Hungary Autos Report Q3 2009

Hungary is facing its most trying economic challenge since its post-communist transition of the early 1990s. While growth is contracting across Europe, Hungary's recession is expected to be particularly deep. The autos sector is being hit on two fronts: on the one hand, consumers are tightening their wallets, which is pulling down domestic sales. And on the other hand, falling export demand is forcing manufacturers to scale back production and dismiss workers. This is the case presented by BMI in this report.

In Q109, new car sales in Hungary fell by 33.7% year-on-year (y-o-y) to 26,372 units, according to the Association des Constructeurs Europens d'Automobiles (ACEA). The chairman of the Hungarian Car Importers Association (MGE) has said that new vehicle sales could plunge by nearly 50% this year to 85,000-90,000 units. The group's earlier forecast had been for sales to fall to 120,000 units. This sharply decline reflects the swift deterioration in Hungary's economy.

The commercial vehicle segment is also feeling the effects of the slumping economy as businesses cut back on purchasing new company cars. In the quarter, total sales of light commercial vehicles (LCVs) fell by 30.1% y-o-y, according to the ACEA. The segment showed some resilience last year with sales remaining almost flat. But the slump in Q1 suggests that LCVs are now taking the same downward trajectory as passenger car sales.

Manufacturers have been slowing down operations in response to the slump in exports and domestic sales. Germany's Audi shut car production and scaled back engine production at its Gyor plant before and after the Easter holiday in April. The automaker made similar production cuts during the Christmas holiday in 2008 and then again in February, with further plans to close the plant for three weeks in August.

General Motors Powertrain (GM Powertrain), the Hungarian subsidiary of US group General Motors (GM), moved to a four-day week from mid-April at its engine and transmissions manufacturing plant in Szentgotthard, although later that month, the plant's CEO said that the cutback could be temporary.

Suppliers are also facing a sharp reduction in orders. Nevertheless, many suppliers still see Hungary as an attractive location for investment over the long term. German parts supplier Continental is looking to move one of its production units from Spain to Hungary. ContiTech Fluid Automotive Hungary, the supplier's fluid technology division in the country, will be reportedly investing nearly EUR5mn for the installation of vulcanising furnaces, the extruder lines and assembling machines at its plants in Mak and Vac.

BMI forecast a 6.4% y-o-y contraction in the country's GDP this year. Conditions are unlikely to improve dramatically, and our 2010 growth forecast stands at 0.1% y-o-y. On the whole, the passenger car market is set for slow recovery. By end-2013, sales are forecast to rise to 169,980 units, up by less than 5% from 2008 and well below the level reached in 2007.

Manufacturers are likely to keep cutting costs and slowing operations at their facilities through the year.

Once the global economy picks up again, especially in the eurozone, output should begin to rise. The scrappage plans announced by several European governments may also provide short-term support for exports. BMI forecasts total production to reach 1.5mn units in 2013, up from 692,182 units produced in 2008.