The car markets of central and eastern Europe have substantial growth potential according to research undertaken by the automotive market research and forecasting firm, JD Power Automotive Forecasting. However, countries across the region are currently experiencing mixed fortunes.
Speaking at JD Power’s forecasting event in Paris, JD Power East European Automotive Analyst Carol Thomas said that in spite of the region’s considerable sales potential, new car demand has tended to turn out below expectations and markets have experienced considerable volatility.
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Long-term prospects for demand are very positive across the region due to low motorisation rates and improving economic prospects.
However, Thomas outlined a mixture of factors at work affecting markets currently.
Economic performances across the region are varied: Russia and the Baltic states are performing well, but Poland, Ukraine and Romania have seen economic growth rates fall off recently.
For the recent EU accession states large scale imports of relatively cheap used cars from other EU countries (previously restricted but an unregulated cross-border trade following these countries’ EU entry) have helped to depress new car demand. This has been a big factor in the Czech Republic and Poland.
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By GlobalDataIn Poland, for example, the annualised rate of new car sales has declined from a peak of 650,000 units in 1999 to under 250,000 currently. Used car imports are responsible for much of the decline but Thomas also pointed out that the country has suffered a ‘rocky political backdrop’ and that a recovery in car sales is being held back by uncertainties over future taxation policies, including changes to VAT that could boost the company car sector in Poland.
When these uncertainties are resolved, the Polish market could rebound strongly given an element of ‘pent-up’ demand and the existence of an old car parc (something which large scale used car imports have helped to create).
Thomas said that the experience of Poland with used car imports from the EU was something that should perhaps not be lost on Romania, a country that has a planned EU accession date of 1 January 2007. The Romanian new car market (running at an annualised level of around 220,000 units) has benefited in recent years from falling interest rates, improved consumer credit, the appreciation of the Leu and the launch of the Dacia Logan. But the country remains one of the poorest in the region and some fiscal tightening from the government is expected to constrain market growth over the next few years.
Thomas pointed to Turkey and Russia as offering particularly strong medium- and long-term growth prospects.
Turkey, she said, is benefiting from robust business and consumer confidence that she forecast would provide the basis – in the context of very low car density – for new car market growth from under half a million units per annum currently to around 700,000 units by 2010. Turkey’s young population will increase from 73m in 2005 to 80m people by 2013.
The Russian new car market reached 1.4m units in 2005 and is growing on the back of an economic boom fuelled by high energy prices. Consumer credit availability and the rise of local production in Russia by foreign carmakers are also boosting the Russian car market. By 2012, the Russian car market is projected to be heading towards 2m units per annum.
In spite of the rise of foreign brands in Russia and the possibility of eventual entry to the WTO, Thomas warned that the Russian government is unlikely to allow the demise of the domestic giant AvtoVAZ.
Dave Leggett
