Romania Autos Report Q2 2008

Romania became the European Union's (EU) eighth-largest car market in 2007, with 315,621 passenger cars sold, up 23.1% year-on-year (y-o-y), putting it ahead of Poland. The double-digit automotive sales growth is set to continue into 2008, albeit at a more moderate 10.9%, while automotive production will ramp up by over a third as Renault expands Dacia's production capacity, according to BMI's latest Romania Automotives Report.

As a result of the success of the Dacia Logan, the automotive sector is increasingly export-oriented, making it less dependent on the domestic market. Dacia is diversifying its export base, ensuring the growth will be sustained in the long term, with three new Logan models due to be launched in 2008 and 2009 and production capacity increasing to 400,000 units per annum through a EUR100mn investment programme. Ford production at the Craiova car plant, which it acquired in September 2007 (subject to an inquiry by the European Commission), is now set to begin in 2009, rather than by the end of 2008 as originally planned. Ford has pledged to build 300,000 units per annum in Craiova, with 60% local content by late 2011.

Looking ahead over the remainder of our forecast period up to 2012, 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 heavy commercial vehicle segment, which is forecast to rise 156% to 38,939 units, and the bus sector, which will rise 146% to 7,975 units due to a rapid growth in passenger transportation and tourism. Romania's position as a crossroads for international trade and transport within Central and Eastern Europe (CEE) should help maintain growth in the country's commercial vehicle market over the forecast period.

Romania scored 50.5 (out of a theoretical maximum of 100) in the BMI automotive business environment rating, putting it in fifth place, 1.5 points behind Slovakia and 1.5 points ahead of Estonia and Hungary.

This market's stronger areas include an improved regulatory environment following EU accession in 2007 and the size of its automotive sector. Areas of particular weakness are the competitive landscape and a relatively high level of economic risk. Romania's car ownership rates are very low although the size of the population means it has a larger market than most other EU accession states. Low labour costs and an integrated automotive industry have made Romania a prime investment destination for autos majors.

Renault and its subsidiary Dacia dominate the Romanian car market. Daewoo also has a strong market presence due to having an assembly plant in Romania. However, the share of local carmakers has declined, from 37.6% in 2006 to 30.1% in 2007, while parent company Renault moved from third to second place with 9.3% of sales (up from 8.3%). Dacia's position is slipping as competition on the Romanian market intensifies, following EU accession, which should help raise Romania's score.