The economies of Central and Eastern Europe had a generally good year in 2000. Growth was reported across the board. In Central Europe, average GDP expansion reached 4.5% last year – a net acceleration on 1999. Meanwhile, Russia is enjoying an export-led recovery. This solid result was marred only by the crisis that hit Turkey late in the year. Unfortunately for the car industry, much of the impetus for expansion is coming from the supply side as favourable export conditions drive up industrial output. There has been less cause for celebration on the demand side. Although still broadly positive, growth here has been much weaker, and consumers have been reticent to spend on consumer durables. This has been felt in a number of markets.

Indeed, several car markets saw sales decline sharply last year. Consumer purchases were sometimes hampered by tight monetary policy, but a number of other factors contributed toward keeping the overall car market weak. Total demand across the entire region fell from 2.67m units in 1999 to 2.51m units last year. This year we expect another, much deeper, decline in demand, to 2.287m cars, the lowest level since 1996.


The bright spots were Turkey, which boomed to record levels until the crash cut short its expansion, Hungary, Croatia and the Czech Republic. But the list of weak areas was just as lengthy. In Poland, higher taxes, interest rates and the withdrawal of several low-cost models from the market pulled sales much lower. In Romania, Renault struggled to keep consumers interested in its base Dacia in the run-up to the Supernova launch. Slovakia reported a fall in buying interest. Russia’s largely closed market remained fairly static. Daewoo’s fortunes impacted negatively on Poland, Uzbekistan and the Ukraine.


In market share terms, Daewoo was the big loser last year. It relies very heavily on the Polish market for sales volumes, and this market is collapsing. Fiat, in contrast, managed Poland’s decline more successfully, and it reaped better sales in the pre-crisis Turkish market. Renault also flourished in Turkey, while Skoda‘s expanding share was merely the first in a multi-year share rise.


Car production (including assembly) in 2000 moved ahead modestly. It rose 3.3% to 2.29m units. Output from the region now stands at 21.9% of West European output and 6.8% of world output, up from 5.4% in 1995. Car companies are working to make their operations more efficient and more integrated – in response to falling barriers to trade, changing tastes and rising purchasing power. In some cases, this means short-term production sacrifices. This occurred at Fiat in Poland and Renault in Romania. Company fragility has also played a role in shaping output. Daewoo suffered most in this regard, as its operations in Eastern Europe suffered severe output contractions.


Total regional output will have risen 25% to 3.5m units by 2006 and to 4.13m units by 2011. Production will tread water this year. Output in Turkey and Poland will continue to be depressed. Czech production will rise as production of the new large Skoda starts. The rise in Russian output will take place later in the period, once buying ability can support Western production operations.


Table I: Car Sales Summary – Eastern Europe
































































































































































































































































































































































































































































































































QF
1998

1999

2000

2001

2002

2003

2004

2005

2006

2011
New Cars
BULGARIA
9,742

9,412

10,197

12,489

17,458

21,578

28,488

30,828

32,172

49,658
%ch
46.8

-3.4

8.3

22.5

39.8

23.6

32

8.2

4.4

54.4
CROATIA
57,505

55,687

62,009

64,258

67,958

71,425

74,598

78,885

83,587

98,745
%ch
13.8

-3.2

11.4

3.6

5.8

5.1

4.4

5.7

6

18.1
CZECH REPUBLIC
140,957

146,051

148,685

158,122

182,232

200,858

205,338

214,943

224,751

280,285
%ch
-17.8

3.6

1.8

6.3

15.2

10.2

2.2

4.7

4.6

24.7
HUNGARY
103,541

129,296

133,236

129,452

131,285

126,852

136,446

141,241

147,710

176,397
%ch
29.8

24.9

3

-2.8

1.4

-3.4

7.6

3.5

4.6

19.4
MACEDONIA
12,110

10,010

14,238

11,258

13,002

14,857

16,230

18,235

19,341

25,454
%ch
57.7

-17.3

42.2

-20.9

15.5

14.3

9.2

12.4

6.1

31.6
POLAND
515,256

625,837

473,110

399,716

467,462

541,637

619,099

669,250

770,311

951,246
%ch
7.8

21.5

-24.4

-15.5

16.9

15.9

14.3

8.1

15.1

23.5
ROMANIA
114,793

96,632

66,276

81,667

90,114

96,850

113,768

123,390

128,948

158,740
%ch
22.3

-15.8

-31.4

23.2

10.3

7.5

17.5

8.5

4.5

23.1
SLOVAKIA
69,041

56,447

54,739

60,634

65,577

73,956

80,362

86,552

91,402

112,081
%ch
11.2

-18.2

-3

10.8

8.2

12.8

8.7

7.7

5.6

22.6
SLOVENIA
69,329

78,142

62,350

66,535

70,149

71,128

73,260

71,466

74,887

80,668
%ch
12.7

12.7

-20.2

6.7

5.4

1.4

3

-2.4

4.8

7.7
TURKEY
315,584

284,446

467,486

234,804

273,313

341,298

404,132

455,708

494,938

625,967
%ch
-8.5

-9.9

64.3

-49.8

16.4

24.9

18.4

12.8

8.6

26.5
Total New Cars
1,407,858

1,491,960

1,492,326

1,218,935

1,378,550

1,560,439

1,751,721

1,890,498

2,068,047

2,559,241
%ch
3.8

6

0

-18.3

13.1

13.2

12.3

7.9

9.4

23.8

xhseahj
Car Sales Summary – Former Soviet Union
aF
1998

1999

2000

2001

2002

2003

2004

2005

2006

2011

New Cars
BELARUS
4,844

3,749

3,332

3,270

3,140

3,180

3,483

3,684

4,241

8,372
%ch
4

-22.6

-11.1

-1.9

-4

1.3

9.5

5.8

15.1

97.4
ESTONIA
10,445

8,906

10,625

12,966

15,090

18,046

21,971

26,493

30,063

52,857
%ch
-6

-14.7

19.3

22

16.4

19.6

21.7

20.6

13.5

75.8
LATVIA
6,147

6,760

7,303

8,963

10,846

12,985

15,302

18,340

21,446

40,156
%ch
36.9

10

8

22.7

21

19.7

17.8

19.9

16.9

87.2
LITHUANIA
6,594

4,832

6,330

7,764

8,742

9,601

11,548

13,458

15,774

33,698
%ch
-14.5

-26.7

31

22.7

12.6

9.8

20.3

16.5

17.2

113.6
RUSSIA
791,538

921,673

913,294

941,856

970,125

1,013,629

1,069,751

1,126,359

1,189,563

1,565,987
%ch
-17.6

16.4

-0.9

3.1

3

4.5

5.5

5.3

5.6

31.6
UKRAINE
45,935

83,489

61,720

74,636

81,006

88,041

95,305

103,333

118,877

180,283
%ch
85.3

81.8

-26.1

20.9

8.5

8.7

8.3

8.4

15

51.7
UZBEKISTAN
37,632

46,324

15,032

19,189

27,484

31,201

35,679

38,655

40,878

64,051
%ch
-4.7

23.1

-67.6

27.7

43.2

13.5

14.4

8.3

5.8

56.7
Total New Cars
903,135

1,075,733

1,017,636

1,068,644

1,116,433

1,176,683

1,253,039

1,330,322

1,420,842

1,945,404
%ch
-14.2

19.1

-5.4

5

4.5

5.4

6.5

6.2

6.8

36.9
Total New Cars(*)
2,310,993

2,567,693

2,509,962

2,287,579

2,494,983

2,737,122

3,004,760

3,220,820

3,488,889

4,504,645
%ch
-4.1

11.1

-2.2

-8.9

9.1

9.7

9.8

7.2

8.3

29.1



Table 2: Factors Affecting the Car Forecast in E. Europe






























































































































































k 1999 2000 2001 2002 2003 2004 2005
CENTRAL AND EASTERN EUROPE (+) Daewoo Matiz (+) Skoda Fabia, Opel Agila, Suzuki Wagon R, Clio Symbol (+) Fiat Doblo, Dacia SupeRNova (+) Ford Focus Van sold more widely, 4-door Seicento (+) Russian western output rises (+) Seicento replacement k k
BULGARIA (VAT: 22%) (-) weak domestic demand (+) improving economy helps car demand (+) wider economic reform boosts consumption (+) economy continues growth (+) economy continues growth k k
CROATIA (VAT: 22%) (-) recession, (-) Trosarina excise tax on big cars (+) return to economic growth (+) reform of imports taxes (+) gradual rise in consumer spending (+) economic growth gathers pace (+) economic growth continues k k
POLAND (VAT: 22%) (+) import tariffs fall to 15% (++) buyers anticipate tax rises (-) excise tax rises (-) interest rates & petrol costs rise (-) cheap models phased out (-) few cheap models (-) high int. rates and taxes (-) Daewoo plight continues (+) EU import tariffs at 0% (+) cons. spending rises (+) GDP growth firm (+) cons. Spending peaks (+) Seicento replacement (+) GDP growth firm k
CZECH REPUBLIC (VAT: 22%) (-) recession (+) return to economic growth (~) last days of Felicia (++) Fabia launch (+) EU import tariffs now at 0% (+) Fabia push starts in earnest (+) improving economic picture (+) new large Skoda (+) GDP growth firm (+) GDP growth firm k
HUNGARY (VAT: 25%) (++) high wage growth, low int. rates, wider credit (+) strong economy lifts sales (+) new Wagon R, Fabia (+) GDP growth firm (+) GDP growth firm (+) GDP growth firm k k
ROMANIA (VAT: 22%) (-) recession hits car sales (+) econ. recovery starts but (—) ex. rate falls and (—) buyers wait for new Nova (+++) buying catches up with new Nova (-) Daewoo plight uncertain (+) import duties now at 0% (+) GDP growth firm (+) GDP growth firm (+) SupeRNova volume builds (+) new Dacia II k
SLOVAKIA (VAT: 23%) (-) recession (-) 7% import surcharge reintroduced (+) economy strengthens (+) Skoda Fabia helps H2 car demand (++) large growth in consumer spending (+) consumer spending rises(+) new large Skoda (+) consumer spending increase to 6.6% before 2004 peak k k
SLOVENIA (VAT: 19%) (++) buying before VAT introduced in July (–) VAT in place (+) firm GDP growth (~) saturated market (+) firm GDP growth (~) saturated market (+) firm GDP growth (~) saturated market k k
TURKEY (VAT: 17% base, 23% on cars) (–) Russia (-) August quake disrupts economy (+++) plunging interest rates cause car boom (+) importers push hard (+) new Clio (—) sharp devaluation (—) high interest rates (—) policy uncertainty (+) recovery in economy starts (-) risks remain high (++) recovery gathers pace (-) risks remain high k k
RUSSIA (VAT: 20%) (-) weak economy (+) GDP up sharply but (-) demand is very weak (-) production at full capacity (+) recovery continues but slows (-) western makers struggle to build (+) recovery widens (+) Fiat starts output, improvements at VAZ & GAZ (+) growing middle class (+) new Niva increases output k k
UKRAINE (VAT: 18%) (-) weak economy (–) Daewoo/ZAZ collapses (-) recovery weaker than Russia (-) Daewoo fails to recover (+) recovery gradually gathers pace (-) Daewoo still in trouble (+) recovery gradually gathers pace (+) GDP growth firms k k
UZBEKISTAN (VAT: 20%) (-) GDP growth slows (-) Daewoo reduces investments (-) weak domestic demand hampers Uz-Daewoo output (–) devalued ex rate dampens consumer demand (-) Uz-Daewoo in trouble (+) GDP, spending recover (+) GDP, spending recover k k
ESTONIA (VAT: 18%) (-) increased excise taxes (++) economy recovers rapidly (++) GDP growth strong (+) renewal of old parc continues (+) strong GDP growth (+) strong GDP growth k k
LATVIA (VAT: 18%) (~) excise tax hits used imports harder than new (++) sharply improving economy (+) improving economy (+) improving economy (+) improving economy k k
LITHUANIA (VAT: 18%) (-) deep economic contraction (+) improving economy (+) improving economy (+) improving economy (+) improving economy kk k

Note (+) = positive effect,(~) = limited or ambiguous effect, (-) = negative effect.

I: Outlook for sales in CE and CIS


Macro developments


In many respects, the economies of Central and Eastern Europe and Turkey had their best year in 2000. In Central and Eastern Europe all economies grew, without exception, the first time this has occurred during the transition. In Central Europe average GDP growth rose to 4.5%, up from 1.1% in 1999. In Russia, an important export-led bounce-back is occurring, after the turmoil of August 1998. And even the weaker economies of the Ukraine and Belarus reported growth. Turkey enjoyed a return to significant expansion, before it was hit with a brace of crises in late 2000 and early 2001.


Exhibit I – Real GDP Growth in Eastern Europe (percentages)
















































Country
1998

1999

2000
Czech Republic
-2.2

-0.8

2.8
Hungary
4.9

4.4

5.4
Poland
4.8

4.1

4.5
Romania
-5.4

-3.2

2.2
Slovakia
4.1

1.9

2.6
Slovenia
3.8

4.9

4.3
Russia
-4.9

3.5

7.7
Turkey
3.5

-5

4.5

Micro-economic reform and restructuring are taking place in all economies, albeit at differing speeds. Firms are focusing more on profit generation, by improving production efficiencies and pushing exports. Indeed, higher industrial output and export growth were the driving forces behind much of the GDP growth last year.
Trade barriers are being dismantled as the core economies prepare for EU accession. This is drawing Central Europe closer to the West European economy, and promoting more rapid convergence. In 2000, the six EU applicant countries (Poland, the Czech Republic, Estonia, Hungary, Slovakia and Slovenia) sold between 60% and 80% of their exports into the EU.


Incomes are also converging. Although they remain below those of the poorest EU countries of Greece and Portugal, the Central European economies are closing the gap. In 1992, Poland’s average per capita GDP was just 28.4% of the EU average, but this had risen to 36.3% in 1999. By 2005, Hungary’s income levels will reach nearly 75% of Portuguese incomes, while those of the Czech Republic will exceed 80%.


Car market developments


Against this background, then, it is a little surprising that car demand fell last year. Total demand across the entire region fell from 2.67m units in 1999 to 2.51m units last year. This year, with economic growth expected in all markets except Turkey, it is remarkable that we expect another, much deeper, decline in demand, to 2.287m cars, the lowest level since 1996.


Exhibit II – Total Car Sales EE/FSU/Turkey (000 units)






So, what are the factors that are bringing about this weakness? In many ways last year’s top-line growth figures mask the real economic adjustments that are still taking place across the region. The transition process is marked by adjustment-response iterations, as labour and capital adapt to the free market system.


Exhibit III – Key macro and micro factors affecting car demand in 2000


















Country Main drivers
Poland Rising excise taxes. Retirement of key low-cost models from production. Tight monetary policy. Company difficulties. Daewoo’s financial strife resulted in large-scale desertion of the brand’s models.
Romania Emerging from long recession. Consumer demand weak. Buyers wait for SupeRNova. Daewoo difficulties hamper demand.
Russia Consumer demand remains weak. Capacity is constrained. Policy environment unpredictable.
Turkey Lower interest rates cause consumer boom until crisis of confidence causes massive devaluation. Interest rates spike. Political uncertainty very high.

In these fragile economies, sharp policy changes can be required to relieve pressure – perhaps in inflation, government finances or the current account. Moreover, these changes can leave parts of the economy floundering for short periods. In some cases, such as Turkey, a brutal adjustment can result in a significant deterioration in an economy’s short- and medium-term prospects. Running alongside these macro effects are micro-economic adjustments, which are made by companies working to improve the competitiveness of their enterprises. Here, too, reform can result in a short-term negative outcome as they trade this off against better long-term performance.


Last year a number of these macro-economic and micro-economic factors influenced consumer demand in general and car demand in particular. An outline of the major country developments and outlook is presented below (see Exhibit V).


In many cases, the structural nature of these drivers means that economies will not post an immediate return to growth. In general, however, the underlining health of most economies will prompt a fairly rapid return to healthier car market conditions. As a result, 2000 and 2001 should been seen as pit-stops in the race to regional convergence rather than as serious motor breakdowns or forced retirement. By 2006, we expect total car demand in the region to stand at 3.7m units, up from 2.28m units in 2001. By 2011, the figure will be 4.5m units.


Exhibit IV – Car Demand in CE and FSU 1998-2006 (000 units)






Market share developments


Each carmaker fared differently last year, each more or less exposed to the volatility that rocked the key markets. The chart below uses data for the big six Central European markets plus Turkey.


Obviously, the biggest casualty was at Daewoo. In 1999, the company rivalled Fiat as the biggest seller across the region. Nevertheless, the weakness of its position was underlined by the collapse of the Polish market – upon which its fortunes depend. Last year, sales in the region slumped from 214,500 to 128,700 cars. In contrast, Fiat managed the downturn better, losing less volume in Poland and reaping healthy sales in Turkey for most of the year. Renault, too, capitalised on the booming Turkish market, prospering from the widespread success of the Clio Symbol.


Exhibit V – Market Shares in Central Europe and Turkey (percentages)






We doubt whether Daewoo will be able to claw back any lost share. Although it does have a few new products this year, such as the Tacuma, it has relied too heavily on low-cost models to gain market share. These are now showing their age, and it will be increasingly difficult to entice the lower income buyers, who make up the bulk of its clientele, back to the brand. Daewoo’s financial distress confounds the situation. It is still possible that heavy production cutbacks will be invoked across the region, leaving its market share under further threat of decline.


We see Skoda as the big winner over the next few years. The brand is attractive to buyers on a budget, and the new Fabia will compete strongly against the likes of the Lanos. Additions to the top of the scale – such as the W8 vehicle – will further bolster its volume sales.



































































































































































































































































































































































































































































































































































































































































































BRAND NAME
1998

1999

2000

2001

2002

2003

2004

2005

2006

2011
ALFA ROMEO
4,098

3,330

4,144

4,618

4,732

4,961

5,252

5,434

6,579

8,656
ARO
1,362

1,217

668

342

145

0

0

0

0

0
ASIA MOTORS
31

4

0

0

0

0

0

0

0

0
ASTON MARTIN
0

0

0

3

3

3

3

3

3

5
AUDI
4,784

5,175

5,250

5,251

5,819

5,875

6,565

6,865

7,398

8,960
BMW
2,308

2,839

2,974

2,933

3,183

3,846

5,544

6,861

7,612

9,059
CHEVROLET
0

1

5

6

7

8

6

8

9

8
CHRYSLER
834

1,037

1,081

1,271

1,546

1,679

1,645

1,691

1,803

2,516
CITROEN
21,347

20,212

23,874

22,538

23,305

30,375

31,446

34,304

36,577

43,082
DACIA
85,087

68,611

39,406

53,476

58,646

59,089

73,655

86,562

91,229

115,673
DAEWOO
158,678

213,915

127,810

103,780

111,188

132,539

145,548

162,589

184,318

229,466
DAIHATSU
264

256

46

322

479

552

542

611

800

902
DODGE
0

0

2

0

0

0

0

0

0

0
FERRARI
9

6

8

8

6

7

6

4

4

7
FIAT
170,057

186,954

143,740

115,307

130,309

140,556

160,157

167,828

196,174

236,625
FORD
46,605

47,961

31,250

25,598

29,100

30,094

33,073

34,261

37,350

44,553
FSO
27,940

18,659

10,339

2,072

261

0

0

0

0

0
HONDA
17,378

17,706

10,519

13,297

16,103

18,354

18,932

19,253

20,927

28,676
HYUNDAI
8,144

10,142

11,638

12,399

16,181

18,138

19,058

20,940

23,596

33,378
JAGUAR
62

142

175

210

426

454

455

450

448

653
JEEP
237

350

590

574

595

605

565

637

653

456
KIA
7,473

11,430

9,540

9,688

9,391

8,943

9,942

10,133

11,070

12,819
LADA
1,640

2,826

2,458

2,570

2,925

3,280

3,603

3,711

4,279

5,002
LANCIA
1,011

420

539

679

1,053

1,210

1,287

1,274

1,451

2,006
LAND ROVER
511

1,329

1,271

1,343

1,294

1,347

1,413

1,623

1,844

2,134
LEXUS
55

94

144

173

192

204

231

244

301

393
MARUTI
0

0

2

0

0

0

0

0

0

0
MASERATI
1

2

2

5

5

5

7

9

9

15
MAZDA
6,334

6,168

5,197

4,962

5,285

6,017

7,785

8,127

8,642

9,074
MERCEDES-BENZ
3,348

4,718

5,860

5,674

6,480

6,655

6,991

7,498

8,248

8,914
MINI
0

0

2

271

537

627

663

741

782

1,320
MITSUBISHI
4,278

4,487

3,719

3,590

4,082

5,711

6,667

7,042

7,814

9,392
MTX
0

7

0

0

0

0

0

0

0

0
NISSAN
14,886

15,189

15,017

15,327

19,182

20,090

23,505

24,352

26,415

27,811
NOT KNOWN
438

109

68

10

4

0

0

0

0

0
OPEL
74,582

94,817

75,944

72,647

87,783

109,343

116,283

123,578

134,866

176,680
PEUGEOT
22,099

31,148

40,914

39,134

40,938

42,978

44,372

45,252

52,348

50,304
PORSCHE
21

65

78

89

89

89

91

91

92

59
PROTON
223

383

216

279

328

350

331

291

277

318
RENAULT
55,069

62,930

64,234

61,985

66,274

73,935

79,633

81,815

84,603

106,116
ROLLS ROYCE
0

0

0

0

0

1

2

1

0

1
ROVER
2,324

2,247

1,382

1,255

1,313

1,149

1,177

1,224

1,459

1,383
SAAB
439

459

647

611

636

694

1,111

1,702

1,947

1,990
SEAT
21,081

24,212

23,278

21,471

24,408

27,232

28,305

28,549

29,953

37,291
SKODA
146,992

154,882

160,044

176,176

192,252

207,638

233,924

241,333

260,009

342,416
SMART
8

19

7

12

15

16

15

17

16

10
SSANGYONG
442

833

383

49

74

104

117

109

127

108
SUBARU
586

740

768

781

850

826

823

830

879

987
SUZUKI
30,033

37,912

33,022

33,235

37,412

40,531

41,940

40,340

42,755

56,034
TATRA
5

1

0

3

2

2

2

3

4

0
TOYOTA
20,951

23,793

24,380

24,593

26,626

31,629

35,027

36,220

40,552

45,743
VOLVO
2,948

2,629

3,896

4,489

4,421

3,976

5,457

6,664

7,562

7,182
VW
45,675

50,012

51,865

51,010

70,934

69,564

75,117

85,768

94,225

91,240
ZAZ
239

27

0

10

0

0

0

0

0

0
Grand Total
1,012,917

1,132,405

938,396

896,126

1,006,819

1,111,281

1,228,273

1,306,842

1,438,009

1,759,417

Author: Tim Armstrong
Paris: + 33 1 40 75 25 93







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The automotive industry of central and eastern Europe