The abolition of tax benefits applied to hybrid and electric engine cars at the beginning of the current year caused a serious agitation in the domestic car market.
According to initial assumptions and expert forecasts, following this legislative change, a price increase of at least 20 percent was expected in the cars imported into the country, especially Chinese-made cars that have become widespread on our roads in recent years. However, the past months have revealed a completely different and unexpected economic picture.
In the real market, not only was the predicted price increase not recorded, but a trend contrary to economic logic was formed.
Observations show that currently the most demanded popular Chinese cars are offered at prices 1000-2000 manat lower compared to the figures at the end of last year.
So, what is the real reason behind this situation that overturns expectations?
"Enough cars have been brought into the country"
According to Eyyub Aliyev, chairman of the Azerbaijan Automobile Dealers Association, the reason prices did not increase is the abundance in the market:
"In the last two years, through parallel imports — that is, by individuals who are not official dealers and small showrooms — a sufficient number of cars have been brought into the country. Last year, this process reached its peak. The situation reached the point where everyone, regardless of profession, imported cars. After the relevant decision was made that the preferential period for hybrid cars would end, there was a mass agitation in the market.
In order to be exempt from the next year's fees and to import vehicles under preferential terms, people hurried to bring in cars. At this time, customs clearance was carried out under the names of various individuals.
Private investors were also attracted to the process, and individuals who imported cars massively into the country became involved. A person engaged in the automobile business attracted investors who invested different amounts of 100,000, 200,000, or 300,000 manat and organized the import process in a centralized manner."
Supply abundance exceeding demand
E. Aliyev said that as a result, an abundance of supply sharply exceeding demand formed in the market. Against this background, automobile sales slowed down:
"Investors who were used to selling a car within three days and making a profit faced an unexpected situation. Sales decreased in January, practically stopped in February, and from March onward the market value of cars began to fall sharply. The price decline caused concern among investors.
Investors wishing to recover their invested capital and exit the market or take more cautious steps in the future began to pressure sellers, demanding to sell cars even at 'cost price.' As a result, sellers who were forced to return funds found themselves in a difficult situation. As a way out, they started urgently selling cars without making any profit."
"The trend of price reduction will disappear"
According to the chairman, this trend is temporary:
"Currently, some vehicles are even offered at prices lower than last year's, which has created a unique stagnation picture in the market. It is assumed that after current car stocks are exhausted and new batches officially cleared with customs fees enter the country, prices will be regulated again."
Concessions to manufacturers and local consumers
Emin Garibli, Associate Professor of Economics at Azerbaijan State University of Economics (UNEC) and Doctor of Philosophy in Economics, also thinks that importers who knew in advance about last year's tax changes massively bought cars and formed large stocks in warehouses.
Precisely for this reason, despite there being dynamics and demand in the market this year, no price increase is observed:
"Because due to the existing stocks, supply significantly exceeds demand. Another important factor is that cars are imported by individuals. The absence of value-added tax (VAT) for such persons allows them to sell vehicles at more convenient and competitive prices."
E. Garibli stated that it is difficult to predict future price dynamics unambiguously. This depends on several global factors:
"Currently, there is a global transition trend to cars running on alternative energy sources. In response to this demand, production volume, especially the market share of Chinese companies, is increasing. The Chinese government applies various tax concessions and subsidies both to manufacturers and local consumers. A certain portion of the cars brought to our country is formed precisely thanks to these concessional cars aimed at local consumers."
According to the economist, if any break occurs in this supply chain, a price increase will be inevitable:
"The main risk factors that could cause price increases include the probable increase in tax rates in Azerbaijan, the rise in logistics and transportation costs amid global geopolitical conflicts, and the reduction of subsidies by the Chinese government." (Source: "Kaspi" newspaper)