Josef Graf, director of "Porsche Ukraine": Next year, we expect 18-25% growth of the new cars market

2018-11-06

For a start, will you, please, analyze this year market of new passenger cars and commercial vehicles, commenting on your position in it? Many experts were expecting market growth by nearly 20 % this year, as it happened a year before, but in fact it turned out to be much smaller in the last 9 months. What is the marketplace of your brands?

This year our position on the market can be seen as quite positive. In January-September, the company increased sales of passenger cars by almost 12% if compared to the same period of the year 2017, which makes total of 7.364 thousand. It is significant that the company managed to increase market share of passenger cars from 11.6 percent last year to 12.4% in 2018.

In the first three quarters of 2018, Volkswagen sold 811 commercial vehicles, which makes 10.9% of the market. The main buyers of these vehicles are legal entities and private entrepreneurs (70% of sales).

By the end of the year, we expect to, at least, keep our market share. In general, the market of cars this year is growing not very quickly - by about 5% now, and the total sales could reach 80-85 thousand units by the end of the year (in 2017, e.g. they exceeded 80 thousand), i.e. we still hope for a small increase.

A great advantage is our wide range of vehicles for any customer.

You import the three quite powerful brands. How would you describe the key differences in their progress in the Ukrainian market (as compared to the promotion in other markets)?

The Ukrainian market has its own characteristics, so we certainly take into consideration the specificity of promoting our brands in it. As Audi is a premium brand, the main strategy of working with it is  throughout premium attitude, including the high quality of products, excellent service, and a personal approach to every client. Volkswagen, as a mass ("popular") brand, has a very wide range for any audience: from Volkswagen Polo hatchback to flagship SUV Touareg. SEAT focuses on younger and socially active segment of buyers, thus, a narrower audience. Now this brand focuses on offroadsters.  SUV cars are popular in Ukraine - people like big cars in this country.

Besides, we place emphasis on cooperating with the corporate clients.

Have you had any big corporate contracts lately?

The bulk of corporate sales are Volkswagen Commercial Vehicles.

As you know, corporate contracts is an indicator of the economic situation in the country: when national economy is recovering, the purchasing power of legal entities is increasing, the growing demand impacts commercial sales, so we can predict the sales dynamics of the next year. Speaking of the latest major contracts, it is delivery of 92 SEAT Ibiza vehicles to the Coca-Cola company.

Do you think the current sales figures are sufficient? Does Ukrainian national market seem perspective to the foreign automakers? How far can the market grow next year?

It is a complicated question. Taken long term, we see a high market potential. Capacity assessment is a comparison of the motorization level in various countries. In Germany, for example, there are about 550 cars for 1000 inhabitants, while in Ukraine there are only 200. Thus, it is still a big country with high potential.

Actually, the sales were much worse in 2014, following the crisis (quite understandable), when almost a double drop was fixed (figures vary depending on the specific segments). However, starting from 2015 onwards, the market is growing slowly but surely. This year we expect around 80-85 thousand of new cars sales. Next year this number will increase to almost 100 thousand.

The matters are quite the same in the commercial vehicles sector. Since 2016, this market has been growing slowly. We believe that in 2018 about 11 thousand cars will be registered in Ukraine, while in 2019 this number will increase to 12 thousand.

The situation in Ukraine is improving, a rise in income and buying capacity is noted, and that is why positive dynamics is expected.

Will you explain how could the company possibly make a mistake in the Volkswagen Golf Sportwagen (Variant) certification? Why has a good idea to provide Ukrainian consumers with the affordably priced cars manufactured for the American market resulted in problems for the vehicles' owners? What measures are being taken by "Porsche Ukraine" to resolve the problem and minimize the moral and material damages to the customers?

Indeed, such a situation occurred in mid-April. It was reported that in the process of Volkswagen Golf Sportwagen (Variant) (2800 units) registration some irregularities were detected. We analyzed this problem, in the first place trying to avoid complications for the owners of these cars. At the same time, it is important to mention that right after identifying the matter we have notified the owners and initiated an open dialogue with them, immediately reporting the issue to the media. Today we continue to stick to this strategy.

The solution has two phases. The first consists in conducting individual certification, after which the vehicle registration is required. Private certification began on August 15, and almost 80% of cars have already been certified.

Now we are in the process of realizing the second stage - registration of these cars. This procedure has started already, and the first pilot cars have been registered. All our efforts are focused now on registering all the autos as soon as this stage is carried out.

With the help of a dealer network, our company accompanies each client on every stage of the registration process covering all the related expenses. Upon completing all phases, the customer receives a certificate and a 6 thousand-hrn voucher - a company's compensation.

Are there any clients who have already received such vouchers? Are they satisfied with the amount of money?

Yes, there are. Not that I have heard of any objections. There certainly were some issues raised during a dialogue. Usually, they concerned the procedure itself, though we do our best to protect our clients from all possible inconveniences during the process.

So, would you say then that all the reputational risks were mitigated?

We do our best to maintain an open dialogue and thus reduce the reputational risks. Open dialogue with customers and media allows us to do so. At the same time, it's surely an unpleasant situation no one might wish to be in. However, we should solve it.

How much do you think the European trend for the reduction and phasing out of diesel engines can affect Ukraine?

I don't see any big problem here, as the automakers are usually focused on consumer demand. In Ukraine, there is a demand for diesel-powered cars and we can offer a large selection of such autos.

I believe that in the future Ukraine will follow the European trends, and we are already witnessing the interest to the cars with alternative types of engines. The demand for cars with internal-combustion and diesel engines will gradually decrease.

According to experts, the major factors hampering the new cars market growth is the import of used cars at reduced rates of excise duty and the preponderance of "evrobljahy" - а  problem that has not been given a legislative basis. How do you assess the impact of these factors, including the sale of your brands?

With regard to the so-called "evrobljahy", we do not consider it a big problem for the new cars market and would not mix these two markets. There are different target audiences involved and "evrobljahy" are likely to affect the used cars market.

The import of used cars at reduced rates of excise duty is what really affects the new cars market. We observe and feel its impact - the sales fall. And if preferential rates are not renewed in 2019, we expect an increase in sales due to it.

We also try to follow market trends in order to retain our position in the market. For example, lately electric vehicles are trend segment worldwide. Ukraine is not an exception, thanks to legislative preferences, relatively rapid development of appropriate infrastructure, rising prices of traditional fuels, as well as growing environmental consciousness of Ukrainians.

"Porsche Ukraine" cannot ignore the promising trends and in 2019 we plan to present the first fully electric car Audi e-tron in Ukraine. We do not expect big sales of such cars immediately, but this is the sort of statement on behalf of the brand.

But there is no boom in this market in Ukraine yet, despite cancellation for electric vehicles import duties, excise and VAT. Do you think this is due to the high cost of these autos or deficiency of charging infrastructure?

You are right; it can be explained by both - the high prices and the infrastructure unavailability.

This is true not only for Ukraine but for all over the world. Good conditions for the electric cars market development can be established only if the situation is regulated by the authorities. Scandinavia can serve an example.

We depend on the Company's strategy for production and marketing of autos. Recently a fully electric car Audi e-tron was presented. This car is also brought into the Ukrainian automobile market. Volkswagen already has electric car model (e-Golf), but we did not present it in Ukraine due to lack of infrastructure that time. According to the brand strategy, we plan I.D. electric cars replacement, which will also be brought in to Ukraine.

Does "Porsche Ukraine" intend to invest into creating its own charging infrastructure in our country?

No, we don't, but we will offer our plan for solving the charging problem. For example, it can be a small substation, which can be installed at home, and used for charging the car.

What about novelties, presented to the market in 2019.

We will present several new products. In the Volkswagen lineup, these will be compact crossovers T-Roc, T-Cross, the update of the current generation of Passat and the all-new Golf. We also plan to expand our proposal by brand SEAT: series will 7-seater car A + SUV (Tarraco). 2019 will be a year of new products and advanced technology for Audi: besides all-electric Audi e-tron the new generation A6 model and Q3 model will be presented, a new generation of Q3, as well as a number of new sport cars. All in all, the Audi brand will please the Ukrainian motorcar enthusiasts by eight different novelty products.

Is the company's dealer network sufficient for today? Do you plan its quantitative expansion or qualitative restructuring?

Given the current sales, our network is fully consistent with the demand in terms of quantity and quality. Today Volkswagen owns 26 dealership companies plus 4 service partners. Audi has 9 dealers plus 2 service partners, SEAT has 8 dealers plus 17 dealerships service partners. We can discuss some possible expansion only when the sales increase. However, we constantly invest in the quality of the network. Although there is a slight difference between brands. For example, the dealer network of SEAT has more potential for the development as compared to others.

You have your own financial company "Porsche Finance Group Ukraine". Do you think Ukrainians use its opportunities effectively enough? Do they show their interest to leasing more actively, for example?

I can't speak on behalf of the company Porsche Finance Group Ukraine, as I do not run it. We are very fortunate that within the group there is such a structure. If I am not mistaken, the total number of cars that are bought through the funding is about 20%. And I believe that leasing proposals is what makes Porsche Finance Group Ukraine really powerful. Company is a good player on this market. Of course, if you take the total financial market, leasing plays a very small role if compared to European markets Ukraine is still at an early stage.

In Europe, leasing is a normal instrument even for individuals, while in Ukraine mainly legal entities focus on it.

We talked about the significant impact of imported used cars on sales. Besides, among used cars Volkswagen is the most popular. Is your company is somehow present in the secondary market?

We have been working on the secondary market for three years. "Porsche Ukraine" is the only importer on the market that develops sales program and provides service to the used cars (to all our brands) in accordance with the standards of the Volkswagen Group (DasWeltAuto). Its advantage is that the used cars are purchased with the warranty. This means that the clients may be sure their cars will not go out of operation in just a year.

Today 14 our dealers offer this program. Dealer enterprises working on it must meet certain criteria.

Secondary market in Ukraine is very large. Mostly, these are purchases-and-sales between private individuals, i.e. does not offer any guaranties.

Finally, what are the "Porsche Ukraine"'s financial results?

Unfortunately, I cannot share this information. Our profitability is quite good, though it slightly decreased this year due to the situation with Golf Sportwagen and our investments into sorting it out.

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