Local car market almost at standstill

Newsroom 03/11/2008 | 17:06

“As a result of the need to adapt the manufacturing program to market demand, the Dacia factory in Mioveni will stop its activity for four days.” This surprise announcement was made a few days ago by Dacia Group officials.
The reason: “The Romanian economy has not been spared from the effects of economic phenomena in European Union countries. Car production is adjusting to commercial demand on the market. EU demand has dropped as a result of the impact of the financial crisis. The demand for new vehicles in Romania has not increased in the past few months according to expectations because of the explosion of imports of used cars and the increase in the cost of loans,” Dacia officials told BR.
Dacia produces daily about 1,350 cars, so the interruption means production will be approximately 5,000 units fewer. According to media reports, demand for Dacia models on the Spanish market has fallen the most spectacularly – one reason which made top Dacia officials revise their production target for this year to 260,000 cars, 50,000 fewer than expected.
The global economic crisis is leaving its mark on the local car market. Francois Fourmont, Dacia GM, added that production would be stopped to reduce stock and he has not ruled out other production breaks. “The number of non-working days could increase in the future if the auto markets continue their decline,” said Fourmont. According to Dacia Group information, employees who do not work during the stoppage – October 30, 31 and November 13, 14 – will receive 85 percent of their salary.

Used cars imports impact
Demand for new vehicles has also decreased due to the large number of used cars imported from EU member countries. Almost 93,000 used cars were imported from July-September, according to the Romanian Auto Registry, said Dacia officials. “If used cars sales continue to grow at the same pace it will reduce the number of new cars sold on the local market,” Cristian Rigu, country manager of Mazda, told BR.
Market specialists foresee a 30 percent decrease in new car sales if the current situation continues and the car tax for second-hand cars imports is not increased from the beginning of 2009. “Next year, assuming the same tax level, the market will reach 200,000 units per year,” said Constantin Stroe, ACAROM president. Last year, new car sales reached 300,000, with this year's figure likely to be lower.
Carmakers complain that, “Flooding the country with used cars will have a negative effect on new car sales. We have to learn from Poland, Bulgaria and other countries' experiences. Romania risks being turned into Europe's trash can.”
The main market importers could consider importing second-hand cars, if customers still opt to buy used vehicles, says Brent Valmar, Porsche Romania GM. “We importers did not intend to import second-hand cars, but at some point, if the trend continues, we will do so,” said Valmar. According to him, used car imports would be one way to dismantle the free market for used cars, which has become increasingly strong.

What's going on in Europe
Romania's auto woes are shared, continent wide. European car sales decreased for the fifth consecutive month, as higher fuel prices and financial market turmoil reduced demand. Registrations dropped 8.2 percent to 1.3 million vehicles, according to the European Automobile Manufacturers Association. “The drop in registrations confirms the aggravating market circumstances, as the fallout of the financial crisis hits auto manufacturers hard,” association officials said.
Czech carmaker Skoda has already announced that it will limit production on some days and cut prices of some vehicles to offset the falling demand for its products.
General Motors (GM) and BMW also received a painful slap in the face as credit markets seized up, deterring drivers from purchasing cars. “The situation is much worse than the numbers suggest, as carmakers face higher steel and energy costs, pressure to lower carbon dioxide emissions and weaker prices for used cars coming off leases,” said media reports citing Christoph Stuermer, analyst with forecasting firm Global Insight.
GM sales in Europe fell 18 percent to 129,746 vehicles, with the Saab brand reporting a 32 percent plunge. GM was most affected because of the effects of housing-related market declines in Spain, the UK and Italy.
Registrations in Europe by BMW fell 15 percent to 74,367 vehicles and company officials decided to reduce production by 25,000 units, mainly because of slow demand in the US. Despite the market misery, the world's largest maker of luxury cars is in the process of introducing a new generation of the 7-Series luxury sedan and an updated version of the 3-Series. European deliveries by Renault SA, France's second-biggest carmaker, fell 2.1 percent while sales by Stuttgart, Germany-based Daimler AG, the world's second biggest maker of luxury cars, fell 6.3 percent, the association said.

But it's not all doom and gloom. Mazda sales in Romania, for example, are growing. In September the company sold 331 vehicles on the local market, up 147 percent on the same period of 2007, the best monthly result throughout Mazda's history in Romania. The firm's initial sales target for this year was 2,000 units, but now it expects to hit 2,500. The initial objective was reached in September.
The impact of the global financial situation has been lower in markets in Central and South-East Europe where Mazda is present, such as Romania, than in Western Europe. “In Romania, Mazda will achieve its growth objectives set for this year. Globally, Mazda's sales volumes increased from the previous year, but reported profits for the third quarter have declined. Meanwhile, the company has revised its financial estimates for the entire year. This decision is based on the fluctuation of exchange rates and price increases for raw materials,” said Cristian Rigu.
According to him, Mazda's current estimates for the Romanian new imported car market reach 261,000 units this year and the figure is estimated to reach 270,000 next year. Company official said that this year, Mazda has invested mainly in developing its network of dealers and after-sales services. Currently, Mazda dealers currently operate through 15 showrooms and the firm plans to have 18 showrooms by the end of the year. The dealer's total investment this year is estimated at EUR 7.5-8.5 million. “Next year, Mazda will continue to develop its sales network for better geographical coverage,” said Rigu.
On the European market, Volkswagen increased its sales by 1.4 percent to 263,435 cars and SUVs, boosted by a 19 percent jump in the Audi luxury brand and 5.2 percent growth. The new urban models launches by the German carmaker were a breath of fresh air for the manufacturer.

By Dana Ciuraru

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