Hungary Autos Report Q1 2008

A poor performance in terms of new car sales this year has in no way diminished Hungary's appeal as a destination for investment in automotive production. Industry majors such as Audi continue to rely on the country as a significant base for manufacturing, while Hungary's vehicle parts sector is set to flourish even further on the back of fresh investment.

According to estimates from the European Automobile Manufacturers Association, ACEA, during the period January-October 2007 new car registrations in Hungary totalled 145,139 units, a significant fall of 7.5% against the same period a year earlier. The result meant that Hungary was the only new member state of the European Union to report a downturn in sales for the 10-month period. Indeed, new car sales in the country have dwindled this year as a result of the government's fiscal policies, with direct and indirect tax rises affecting net wages and curbing consumer spending. BMI expects sales to fall in 2007 and 2008 before recovering in 2009 with an upturn in the economic cycle, with GDP growth forecast to recover from around 3% in 2007-08 to over 4% in 2009. Our 2007 sales estimate for passenger cars currently stands at 196,250 units.

With respect to manufacturing, Audi Hungria began producing its A3 Cabriolet vehicle at its facility in Gyr in H207 in line with plans announced earlier that year. Audi has invested some EUR5mn in order to house production of the A3 in Hungary, in line with its German headquarters' plans to build 1.5mn vehicles by 2015. Audi now makes the TT Coup, TT Roadster and A3 Cabriolet at the Gyr plant, which, according to industry sources, has a daily capacity of 300 units.

In terms of Hungary's car parts industry, two players, F Segura of Spain and Femat GmbH of Austria both unveiled investment plans for the sector in H207. F Segura has earmarked EUR20mn in order to build a manufacturing plant in Szolnok, central Hungary, while Femat is preparing to inject more capital into its Hungarian affiliate, Femat Hungria Kft. Both projects, in addition to Audi's participation in the market, reflect the increasing number of carmakers setting up manufacturing plants in Central and Eastern Europe, which in turn is fuelling growth in the vehicle component sector.