Volatility hits Central
Europe again
With data for the first
half now available, the volatility of car demand in 2000 is more apparent. This
year six of the ten markets presented below show changes in demand of more than
10% on 1999 levels, while six (not necessarily the same six) show a switch in
demand growth, from positive to negative or vice versa. Thus, the volatility
that characterised sales in Eastern Europe in recent years is again au rendezvous
in 2000.
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In 2000, the fundamentals
of many of the economies remain sound. None of the ten economies presented below
is in recession this year. Consumer spending growth is also positive across
the board, although it is admittedly weak in some markets. But this year a large
part of the volatility is being driven by monetary and fiscal policy changes,
which impact directly on credit buying but can leave overall consumer spending
relatively untouched.
The divergence in market
movements presented in the chart below is extreme. At the top end the Turkish
market will boom to record levels this year, after collapsing in 1999. By September
the market was on track for around a 77% increase on last year’s levels. In
stark contrast, sales in Poland contracted sharply after running hot last year,
while buyers in Romania have quit the market in droves, partly because they
are looking forward to better products from Dacia in the near future. After
ten years of transition, there is still little sign of uniform stability developing
across the region.
The broad trend in demand
is clearly upwards, however. Each economy is following its own growth path,
and fluctuations in important variables, such as interest and exchange rates,
excise taxes, or model offerings, have led to rapid and volatile swings in consumer
behaviour. Since incomes are lower here, consumers buying cars are often highly
sensitive to interest rate movements and tax rises. Even the prospect of a change
in tax or interest rates can lead to a radical shift in buying, as we saw in
Poland and Turkey in late 1999. Thus, the level of variables (such as interest
rates) and their rate of change determine movements in car demand. In some economies,
such a Poland and Turkey, we have seen rapid and foreseeable interest rate and
tax changes leading to high volatility in demand.
Other factors influencing
demand include currency devaluations in countries that rely on imported cars
to serve a portion of total demand. This can leave consumers with nowhere to
turn (witness Russia). Meanwhile, faltering economic reform has meant that the
economic optimism that once strongly led rising car demand has turned into disappointment,
leaving car sales stagnating or falling sharply (as in the Czech Republic in
1999, or Romania in 2000).
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By GlobalDataExhibit
I
Car demand
and consumer spending growth in 2000 (percentages)
 |
In 1998 car sales in Central
Europe (including Turkey) climbed 3.8% to 1.408m units; in 1999 sales rose 5.9%
to 1.492m units. The bubble in Polish demand and the surge in Hungarian demand
offset declining Turkish sales, leaving the total market modestly up on year-before
levels.
This year total sales look
set to achieve a rise of nearly 8%, to end the year around 1.61m units. But
it is the massive boom in Turkey that is carrying the market. In other economies
sales growth is either more muted or negative this year, as the familiar divergent
mix of economic signals affects the markets. Sales (excluding those in Turkey)
are set to fall by 8.2% in 2000, with Romania and Poland leading the fall. Recovery
in the Czech Republic is coming slowly. Hungary stands out as the only bastion
of strong, stable growth, with sales set to rise more than 11% this year.
Despite the “patchiness”
of demand in 2000 the comparatively strong underlying position of most economies
suggests that better car sales growth will not take long to materialise. As
the table illustrates, economic growth has been firm and will remain so in Central
Europe. This year a number of additional factors – often related to monetary
or fiscal policy changes – have served to distort car sales. Next year these
distortions should become less apparent, leaving more of the sound economic
fundamentals to filter into the car market. Sales have already improved in the
Czech Republic, Bulgaria, Macedonia and Croatia this year, and these rises will
be built on in 2001. Hungarian growth should stay solid, while Slovenia, Slovakia
and Romania should all post improvements. Next year Turkey will hold the region
back a little, while Poland recovers. Total demand will improve by 3.5% next
year. By 2002 all the markets should be pulling in the same direction, allowing
car demand to rise a more robust 9.2%, its peak growth rate for the forecast
period.
Exhibit
II
GDP growth
in 2000-02 (real percentage change)
 |
After 2002 the chances that
one or more of the economies again sees some derailment in its growth path increase.
For the core Central European markets queuing to join the European Union the
structural adjustments required to conform to EU directives could buffet their
economies temporarily, exposing car markets to another bout of volatility in
2003-06.
Nonetheless, convergence
with West European car markets is occurring rapidly among the larger markets,
although in Central Europe the Balkans will lag for a good number of years to
come. Turkey is one of the most risky markets, since the economic reform process
now underway could be easily derailed. On balance, we assume that the economy
will avoid a major contraction in the next few years (although the probability
of a short sharp shock remains high at around 40%), leaving the market above
500,000 units in 2005. This helps draw total car demand to 2.12m cars in that
year, some 32% above the levels envisaged this year. Meanwhile, our view of
the FSU car markets has not changed dramatically since our last review. Although
the Russian economy is bouncing back strongly, the export-led recovery is yet
to have a large effect on consumer demand, and the devalued ruble still puts
car imports beyond the reach of almost all Russians, regardless of the improvement
in the economy. Domestic supply remains constrained by capacity, leaving the
overall market down on pre-crash levels but showing health demand for homegrown
products.
The improvements already
seen in the economy are likely to have most impact on the medium-term outlook
as consumers may rapidly reach the trigger point at which Western car buying
becomes an option. But the related problem of banking reform will have more
far-reaching consequences for this than will the current pick-up in the economy.
On this point we have not modified our view substantially. Our medium-term outlook
for demand and supply is thus only modestly revised upwards. Total car demand
could just exceed the 1.5m-unit mark by 2010, with most of the growth coming
in 2005-10.
Conditions in the Ukraine
remain very poor, while Uzbekistan appears to be heading for an exchange-rate
crisis that could have a powerful impact on the car market. In contrast, the
Baltic States are recovering strongly after the weakness of 1999 and look set
to post healthy year-on-year rises in car demand.
Segment outlook
The withdrawal of several
key A-segment models, such as the Tico and the Fiat 126, and the ageing of other
models, such as the Seicento and the Matiz, will result in a loss of market
share in favour of the B segment. The B segment will also poach buyers from
the C1 segment, not least because Skoda’s new model, the Fabia, now moves into
this segment. As the markets become more closely aligned with the West European
segment structure, carmakers looking to maximise sales will need to push strongly
with their B-segment and C-segment offerings. Rising incomes will help expand
the D and E segments. The D segment will capture most of the rise in upscale
demand, as the number of consumers able to consider E-segment cars will remain
small.
Exhibit
III
CEFTA segment shares and changes 2000 and 2005 (percentages)
 |
In the CEFTA bloc, Skoda,
Daewoo and Fiat take a large slice of the sales pie. The run-out deals on Felicia,
especially those in the Czech Republic, have boosted sales this year. The Fabia
is also beginning to climb through the ranks. The Matiz sells very well, as
does the Seicento (which will receive a 4-door version in 2002). The Polish-made
Astra is the biggest-selling “real” C-segment model, in front of the Polish-made
Lanos. All the top ten models are made within the region, although some models
(such as the Punto) are assembled. Among the true imports, French brands are
well viewed. The best-selling true import this year will be the Megane, with
27,700 units likely to be sold. The 206 will sell 22,000+ units while the Clio
will reach around 20,000 units. The best-selling D-segment car is the Passat,
with 13,000 units sold by the end of this year. The highest-placed Japanese
model is the Corolla, which should sell 11,300 cars in 2000.
Exhibit
IV
Top Ten
Cars in CEFTA in 2000(units, full year estimates)
 |
The troika of Fiat, Skoda
and Daewoo dominates sales in CEFTA. In 2000 these three brands represented
46% of all sales. By 2005 Skoda will have launched another three models, the
larger Passat-based model, a small SUV and a mini-MPV. This will propel the
brand to the top sales spot. Daewoo should hang on to third position, with a
new Tacuma and an improvement in demand in Romania. However, the continued reasonable
sales performance of the Lanos and the Matiz is central to this forecast. If
demand falls away more quickly then Daewoo could lose its place to Opel by 2005.
Exhibit
V
Brand
sales in 2000 and 2005 (units)
 |
In Russia, the better news
on the economy has led us to improve our market forecasts, but only marginally.
We believe the market is still progressing along the path outlined in previous
reports. In the short term, supply constraints limit the ability of domestic
producers to meet the demand that formerly was absorbed by used car imports,
and this leaves the market under-supplied. Meanwhile, the affordability gap
between domestically made and Western-engineered cars will limit demand for
Western models to small volumes until around 2003. Here, the slow progress in
banking reform will certainly play a role in hindering the expansion of Western
car demand. Notwithstanding an improved medium-term growth forecast, overall
incomes will not reach levels that allow a swift rise in car demand until 2007-10.
During the first half of
2000, 33,700 new vehicles were sold in the Ukraine, a decline of 16.1% compared
with the same period of last year. The fall in sales has been recorded
across nearly all makes, including domestics and imports. As the effects of
the strong economic growth registered by the Ukraine in the first half of 2000
begin to trickle down throughout the population, the shift back to used Western
imports over new Russian-made vehicles should accelerate. Because of this shift,
we project that new registrations will rise by 5.8% this year but that new car
sales will decline by 19.1% compared with last year.
|
Table
I: Car Sales Summary – Eastern Europe |
||||||||||
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2010
|
|
|
New
Cars |
||||||||||
| BULGARIA |
6,635
|
9,742
|
9,412
|
10,259
|
13,567
|
20,165
|
23,698
|
29,987
|
32,451
|
50,157
|
| %ch |
-2.6
|
46.8
|
-3.4
|
9
|
32.2
|
48.6
|
17.5
|
26.5
|
8.2
|
54.6
|
| CROATIA |
50,553
|
57,505
|
55,687
|
57,758
|
60,854
|
65,847
|
70,274
|
73,696
|
78,457
|
96,025
|
| %ch |
138.7
|
13.8
|
-3.2
|
3.7
|
5.4
|
8.2
|
6.7
|
4.9
|
6.5
|
22.4
|
| CZECH REPUBLIC |
171,533
|
140,957
|
146,051
|
158,015
|
185,112
|
207,127
|
224,731
|
229,642
|
242,453
|
276,243
|
| %ch |
10.7
|
-17.8
|
3.6
|
8.2
|
17.1
|
11.9
|
8.5
|
2.2
|
5.6
|
13.9
|
| HUNGARY |
79,773
|
103,541
|
129,343
|
143,853
|
150,619
|
161,732
|
157,233
|
169,308
|
178,544
|
202,048
|
| %ch |
7.3
|
29.8
|
24.9
|
11.2
|
4.7
|
7.4
|
-2.8
|
7.7
|
5.5
|
13.2
|
| MACEDONIA |
7,679
|
12,110
|
10,010
|
20,231
|
19,785
|
16,967
|
15,966
|
17,084
|
19,195
|
24,669
|
| %ch |
-28.3
|
57.7
|
-17.3
|
102.1
|
-2.2
|
-14.2
|
-5.9
|
7
|
12.4
|
28.5
|
| POLAND |
477,937
|
515,256
|
625,837
|
522,889
|
553,161
|
635,836
|
693,117
|
759,426
|
777,254
|
947,265
|
| %ch |
28
|
7.8
|
21.5
|
-16.4
|
5.8
|
14.9
|
9
|
9.6
|
2.3
|
21.9
|
| ROMANIA |
93,895
|
114,793
|
96,632
|
76,058
|
97,718
|
108,303
|
115,594
|
129,002
|
139,078
|
175,728
|
| %ch |
-3
|
22.3
|
-15.8
|
-21.3
|
28.5
|
10.8
|
6.7
|
11.6
|
7.8
|
26.4
|
| SLOVAKIA |
62,080
|
69,041
|
56,447
|
47,642
|
52,507
|
58,558
|
66,347
|
74,816
|
80,182
|
99,605
|
| %ch |
-16.3
|
11.2
|
-18.2
|
-15.6
|
10.2
|
11.5
|
13.3
|
12.8
|
7.2
|
24.2
|
| SLOVENIA |
61,525
|
69,329
|
78,142
|
71,687
|
78,532
|
80,571
|
81,190
|
83,066
|
84,272
|
90,672
|
| %ch |
2
|
12.7
|
12.7
|
-8.3
|
9.5
|
2.6
|
0.8
|
2.3
|
1.5
|
7.6
|
| TURKEY |
344,840
|
315,584
|
283,978
|
501,421
|
455,216
|
465,995
|
495,705
|
535,700
|
505,197
|
615,994
|
| %ch |
43.9
|
-8.5
|
-10
|
76.6
|
-9.2
|
2.4
|
6.4
|
8.1
|
-5.7
|
21.9
|
| Total New Cars |
1,356,450
|
1,407,858
|
1,491,539
|
1,609,813
|
1,667,071
|
1,821,101
|
1,943,855
|
2,101,727
|
2,137,083
|
2,578,406
|
| %ch |
21.9
|
3.8
|
5.9
|
7.9
|
3.6
|
9.2
|
6.7
|
8.1
|
1.7
|
20.7
|
|
Car
Sales Summary – Former Soviet Union |
||||||||||
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2010
|
|
|
New
Cars |
||||||||||
| BELARUS |
4,658
|
4,844
|
3,749
|
3,332
|
3,270
|
3,060
|
3,117
|
3,500
|
3,777
|
7,634
|
| %ch |
63.4
|
4
|
-22.6
|
-11.1
|
-1.9
|
-6.4
|
1.9
|
12.3
|
7.9
|
102.1
|
| ESTONIA |
11,108
|
10,445
|
8,906
|
10,818
|
13,648
|
15,884
|
18,996
|
23,127
|
27,887
|
53,669
|
| %ch |
72.1
|
-6
|
-14.7
|
21.5
|
26.2
|
16.4
|
19.6
|
21.7
|
20.6
|
92.5
|
| LATVIA |
4,491
|
6,147
|
6,760
|
7,156
|
9,265
|
10,956
|
13,116
|
15,457
|
18,525
|
39,568
|
| %ch |
120.7
|
36.9
|
10
|
5.9
|
29.5
|
18.3
|
19.7
|
17.8
|
19.8
|
113.6
|
| LITHUANIA |
7,709
|
6,594
|
4,832
|
6,647
|
8,245
|
8,836
|
9,801
|
10,877
|
12,639
|
33,246
|
| %ch |
43.9
|
-14.5
|
-26.7
|
37.6
|
24
|
7.2
|
10.9
|
11
|
16.2
|
163
|
| RUSSIA |
960,604
|
791,538
|
921,673
|
936,756
|
961,885
|
1,020,540
|
1,054,968
|
1,111,250
|
1,187,455
|
1,505,127
|
| %ch |
26.4
|
-17.6
|
16.4
|
1.6
|
2.7
|
6.1
|
3.4
|
5.3
|
6.9
|
26.8
|
| UKRAINE |
24,784
|
45,935
|
83,489
|
67,540
|
79,907
|
83,708
|
88,892
|
96,106
|
105,191
|
191,845
|
| %ch |
81.1
|
85.3
|
81.8
|
-19.1
|
18.3
|
4.8
|
6.2
|
8.1
|
9.5
|
82.4
|
| UZBEKISTAN |
39,485
|
37,632
|
40,657
|
16,218
|
19,150
|
29,043
|
34,515
|
39,275
|
41,948
|
57,946
|
| %ch |
149.2
|
-4.7
|
8
|
-60.1
|
18.1
|
51.7
|
18.8
|
13.8
|
6.8
|
38.1
|
| Total New Cars |
1,052,839
|
903,135
|
1,070,066
|
1,048,467
|
1,095,370
|
1,172,027
|
1,223,405
|
1,299,592
|
1,397,422
|
1,889,035
|
| %ch |
30.6
|
-14.2
|
18.5
|
-2
|
4.5
|
7
|
4.4
|
6.2
|
7.5
|
35.2
|
| Total New Cars(*) |
2,409,289
|
2,310,993
|
2,561,605
|
2,658,280
|
2,762,441
|
2,993,128
|
3,167,260
|
3,401,319
|
3,534,505
|
4,467,441
|
| %ch |
25.6
|
-4.1
|
10.8
|
3.8
|
3.9
|
8.4
|
5.8
|
7.4
|
3.9
|
26.4
|
|
(*):
Total for Eastern Europe and Former Soviet Union |
||||||||||
|
Table II |
|||||||
|
Factors
Affecting the Car Forecast in E. Europe |
|||||||
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |
| CENTRAL AND EASTERN EUROPE |
.. | (+) New Citroen Berlingo | (+) Fiat Palio, Seicento | (+) Daewoo Matiz | (+) Skoda Fabia, Opel Agila, Suzuki Wagon R, Clio Sedan |
(+) Fiat Scudino, improved Dacia |
(+) Ford Focus Van sold more widely, 4-door Seicento |
| BULGARIA (VAT: 22%) |
(+) return to growth after recession |
(-) weak domestic demand | (+) improving economy helps car demand |
(+) wider economic reform boosts consumption |
(+) economy continues growth |
||
| CROATIA (VAT: 22%) |
(+) Scrapping incentive (Juppe*) |
.. | (-) recession | (-) recession, (-) Trosarina excise tax on big cars |
(~) slow return to economic growth (+) reform of imports taxes |
(+) gradual rise in consumer spending |
(+) economic growth gathers pace |
| POLAND (VAT: 22%).... |
(-) Russian crisis (little effect on car industry) |
(+) import tariffs fall to 15% (++) buyers anticipate tax rises |
(-) excise tax rises (-) interest rates & petrol costs rise (-) cheap models phased out |
(+) economy remains robust (+) some new model activity |
(+) EU import tariffs at 0% (+) 4-dr Seicento (+) cons. spending begins to rise sharply |
||
| CZECH REPUBLIC (VAT: 22%) |
(+)
Scrapping incentive (Juppe*).. |
(-) recession | (-) recession | (+) return to economic growth (~) last days of Felicia |
(+) EU import tariffs now at 0% (+) Fabia push starts in earnest |
(+) improving economic picture (+) new large Skoda |
|
| HUNGARY (VAT: 25%) |
(++)
Real invest-ment boom |
(+) overheating economy | (++) high wage growth, low int. rates, wider credit |
(+) strong economy lifts sales (+) new Wagon R, Fabia |
(+) GDP growth firm | (+) GDP growth firm | |
| ROMANIA (VAT: 22%) |
(+) Law on investment (Tremonti) |
(+) Scrapping incentive for new orders (Prodi**) |
(–) recession hits Daewoo hard (+) Dacia benefits |
(-) recession hits car sales |
(+) econ. recovery starts but (—) ex. rate falls and (—) buyers wait for new Nova |
(+++) buying catches up with new Nova |
(+) import duties now at 0% (+) GDP growth firm |
| SLOVAKIA (VAT: 23%) |
..(++)
Prever scrap-ping incentive*** (++) low interest rates & unempl. |
(+) import surcharge repealed |
(-) recession (-) 7% import surcharge reintroduced |
(+) economy strengthens (+) Skoda Fabia helps H2 car demand |
(++) large growth in consumer spending |
(+) consumer spending growth peaks at 7+% (+) new large Skoda |
|
| SLOVENIA (VAT: 19%) |
..(++)
Industrial production growth strong |
(+) firm GDP growth | (++) buying before VAT introduced in July |
(–) VAT in place | (+) firm GDP growth | .. | |
| TURKEY (VAT: 17% base, 23% on cars) |
(++) Real investment boom |
(+) New Citroen Berlingo (++) Real investment boom |
(—) Russian crisis leads to collapse late in year |
(–) Russia (-) August quake disrupts economy |
(+++) plunging interest rates cause car boom (+) importers push hard (+) new Clio |
(+) firm GDP growth but (-) market overshot in 2000 (+) Fiat Scudino |
(+) Ford Focus Van sold more widely |
| RUSSIA (VAT: 20%) |
.. | (++) Brussels Motor Show |
(—) Russian crisis | (-) weak economy | (+) GDP up sharply but (-) demand is very weak (-) production at full capacity |
(+) western makers test market demand (VW, Ford, Renault) |
(+) recovery widens (+) Fiat starts output, improvements at VAZ & GAZ |
| UKRAINE (VAT: 18%) |
.. | (+) Ind. production growth strong |
(—) Russian crisis | (-) weak economy (–) Daewoo/ZAZ collapses |
(-) recovery weaker than Russia (-) Daewoo fails to recover |
(+) recovery gradually gathers pace |
.. |
| UZBEKISTAN (VAT: 20%) |
(++) Real investment boom |
(+) New Citroen Berlingo (++) Real investment boom |
(-) Russian crisis (modest impact) |
(-) GDP growth slows (-) Daewoo reduces investments |
(-) weak domestic demand hampers Uz-Daewoo output |
(–) devalued ex rate causes consumer demand to contract |
(+) GDP, spending recover |
| ESTONIA (VAT: 18%) |
.. | (++) Brussels Motor Show |
(–) Russian crisis | (-) increased excise taxes |
(++) economy recovers rapidly |
(++) GDP growth strong (+) renewal of old parc continues |
(+) strong GDP growth |
| LATVIA (VAT: 18%) |
.. | (+) Ind. production growth strong |
(-) Russian crisis (modest effect) |
(~) excise tax hits used imports harder than new |
(++) sharply improving economy |
(+) improving economy | (++) consumer spending peaks |
| LITHUANIA (VAT: 18%) |
.. | (++) Booming economy | (–) Russian crisis hits growth |
(-) deep economic contraction | (+) improving economy | (+) improving economy | . |
| Note (+) = positive effect,(~) = limited or ambiguous effect, (-) = negative effect. |
|||||||
|
Contact: Tim Armstrong Tel: + 33 1 40 e-mail: tim_armstrong@sandp.com |
