Czech Republic Autos Report Q4 2009

New vehicle sales in the Czech Republic fell nearly 12.5% year-on-year (y-o-y), down to 92,100 units, in H109, according to estimates from the country's Car Importers Association (CIA). The decline comes as a result of a 60% y-o-y fall in sales in the light commercial vehicle (LCV) segment, which accounted for close to 14% of total vehicle sales in June.

Passenger car sales contribute nearly 85% of the total new vehicles sold in the Republic. The government had already announced a cut in car VAT with effect from April 1 2009 in an attempt to boost sales on new purchases. The news could not have been better for consumers as the tax cut, along with sales incentives offered by car dealers meant that news cars were retailing at less than imported used cars. The result was a 7.9% y-o-y increase in new car sales, up to 79,228 units, in June. Meanwhile, sales of second-hand imports fell 41% y-o-y to 71,411 units. Demand for the latter was further hampered by the weakened koruna against the euro.

However, commercial vehicle sales were hampered by slowing economic activity in the country. This contracted 3.4% in Q109, according to estimates from the Czech Statistical Office, meaning the country had entered recession. Only 12,872 commercial vehicles, almost 7,700 fewer LCVs, were sold in June, which more than offset the increase in passenger car sales. The Czech economy is on track for a 3.1% contraction of real GDP in 2009, as the collapse of export demand and FDI inflows feeds through to a modest contraction of domestic demand. However, we reiterate that the economy continues to display resilience in the face of Europe-wide recession, principally thanks to the relatively stable financial system. This put the country is a strong position for economic recovery when global demand returns Meanwhile, in July 2009, President V??clav Klaus vetoed a planned scrappage scheme, after it was passed by the parliament. According to Klaus, as reported by Autocar, the scheme 'favours industry at the expense of other sectors of the economy and within that it gives preference to short-term interests of several strong players from the automotive industry.' Scrappage programmes have been implemented in many European countries and have helped to boost new car sales. However, critics the claim the scheme would have placed too great a drain on public resources on cities in the Czech Republic. If implemented, it would have allowed the public to trade in their own cars and receive EUR1,000 towards a new one. It is estimated the package would have cost CZK40.00bn (EUR1.41bn) including the cost of other measures such as cuts in companies' social tax payments to reduce the cost burden on firms of maintaining employment.