Price cuts fail to put brake on car sales slump

By Dana Ciuraru
Local carmakers never dreamed that sales would fall so hard as a result of the economic crisis. Sales have been sliding since the beginning of the year, with little sign of improvement.
“In the first four months of this year, Porsche Romania's new car sales have followed the general market trend. We have registered 50 percent lower sales compared to the same period of last year,” Brent Valmar, Porsche Romania GM, told Business Review. The firm imports the Porsche, Audi, Seat, Skoda and Volkswagen car brands.
Nor has Mercedes-Benz Romania, importer of Mercedes-Benz, Smart, Maybach, Chrysler, Jeep and Dodge, enjoyed good results. According to company information, car deliveries have dropped by 60 percent in the first five months of this year, compared to the same period in 2008. The most significant fall, 72 percent, was recorded by Mercedes-Benz commercial vehicles while Jeep posted a sales decrease of 58 percent over the same period.
It's the same story at BMW's local importer. “In the first months of this year new car sales have registered a drop in line with the market performance,” Michael Schmidt, Automobile Bavaria Group president, told BR.
But the same fate has not befallen the second hand segment. Schmidt said that the BMW used cars segment had registered a “very good performance” since the beginning of 2009.
Even the long awaited car replacement program hasn't boosted sales greatly on the Romanian market, compared with Germany, for instance. “Mazda participated in the first stage of the program, through its dealers in the country, but the sales generated during this program weren't significant for our company,” Dragos Grapinoiu, marketing manager of Mazda, told BR.
The Porsche Romania GM echoed the fact that the car replacement program hadn't enjoyed the same success as last year.

Car prices driven to rock bottom
“Car prices will never be as cheap as in recent months. The discounts offered this year were due to the dramatic decline in sales, the current market conditions and the wrong car stock, which was calculated at last year's sale volumes,” said Valmar.
He added that different carmakers and importers have responded differently, depending on their strength and brand image, the financial muscle of their distribution network and their capacity to compete on the long run, even if sales head south in the short term.
Not everyone agrees that lowering prices is a wise strategy. “Most car firms have made irrational price reductions in the attempt to shift stock,” said Valmar.
One company which has cut prices is Mazda. “Mazda launched a campaign with special prices for the cars in stock, with reductions varying between EUR 2,500 and EUR 3,000, depending on the model,” said Grapinoiu.
But not everyone has followed suit. The Automobile Bavaria president said, “BMW prices have been kept at the same level, because the value of a premium model isn't determined by market conditions, but by the technologies used to make the car.” However, the used cars sold by his company are going for less, because of the current economic climate.

Expansion stalls
With sales so poor and companies all keeping a beady eye on expenses, expansion plans are grinding to a halt. Porsche Romania told Business Review that certain ongoing projects would be delayed.
“Those investments which are now in the project phase involving Porsche Romania or our dealer network will be delayed by one, even one and a half years. The investment in the new Bentley showroom will be also put back by six months,” said Valmar.
This year, Mazda has increased its network by one unit, placed in Arad, bringing the total number of Mazda partners across Romania to 13, with 16 selling points.
Meanwhile, Automobile Bavaria Group has inaugurated a new showroom, but has also focused on motorcycles sales.
“In May, our company opened a new showroom at one of our dealers in Sibiu, which required a EUR 3 million investment. Also in Sibiu, the first showroom dedicated exclusively to BMW motorcycles will be inaugurated by the end of the year,” said Schmidt.
Mercedes-Benz Romania officials told BR that since the beginning of the year seven “working points” – smaller than the usual showrooms – which can provide sales and after-sales services, have been opened, and they estimate that another five or six units will be opened by the end of the year.

Market goes into reverse
“The car market will be very subdued compared to last year,” predicted Valmar.
He added: “We estimate a 50 percent decrease. Some factors to improve the situation in this field would be extending the car replacement program to leasing, restarting bank lending and eliminating tax barriers whose implementation has caused many negative effects.”
According to Mazda estimates, the imported car market will reach 115,000 units sold this year.
The Automobile Bavaria Group president subscribes to the general consensus on this year's market. “The main problems are access to finance and its restrictive conditions, and the unwillingness of those who have money and want a car to invest.”
The car market has certainly gone into reverse this year, from a prosperous one to a poorer one. Experts say further industry consolidation is likely, not via the acquisition of smaller dealers by larger ones, but through dealers waiting for the collapse of their competitors to pick up their assets and brands at bargain basement prices.