Romanian car market sees sales stall

Newsroom 01/10/2012 | 09:12

Carmakers and dealers everywhere are struggling to put a brake on their losses and steer towards new opportunities. On the Romanian car market the volume of sales has dropped significantly and there are no signs of recovery soon.

Anda Sebesi

The economic crisis has crashed into the international car market, making all players rethink both their local and international strategies. Romania is feeling the pain and the consequences are visible at all levels: in the sales volumes of new cars, profitability, layoffs and stagnant financial results.

Although many specialists do not expect 2012 to be much different from previous years, others believe that the local car market has potential for growth. The reason is that car ownership rates are at half the averages posted by Western European countries. “It is not normal for Romania to post sales of 80,000-90,000 units a year. Car ownership rates in Romania are about 250 units per 1,000 individuals compared with 500 in Western Europe. So the potential for growth on the Romanian car market is high for all auto brands,” said Thomas Dubruel, the commercial director of Automobile Dacia, recently, quoted by Mediafax.

But Brent Valmar, vice-president of the Automotive Manufacturers and Importers Association (APIA), struck a more pessimistic tone in his analysis of the evolution of the car market at the Mediafax Talks on the Auto Industry event earlier this year. In his opinion, car market will continue its negative trend this year and the profits of distribution networks will be close to zero while the average profitability for the whole industry was negative in the first five months of this year. The crisis has also led to a consolidation of the number of authorized distributors of different car dealers, as many of them have closed their operations.

According to the most recent market data, the number of registrations of new cars in Romania dropped by more than 42 percent in August on the same period of 2011 to slightly over 5,000 units. European Automobile Manufacturers’ Association (ACEA) data show that this indicator posted a decrease of 9.4 percent in the first eight months of 2012 to about 44,000 units. The same institution notes that the passenger car market in the European Union contracted by 7.1 percent over January-August from 8.9 million registrations to 8.26 million.

Elsewhere, APIA reports that production and assembly activity in Romania dropped by 7.2 percent in the first eight months of this year on the same period of last year to 202,474 units; imports decreased by 15.9 percent to 43,015 units; exports increased by 3.6 percent to 197,734 units while total sales on the local market dropped by 19 percent to 56,853 units (sales include passenger cars, commercial vehicles and buses).

At the end of June, Valmar of APIA told the Mediafax Talks about Auto Industry audience that in the first five months of 2012 only 31 percent of car buyers were individuals compared to 45 percent last year. On the corporate segment the main customers are still international corporations that have financial resources to replace older vehicles.

“The car market is heavily influenced by Romanians’ purchasing power and access to lending. During the boom from 2006-2008 both credits and leasing were generous and the conditions imposed on buyers were minimal. But since 2009 the lending market has frozen, for both car credit and leasing,” says Dragos Cabat, managing partner at efin.ro. He adds that the current lending conditions from commercial banks and IFNs are very restrictive about car credit. “As a result the segment of customers buying a car has shrunk dramatically and it will continue to be formed of a very small segment of drivers with very high incomes (who buy new luxury cars) and a decreasing group of individuals on average incomes who buy either new but cheaper cars or second hand ones,” adds Cabat. He warns that there is no economic basis for expecting the local car market to pick up in the immediate future.

“At present the local car market can be supported only by special strategies from manufacturers or dealers, such as payment by installments directly to them. Of course there is a higher risk of default for them and that’s why this system is not very popular. Another solution is to continue programs like Rabla (cash for clunkers) or other governmental incentives,” adds the managing partner.

But the second hand car market seems to be growing. According to data provided by the specialized site www.auto.ro, the number of second hand cars registered in Romania for the first time increased by 147 percent in the three months of summer to 46,217 units from 18,687 units posted in the same period of last year. Volkswagen is the leader of the second hand car market with 11,261 cars new registrations in Romania this summer, three times more than in the same period of 2011. It is followed by Opel (9,124 units), Ford (5,883), Audi (2,898) and BMW (2,562).

Manufacturers aim to move up a gear

Despite the unfavorable international and local contexts, representatives of Ford Romania say the company is signing contracts on a daily basis for the B-Max model manufactured in Craiova and estimate they will supply about 400-500 units on the local market by the end of the first quarter of 2013.

According to Zoltan Brassai, general manager of Ford Romania, quoted by Mediafax, the company will produce 60,000 units in 2012 with this number due to increase in 2013. Company representatives estimated at the beginning of this year that production would increase to over 100,000 units in 2013. In May Ford Romania started production of the 1 liter EcoBust engine in Craiova. Brassai said that Ford intended to produce between 800,000 and 1.3 million propellers at plants in Romania and Germany during 2012-2015. The American carmaker announced at the end of June that it would make a 1.5 liter engine in Craiova, with mass production starting at the beginning of next year.

Elsewhere, Mercedes-Benz recently launched its 35th authorized sales and service center in Romania in partnership with ATP Exodus. The new center in Oradea required an investment of EUR 2.5 million and includes a 2,200-sqm service center and a showroom. Last but not least, Goodyear Dunlop Tires Romania launched a new Premio center with its franchise partner, SC Total Service 2001 in Focsani. The company intends to accelerate its pace of rolling out the Premio franchise in Romania, launching an additional two storey-service center in Alba Iulia and Alexandria by the second half of October. The total initial investment in launching over 26 Premio centers in Romania exceeds EUR 10 million.

Meanwhile, Renault Group, the owner of Dacia, will invest over EUR 250 million in Romania this year. A robotized line of high tonnage presses, measures to double the capacity of the aluminum cast house and others to increase the gearshift production capacity by 30 percent are among the projects that will be carried out through this investment. And Renault and Nissan Motor, its Japanese partner, have also announced that they will invest EUR 1 billion at their plant in Tanger, Morocco, in order to extend significantly its production. “Africa is stabilizing. It is better to position ourselves now, in order to have new engines for growth as markets become mature,” Jean-Christophe Kugler, senior vice-president for the African region at Renault, told Bloomberg.

Renault’s strategy is to promote its “budget” brand Dacia in Africa, trying to compensate for the strong contraction of the European market. Meanwhile Asian companies that manufacture low-cost cars are aggressively attacking Europe while premium carmakers like BMW and Mercedes-Benz are introducing smaller models. According to the ACEA, the European car market has contracted for the fifth consecutive year and will fall to its lowest volume since 1995 in 2012.

International scene in slow lane

The international car market continues to struggle. The effects of the crisis on the Euro zone’s auto industry could generate over 500,000 layoffs as carmakers and car parts manufacturers seek to cut their costs and adapt their production capacity to the difficult economic conditions in an attempt to reduce their losses, says a Bloomberg analysis. Moreover, the car industry has cut about 800,000 jobs in the last five years. “It has become more obvious that production and the number of employees of some carmakers exceed the necessary capacity considering the drop in car sales in the Euro zone. The excess of production capacity is the main problem. The low level of sales is killing these companies,” says Ian Fletcher, analyst at IHS Automotive in London. At present about 30 percent of the car production capacity in Europe is unused.

The current crisis is affecting the European operations of foreign companies like Ford and Opel too. The European division of Ford posted a USD 404 million operational loss in the second quarter compared with a USD 176 million profit in the same period of last year. Elsewhere Opel, part of the American group General Motors (GM), announced in June that from 2016 it would close its Bochum plant in Germany. GM’s European operations have posted USD 16.4 billion of losses since 1999. Meanwhile BMW is continuing to create new jobs by opening a plant in Leipzig next year where 800 employees will work on the i3 electric car. The German group has created more than 5,000 jobs in the past 12 months.

anda.sebesi@business-review.ro 

Photo: Mihai Constantineanu

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