EU’s Struggling Economies Yet to See Recovery in Car Sales, Prices

Passenger-car prices in Eastern Europe have tumbled along with vehicle sales as a result of the global recession significantly faster than in Western Europe, impeding attempts to create a unified automotive market that spans the continent.

A key benefit of the European Union for the auto industry was supposed to be the tariff-free sale of vehicles between its 27-member states. By removing the bureaucratic barriers preventing such purchases, the EU has tried to create one unified auto market for its combined population of 500 million people.

But surveys by the European Commission show this progress to be uneven, and the global recession has made things worse. Price differentials for the same model continue. In 2009, former communist countries in Eastern Europe that joined the EU in the last decade saw car prices plummet as consumer purchasing power fell.

The most recent EC data shows this was particularly marked in Slovenia, with prices down 13.4% compared with prior-year; Lithuania 11.1%, Slovakia 11%, Romania 10.1%, Czech Republic 9.4%, Bulgaria 9.1% and the southern European island state of Malta 9.2%.

These sharp falls have prompted auto makers and dealers serving these countries to consider whether this is a medium-term problem or just a recessionary blip.

In the Baltic States of Estonia, Latvia and Lithuania, analysts and dealers tell Ward’s these Central European markets finally have exhausted inventories and dealers are ready for new units.

In 2009, Latvia new-car sales plummeted 80%, according to EC data. But Renault SA dealers today are reporting progress with consumer incentives and lower prices to entice buyers.

Toyota Motor Corp. and Volkswagen AG lead passenger-car sales in the region, but their retail prices have not returned to their pre-crisis mark. Sweden’s Volvo Car Corp. has yet to see improved sales, and officials say they cannot predict when gains will come.

Baltic States market-leader Toyota car prices still depressed.

However, analysts insist the region’s economy is on the road to recovery and the auto industry soon will follow. “Though registrations (still) are falling, the market is expected to recover rather quickly after the current economic crisis is over,” says Lithuania-based AV Automotive Research.

The company says 74,500 cars and light vans were registered in the three Baltic States during 2008, the onslaught of the global recession, falling 23.4% from 2007’s 97,300. “In the long term, there is an estimated potential of some 120,000-150,000 units per year.”

In Bulgaria, importers and dealers are trying to adapt to a new lower-price market they suspect will be with them for some time.

Car-importer Avto Union AD Marketing Director Krassen Hadjiev says tactics include shifting from money-based to product-based discounts such as free upgrades, insurance and maintenance, plus longer warranty periods; ordering only best-selling vehicles; and introducing basic models, with a lower price but a higher profit margin.

Avto Union coordinates and helps manage Bulgarian importers for seven brands that include Fiat, Lancia, Alfa Romeo, Maserati, Mazda, Opel and Chevrolet. The company reported sales of 1,111 vehicles in the year’s first six months, capturing 13% of the market, up from year-ago’s 10.5%, when it delivered 1,005.

“I believe it would be difficult to come back to normal retail-price levels, as the customers (have) adapted to the high discounts and are still very unwilling to pay list price unless they are offered a bonus,” Hadjiev says.

“Brand loyalty has been shifted away by discount hunting, creating sometimes abysmal sales figures within a promotion period,” he adds. “We do expect by year-end the drop in sales to start leveling with last year’s figures, but this is still very uncertain.”

Bulgarian Deputy Prime Minister and Minister of Finance Simeon Djankov says there already are signs of economic recovery in his country following the recession that saw it contract 5.1% in 2009.

New Skoda Yeti output launched in May at Kvasiny plant in eastern Bohemia.

“The crisis is an opportunity not only for us but for the whole region, because it launches the real reforms,” he is quoted as saying. “From now on, the recovery will continue smoothly.”

Further west, the Czech Republic market appears to have stabilized, with new-car prices holding and new registrations growing.

Czech light-vehicle production grew 18% in the year’s first half, compared with year-ago, the Czech Association of Car Makers says.

Ward’s data shows 89,026 new cars were sold though June, marking a 12.3% gain on like-2009. Some 64,000 imported used cars also were registered, for a 10.5% drop from year-ago, according to the Czech auto makers’ group.

Despite the end of the government scrappage scheme in the key German market, Czech flagship auto maker Skoda Auto a.s so far is leaving retail prices at 2009 levels. “We didn’t feel the need to change our price policy,” says Jaroslav Cerny, a Skoda spokesman.

However, retail prices of imported European cars in the Czech market have continued to fall. According to Czech magazine AutoRevue.cz, prices of some brands, such as the Suzuki SX4 1.5L, have declined 37% this year compared with 2009. Other models, such as the Lada Priora, Chevrolet Lacetti and SEAT Ibiza have seen their price tags fall 20%.

Volkswagen AG is among the few auto makers to hold the line, following 2009 reductions. “The price war continues on the Czech market and is very aggressive,” says Jan Klíma, of the Import Volkswagen Group.

Combined, VW, Audi, SEAT and Skoda sales total 38,954 cars in the year’s first six months, for a 43.8% market share, Ward’s data shows.

– with Monika Hanley in Latvia, Zlatko Conkas in Serbia and Cristina Muntean in Prague