Czech Republic Autos Report Q3 2009

The combination of a domestic downturn and Europe-wide recession will weigh on the Czech autos sector in 2009. New vehicle sales declined by nearly 18.9% year-on-year (y-o-y) to 53,011 units in Q109, according to estimates from the Car Importers Association (CIA). However, the Czech Republic is expected to withstand the economic crisis better than most of its Central and Eastern European (CEE) neighbours. Doing so would help its industry to mount a strong recovery in 2011, according to BMI.

The economic troubles that have engulfed Europe are having a direct impact on Czech exports, which account for about 7% of GDP. In 2M09, exports tumbled by 23.1% compared with the period in 2008.

The trade surplus for the period was CZK12.2bn compared with CZK24.8bn in 2008.

Scrappage schemes announced by countries like Germany and Slovakia are providing some support to manufacturers like koda Auto. koda returned to full working weeks in March in order to meet rising demand from Germany. Hyundai also announced that it was restarting staff recruitment for its Nosovice plant as of March.

Experts believe that the slump in sales may prompt the government to introduce its own CZK25,000 (US$1,278) scrappage scheme. This comes on top of new business legislation that allows companies to buy new vehicles without having to pay VAT.

Incentives like this are expected to support domestic sales. BMI has revised its sales forecast from -0.5% to 2.7% year-on-year (y-o-y) growth by year-end. This is still less than 2007's increase of 12.2%, which was followed in 2008 by a 4.7% rise.

Government incentives will not be enough to shield the industry from the worldwide slump in demand.

Companies are still cautious about significantly ramping up production. In March, the Toyota-PSA Peugeot Citron (TPCA) joint venture (JV) facility postponed plans to expand its annual production to 340,000 units.

BMI stresses that there remains potential for growth, and we expect a strong recovery in 2011. Our longterm prediction stands at passenger sales of 282,000 units by end-2013. Output should exceed by 1.5mn units by the end of the forecast period, up by 20% compared with 2008 levels. Production will get a boost from the Hyundai plant, which is expected to be operating at its full capacity of 300,000 units by then.