If all the corrupt officials left, then in new luxury cars

In 2023, sales of Mercedes-Benz, Lexus and BMW broke all records of previous years. What’s going on?

In June and July, more than 5 thousand sales of new cars were registered in Ukraine every month, according  to the statement of the association “Ukravtoprom”. This is almost twice as much as in the corresponding months of 2022. However, this is still half as much as it was in 2021, probably one of the “richest” and “fullest” years of the last decade for Ukrainians. For comparison: in Poland, a country with a similar population, about 40,000 new cars are now sold every month. 

It is too early to talk about the complete recovery of the car market, but it is possible to notice a fundamental change  in its  structure. The analysis of open data on the initial registration of passenger vehicles on the data.gov.ua portal showed that the recovery in 2023 is mainly due to the increase in the registration of new cars of the premium segment: BMW, Mercedes-Benz and Lexus.

The biggest jump was made by BMW, which in seven months of 2023 took fourth place among the most popular brands. During this time, 1.9 thousand cars were registered against 1.4 thousand in 2021.

Mercedes sales remained at the same level  - 1.4 thousand, which allowed the brand to reach fourth place at the beginning of 2023 . Now the German automaker is in seventh place.

Lexus sales increased from 700 to 800 new cars and now the Japanese brand closes the top ten. All of them were in the top ten brands for Ukrainians for the first time.

This trio was elevated to a pedestal not only by the overall growth relative to 2021, but also by a drastic drop in sales in the budget segment.

The best illustration of this is the French brand Renault, which has always offered some of the most affordable cars, including for the commercial sector, and for many years occupied the first and second places. In the first seven months of 2023, compared to the corresponding period of 2021, Renault sales fell from 6.5 thousand to 2.6 thousand cars.

Last year’s runner-up, Japanese Toyota,  reduced sales from 6.6 thousand to 3.6 thousand in 2023. Even more revealing is the real cheap segment: registrations of the Chinese brand Chery in 2023 fell 3.5 times to 600 new cars.  

Why so

If the drop in budget car sales can be explained by the war and the collapse of Ukraine’s GDP in 2022 by a third, then the rise in sales of VIP brands can have several explanations.

The first is logistics. The head of the Institute of Car Market Research, Stanislav Buchatsky, believes that currently the main factor that significantly affects the number of new car sales in Ukraine is the presence of “live” cars at dealers.

“Significant demand for a popular model can outpace the supplier’s logistical capabilities. The consequence of this is usually a lack of available offers, which ultimately affects the statistics. So now we are not seeing a picture of demand, but the results of dealers’ efforts to supply cars,” he emphasized.

In addition, in 2023, Ukrainian BMV dealers reserved for Ukraine part of the cars that were intended for the Russian market, and even sold them at a certain discount.

Another possible reason is  the level of corruption, which has not decreased despite President Volodymyr Zelenskyi’s assurances at the end of 2022 that all corrupt officials have left the country. Therefore, the demand for elite brands did not suffer .

For example, the publication “Our Money” regularly writes  about inflated prices for building materials at state tenders by 1.5-2 times  . People’s deputy Yaroslav Zheleznyak, who heads one of the temporary investigative commissions of the parliament, talks about the tens of billions of hryvnias that the budget does not receive due to corruption in the customs and tax offices.

Moreover, a recent EP analysis  showed that during the two years of its existence, the Bureau of Economic Security has not imprisoned a single criminal for non-payment of taxes or illegal production.

One of the triggers may be the mandatory declaration for officials, canceled since the beginning of the great war. For a year and a half, they are not required to report to society when they buy real estate or cars. Now, such cases become known only thanks to journalistic investigations, so most officials feel quite safe in car dealerships. The demand delayed for years of bureaucratic accountability could play a role here.

In favor of this thesis, the fact that a sharp change in the market structure took place precisely after the beginning of the war, when the declaration was canceled, also testifies. If this is so, then it is clear why the president and deputies, under the guise of war, do not want to open the declarations of officials to the public, who may be shocked by what they see.

The demand for premium was not affected by the competition in the segment of used cars, which collapsed the sales of budget brands. This was facilitated by the fact that in April 2022 ( until July 2022 ), the Verkhovna Rada exempted cars imported into Ukraine from paying customs duties and other fees.

In the most active months of Ukrainians’ use of tax breaks, the number of imported cars reached 80,000 per month, which is 2.5 times more than in the past. This partially “killed” the demand for new inexpensive cars, but did not affect the premium segment.

Information about vehicles is taken from the open data portal data.gov.ua. Sales refers to the initial registration of a new vehicle imported from abroad  after purchase at a car dealership.