Romania Autos Report Q1 2008

Romania is set to become a major manufacturing hub for the automotive industry in Central and Eastern Europe (CEE) following Ford's acquisition of the recently nationalised Daewoo car plant in Craiova in September 2007. However, the European Commission may challenge the take-over, threatening to overturn the transaction if it finds that the government's write-off of the plant's debts constitute state aid.

If it gets the Commission approval, the deal would end years of uncertainty surrounding the plant following the collapse of South Korea's Daewoo, which owned a 51% stake. Ford is pledging EUR675mn in investment to revive the plant, aiming for annual production of 300,000 vehicles and 300,000 engine units. The acquisition of the Craiova plant would have far-reaching implications for Romania's automotive industry. Low labour costs, high skills and EU accession have all counted in Romania's favour. Ford's plans would raise Romania's annual production capacity to 650,000 units by the end of the decade. BMI believes that if the Commission's judgement does not go Ford's way, it is unlikely the autos major will reverse its decision to acquire the plant. Craiova represents a golden opportunity for Ford to expand its operations and the level of debt, EUR7mn, equivalent to little more than 10% of the planned investment outlay, is not insurmountable if it was forced to take it on.

Dacia is also planning to raise its game. On September 26, the 500,000th Logan rolled off the assembly line at Dacia. The Dacia family, which includes three models - the Logan, Logan MCV and Logan Van - expanded in Q307 with the addition of a pick-up model, which will be marketed in Romania from 2008 and sold in other markets from 2009. In October 2007, Renault announced that Dacia would begin manufacturing the Sandero saloon model from 2008. The new model is said to be 'more sophisticated' than the Logan, and therefore will be priced above the Logan but below the Mgane. The Sandero will also be launched in Brazil and Argentina under the Renault badge by the end of 2008.

Automotive output was up 7.1% in the January-August period with 147,530 vehicles built. Car production was up 9.3% to 141,680 units, while commercial vehicle production fell 27.3% to 5,840 units and bus production doubled to 10 units. Meanwhile, automotive sales rose 25.7% y-o-y to 236,808 units in the first eight months of 2007, including 204,866 passenger cars (up by 24.9%), 30,198 commercial vehicles (up 29.4%) and 1,744 buses (up 51.1%). Sales of trucks with a GVW of over 18t surged by 140% y-o-y, while the 6-18t segment saw growth of 71%. Growth was more modest in the sales of commercial vehicles with GVW of under 3.5t (up 14%) and 3.5-6t (up 2%). BMI believes that total car production should approach capacity by 2012.

Looking ahead over the remainder of our forecast period, GDP growth should moderate below 5%, as the pace of catch-up with the rest of the EU wanes. Consequently, automotive sales growth will continue throughout the forecast period, albeit at lower levels than seen in 2007, in line with the trend within the wider economy. By 2012 sales should be around 55% more than 2007 levels with car sales up 52.4% and commercial vehicle sales up 69.2%. The key driver of growth will be the HCV segment, which is forecast to rise 156% to 39,653 units, and the bus sector, which will rise 146% to 9,287 units due to a rapid growth in passenger transportation and tourism.