Czech Republic Autos Report Q4 2008

The Czech Republics car market continued to strengthen in H108, but national carmaker Skoda is struggling with declining sales on the domestic market, according to BMIs latest Czech Republic Automotives Report. In the first half of 2008, Czech car sales rose 8.7% year-on-year (y-o-y) to 73,455 units. Although Skoda maintained its dominant position in the Czech Republic, its market share is declining with sales down 10.1% y-o-y in H108. While most of Skoda's production is export oriented, the company occupies 30.3% of the domestic passenger car market. In the domestic market, foreign competitors present a significant challenge to Skoda's continued pre-eminence.

In view of the strong performance of the automotive market in H1, BMI expects total vehicle sales to rise by 5.3% y-o-y in 2008 to 218,054 units. We are optimistic about the countrys overall economic outlook, which will ensure that car sales remain buoyant over the forecast period up to 2012. One potential risk factor is the possibility of higher interest rates, which could be introduced to meet the requisite inflation targets for entry into the eurozone. Higher lending rates would dampen demand and could lead to stagnation in the Czech car market. We expect sales to reach just under 258,400 units by 2012, a 25% increase over 2007 levels.

Automotive production is also set to witness strong growth, largely as a result of current investment plans. In H108, according to the countrys Automotive Industry Association (AIA), Czech automotive production was up 10.1% y-o-y to 533,901 units, of which 512,087 were exported. Car and light commercial vehicle (LCV) production totalled 528,354 units with Skoda contributing 67% and the Toyota Peugeot Citroen plant representing the remaining 33%. However, the industry is increasingly affected by exchange rate differentials between the Czech crown and the euro. Cost price rises could also limit carmakers ability to offset losses caused by appreciation.

The upturn was encouraging and bodes well for further gains in the future, particularly in light of the success of Skodas vehicles in Europe and the carmakers ambitions for growth. The Czech Republics automotive output in 2012 is likely to be more than double the level seen in 2005, due to the opening of the Hyundai plant in 2008, the expansion of the existing Skoda plant and a rapid increase in production at the TPCA plant as it reaches full capacity. BMI forecasts automotive production reaching 1.1mn units in 2008 as a whole, a 17.5% y-o-y increase. Growth in output is being stimulated by exports. In H108, exports of passenger cars and light commercial vehicles rose by 15.6% y-o-y to 507,854 units, prompting BMI to raise its forecast for 2008 to just over 986,500 units.

The Czech Republic scored 55.8 points (out of a theoretical maximum of 100) in the BMI automotive business environment rating this quarter, down 0.1 points over the previous quarter. The modest drop in score has not affected its rank in third place, 4.4 points behind Poland and 2.4 points ahead of Romania.

The Czech Republics automotive industry continues to report positive gains, with vehicle production continuing to hit record levels and new car registrations in the country on the increase, underlining the sectors overall health. The country enjoys a supportive regulatory framework, relative economic and political stability and a free market economy.