Romania Autos Report Q4 2009

The decline in new car sales in Romania appears to be slowing, but only ever so slightly. In H109, new car sales plunged 51.3% over the year-ago period to 70,610 units, according to the Automotive Producers and Importers Association (APIA). The slump in sales is largely due to the weakness of the Romanian economy, which contracted 8.8% in Q209. The shrinking gross domestic product can be attributed to consumer spending, which has fallen sharply amid rising unemployment, slowing wage growth and tight credit conditions.

Spending in recent years has been spurred by a boom in lending, but the global credit crisis has shut off the tap to cheap financing. The leasing market contracted by as much as 80% year-on-year (y-o-y) in H109, according to figures from the association of leasers ASLR. By comparison, the leasing market had posted rates of growth of as much as 60% in recent years. Figures from Porsche Leasing Romania, which leads the car leasing market in the country, provides further evidence of the drying up of financing.

Porsche Leasing Romania approved loans worth EUR40.5mn in Q109, a staggering 43% decline from the same period last year. It still remains to be seen whether a scrappage scheme will help stem the slide in car sales in Romania.

Romania's clunker plan, known as the 'Rabla,' or 'Junk Car,' was implemented in March 2009. In the first two months of the programme, only 60% of the 20,000 new cars sold during the period benefited from the scheme, according to local media. However, BMI believes the additional stages of the programme may provide more of a stimulus for car sales. The second stage of the programme, which came into effect in July, widens the methods of payment and gives consumers the option to buy a new car with financial leasing contracts. Light utility vehicles are also eligible for the scheme, which previously was open only to passenger vehicles.

Domestic car sales are forecast to remain stagnant through 2010, but by 2013, BMI forecasts car sales to reach 535,634 units, reflecting a 61% surge over 2008 levels. The market's long-term potential is evident by the new players it is attracting. In July, Chinese manufacturer Chery Automobile signed a partnership agreement with Romanian car rental company Sixt New Kopel. Under the deal, Sixt New Kopel will distribute the Chery brand in Romania. Chinese Chery already has a presence in seven European markets, and its partnership with Sixt New Kopel will likely give the automaker an opportunity to test out demand for its brand in Romania.

Renault's Romanian arm Automobile Dacia appears to be bouncing back from the tough situation it found itself in early in the year. The manufacturer, which accounts for nearly all national automotive production in Romania, had to cut output and idle production earlier this year as global demand evaporated. Dacia's sales in Romania remain under pressure, but European demand for its compact Logan model is helping to spur its exports. Dacia now expects to boost production by 23% y-o-y to nearly 300,000 units by the end of 2009.

While it remains to be seen what will happen to demand for exports once Europe begins unwinding its scrappage schemes, we are fairly upbeat on the outlook and expect Romania's automotive output to increase 5.6% this year. Going forward, we see the pace of vehicle production picking up rapidly. Output should exceed 765,000 units by 2013 as both car plants in the country approach their full potential, serving as a low-cost production base for the rest of Europe.