receive a refusal from the customs authorities. These measures are aimed at reducing shadow imports and ensuring tax revenues to the budget. As for legal entities, now cars can only be imported by those persons who are officially listed in the VTA («Vehicle Type Approval»). Previously, legal entities could import cars by proxy; now this option is excluded, only legal entities registered in the VTA have the right to import.

What do you predict is in store for Kazakhstan's car market in 2025?

— It is obvious that the situation in the foreign exchange market cannot but affect the price level. We can already say that with the growth of the dollar, prices for new cars will increase, an estimated increase of 10-15% percent. Nevertheless, we assume that the market volume will remain at the level of this year, that is, 200 thousand cars, and we do not even exclude the possibility that the market will grow slightly by hardly more than 5%. But there is also a high probability that there will be no decline in sales.