Spain Autos Report Q3 2009

The Spanish market has shown no signs of stabilising despite a EUR4.1bn (US$5.3bn) stimulus package announced by the government in February. As BMI examines in this report, the market continues to be one of the worst hit in developed Western Europe, with passenger car sales falling by 43.7% year-on-year (y-o-y), down to 265,210 units, in 4M09, according to estimates from the Asociaci??n (Nacional) de Fabricantes de Autom??viles y Camiones (Anfac).

The existing VIVE (Veh?-culo Innovador - Veh?-culo Ecol??gico, or 'Innovative Vehicle - Ecological Vehicle') scheme and EUR1.2bn in state credit have failed to deliver results due to sinking consumer confidence and slowing economic activity . However, in view of the success of the scrappage schemes in markets such as Germany and France, Spain's prime minister, Jose Luis Rodriguez Zapatero, announced a EUR100mn scrappage scheme for the domestic market on May 14. It hopes to subsidise close to 200,000 purchases and will remain in place until May 18 2010 or until the funds are depleted.

BMI maintains its forecast of a nearly 18-20% y-o-y drop in sales to close to 1.09mn units this year.

However, we believe that the full effect of loan incentives introduced in February will not be felt until May-June. In the longer term, BMI believes that a complete recovery may not be possible until late 2011, when we expect sales to reach 1.19mn units, which is still lower than the 1.36mn sold in 2008.

Meanwhile, estimates from Anfac indicate that domestic production has been closely following trends in export demand, given that most of the country's production is export-oriented. Production fell by more than 40% y-o-y, down to 452,664 units, in Q109 as 35.6% fewer vehicles, down to 402,637 units, were exported in the period. Spain has been struggling to maintain facilities in the region as carmakers are increasingly eyeing low-cost manufacturing in Eastern Europe. Renault is seeking tax breaks and lowinterest loans from the national and regional governments in order to keep its facility in Valladolid, near Madrid, competitive. With the ongoing recession, the situation is likely to worsen; BMI has revised down its 2009 production forecast to 2.01mn units, down by 20% compared with 2008 numbers.

Amid these conditions, Spain has secured a confirmation for production of Volkswagen (VW)'s new medium-sized 4x4 Audi Q3 at the SEAT plant in Martorell, Barcelona. This is likely to begin in 2011 with around 80,000 Q3s manufactured per year. BMI believes that although the announcement is good news for the country, production is unlikely to reach pre-crisis levels, totalling only 2.15mn units by end- 2013, down from 2.54mn units in 2008.

The recession has also brought significant changes to the competitive landscape, with major market players swapping positions with rivals. Ford Motor lost its top spot to Citro?<