Serbia Autos Report Q2 2008

Despite double-digit growth in the Serbian car market, the government is struggling to find buyers for the country's automotive assembly and parts plants, according to BMI's latest Serbia Automotives Report.

In 2007, 56,110 cars were sold, up 18.5% year-on-year (y-o-y), according to sales figures published by General Motors (GM). Growth in vehicle sales was supported by a surge in private consumption. High credit growth and rising nominal wages are the main factors responsible for the high levels of consumer spending. Lending has risen as a result of large cuts in the benchmark interest rate. In addition to lower interest rates and rising wages, the appreciation of the dinar has helped drive down the price of imported vehicles, which BMI estimates made up over 80% of new car sales in 2007. GM brands represented 13.3% of car sales in 2007 with 7,485 units sold, the largest market share for any foreign carmaker, with Opel outselling Zastava in November. GM's success on the Serbian market was related to a contract signed with Zastava for the production of the Astra Classic 2 model, due to start in Q308. As part of the deal, the government has allowed 8,300 models of the vehicle to be imported tax-free in 2007. GM's performance on the Serbian market indicates that the chief constraint on demand growth in the car market is trade protection. The macroeconomic situation is therefore favourable to a sustained rise in automotive sales, with BMI forecasting sales reaching just under 113,000 units by 2012.

With domestic production expected to increase at a faster rate, we expect imports in 2012 to be around 80% higher than in 2007, in terms of units. We forecast that exports will rise to 7,500 units by 2012, due to the start of production of the Fiat Punto. A moderation in exchange-rate appreciation will coincide with the launch of Punto production at Zastava's car plant, ensuring that the model will retain a competitive edge on foreign markets. However, exports of the Punto will not be significant enough to narrow Serbia's automotive trade deficit, which is set to widen from an estimated US$636mn in 2005, to US$1.32bn in 2012.

In an effort to generate investment in the Serbian automotive industry, the government is attempting to privatise companies involved in parts and components supplies as well as the assembly of cars, trucks and buses. However, previous attempts at privatisation have failed, with Serbian exports squeezed as a result of Serbia's increasing isolation from the single markets in the European Union (EU) and the Commonwealth of Independent States (CIS). In December 2007, the government invited potential bidders in the sale of its car manufacturer Zastava Automobili, with the results of the privatisation due to be announced in April or May. Bus manufacturers Ikarbus and Fabrika Autobusa Priboj (FAP) are also up for sale in 2008.

Serbia scored 40.3 (out of a theoretical maximum of 100) in the BMI automotive business environment rating, putting it in 12th place, 1.2 points above neighbouring Balkan states Bulgaria and Croatia. This market's strength is the structure of the economy, but in all other areas it lags well behind its rivals. While vehicle-production output will rise over the coming years, the country will remain a minor car-producing nation, lagging behind those states that have either entered the EU or are about to accede. An overlyregulated and protected market also pulls down Serbia's rating.