Ford, Renault, Opel predict better times ahead in central Europe
Key markets growing despite region's economic troubles
Despite the economic woes affecting Europe as a whole, automakers still see higher potential for sales growth in the east compared with the region's more mature western markets.
"It's a very dynamic part of Europe that will see a lot of development over next few years," said Hans Schep, Ford of Europe's regional sales director responsible for central and eastern European markets.
Positive factors include low car ownership in many eastern European countries, a huge pool of potential buyers who might swap their used cars for new models when economic growth returns and the likelihood that customers will choose more profitable higher value models as their countries become wealthier.
When the credit crisis hit in 2007-2008, the region was hit hard. Most countries experienced dramatic declines in new-car sales as governments and banks squeezed credit, leaving buyers unable to finance car purchases.
New-car sales fell 41 percent to just over 750,000 last year from 1.3 million in 2008 in the 10 major central and eastern European (CEE) countries, according to market researchers JATO Dynamics. Some markets have rebounded while others will take several years to get back to where they were, Ford's Schep said. Hungary, where new-car sales fell to 61,000 last year from nearly 200,000 in 2007, "will have a relatively slow recovery," he told Automotive News Europe.
Romania was also hard hit, with sales declining to 168,400 last year from 367,000 in 2007, but industry executives see a slow but steady rebound.
"We predict the Romanian market will invigorate," said Jerome Olive, head of Renault's Romania-based Dacia brand. "There are sound economic elements that allow us to make that statement. The growth rate is pretty acceptable and there is only need for a little bit of growth to return to the market level it had in 2006-2007. However I think it going to take some years."
In the first quarter, new-car sales in the region rose 10 percent to nearly 200,000 with many of the region's biggest automakers posting healthy increases, according to JATO. "We can expect to see some positive signs within the next year," said Vassilios Dais, CEE regional sales manager at JATO. "But it'll be some years before we see the record numbers again."
The region is not immune to the euro-zone crisis that has seen car sales slump across Europe, so forecasters are cautious.
"Most markets are in catch-up mode. The past six months have seen our forecast demand lowered, but for the most part the economic growth is positive," said Jonathan Storey, a former Ford financial analyst who is now a director of UK-based Automotive Reports.
When buying a new car, most customers in CEE countries choose a Volkswagen Group brand. In the first quarter, VW's Czech unit, Skoda, the region's top-selling brand, increased sales 13 percent to 32,097 compared with the same quarter in 2011. No. 2 VW brand's sales rose 28 percent to 17,529.
"They like German cars in this region, they equal prestige and quality," JATO's Dias said. "If someone wants to be seen with a good car, he buys a VW Golf or Skoda Octavia."
The trend toward buying smaller cars and niche vehicles has not taken root yet in CEE countries like it has in western Europe.
Ford's Schep said the new-car market in CEE countries is still focused on the traditional sectors. "The western European market has moved more into niche segments but in some eastern European markets it's still just a few big segments," he said. The most popular cars are compacts such as the Golf, Ford Focus and Opel Astra.
In western Europe, subcompact cars make up the biggest market segment. "Overall, there is an outflow of owners from the subcompact segment in CEE countries, whereas more car buyers are moving into the segment in western Europe," an Opel spokesman said.
Markets vary hugely across the region. In Romania, there are about 200 cars per 1,000 inhabitants, compared with the EU average of 470. In Hungary and Slovakia, the number is about 300 while smaller countries are slightly ahead of the EU average, such as Slovenia with just a little more than 500 cars per 1,000.
The overall car parc is older than the EU average of 8.2 years. For example, the average age of cars in Poland and Slovakia is 11 years old. This can have a positive effect on new-car sales.
"One reason for the growth of new sales [in CEE] is the relative lack of a sufficient quality of younger and lower mileage used cars," according a report on the used-car market by the UK's British Car Auctions and the University of Buckingham's automotive management center.
Belt-tightening by governments to reduce public debt is creating political upheaval in CEE countries just as in their western counterparts. Job losses, fear of unemployment and tight credit are also dampening the car market.
"Generally speaking, this year will either be static or we'll see a small decline," JATO's Dias said. "But in 2013, we will see something more positive."
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