Après une année 2003 très dynamique, les marchés automobiles d’Europe centrale et orientale ont stagné en 2004, indique le numéro spécial « Automobile » de la Revue Elargissement.
Sales fell sharply in three of the Central European countries. Strategic investments in the sector continued, confirming the emergence of a new pan European automobile pole, particularly well integrated into the east of Germany. Is this an upheaval, or simply a widening of the sector’s economic geography, as happened with Spain in the middle of the Eighties? In quantitative terms, 1.5 million private motor vehicles are currently being produced in the CEEC, against 3 million in Spain and 3.6 million in France. By 20l0, the projects mentioned below should bring the output of this region up to 3/3.5 million units, in relation to a demand for about 2.4 million vehicles. Provided that, in the longer term – perhaps between 2015 and 2020 – supply and demand in the CEEC balance out at around 4 million units, the development of this industry will clearly be a positive sum game for Europe. For manufacturers, but even more so for component suppliers, this will depend on their ability to fit into the new European pattern of demand ranges and production costs.
1- In 2005, production should continue to increase
On the demand side, in 2004 the whole region experienced quasi stability in new vehicle registrations (1 million units), compared with a 2% rise in the former EU15 (14.1 million). Last year was marked by two phenomena. Firstly, Romania became the 3rd largest market in the region, ahead of the Czech Republic. Taking into account the still very low rate of car ownership in this country (144 vehicles per 1000 inhabitants) and the current economic growth dynamic, local experts still expect high sales growth in the years to come. Secondly, accession to the Union and certain tax changes which accompanied it have had a serious impact on new car registrations; in Poland in particular, the effect of the abolition of import duties on used cars was a source of great uncertainty. In fine, the number of used vehicles imported in 2004 (against an average of 200,000 between 2000 and 2003) is estimated at 1 million and sales of new cars fell by more than 10%. In 2005, the professionals expect a return to growth in Poland, a fall in Hungary (about -5%) and big rises in the Baltic States, Bulgaria and Romania.
Production rose by 12% on average in the six vehicle producing countries of the region, an average drawn upwards by Poland and Romania. The Polish rise can be explained by an expansion in FIAT’s industrial activity at Bielsko-Biala, where the new Panda is built, and also by the transfer of production of the Opel Astra to Gliwice, the Astra II being produced in Germany. In Romania, Renault-Dacia launched its Logan model in 2004, which is meeting with great success. 175,000 of these cars may be produced this year. Furthermore, 2005 promises to be a vintage year, as the first vehicles will be leaving the PSA-Toyota factory in Kolin. In Slovenia, nearly 170,000 cars should be produced by Renault/Revoz. Suzuki (Hungary) might also increase its activity in 2005.
2- The emergence of an automobile pole as a result of FDI
Approximately, € 20 bn has been invested in this sector in the CEEC, and this has ensured the revival of the old communist car industry. It weighed an average of more than 15% of the total industrial production at the end of 2003. In 1998, the sector’s productivity was already approaching or (in Hungary) even exceeding that of the EU15, even if it is important to note that the models which are manufactured are not the same as those produced in western Europe. The microeconomic census of FDIs confirms the extent of the foreign presence: at the end of 2004, FDIs are estimated at € 6.5 bn in the Czech Republic, nearly € 6 bn in Poland, more than € 2.5 bn in Slovakia and Hungary, and € 1.7 bn in Romania.
The strategies of the sector’s actors determine the specialisations of the countries within this automobile pole, which is very integrated into Germany; in 2003, it weighed 45% of the Czech Republic-Hungary-Slovakia-Poland group’s total trade in this sector.
The Czech Republic and Slovakia together account for about half the regional production of cars and probably almost 2/3 in the long term. Specialisation in cars in the low and medium price range is also being confirmed. In terms of manufacturers, the Volkswagen group, which has invested more than € 5 bn in the region and has purchased both Skoda (Czech Republic) and BAV (Slovakia), is without a doubt the largest investor, and is also present in Hungary and Poland. FIAT, mainly established in Poland, remains in second place (around € 2 bn). There follow Renault (Dacia and Revoz), which will soon be joined by PSA, (Czech Republic and Slovakia) and Toyota (Czech Republic and Poland). Then comes Daewoo (Poland and Romania), in spite of its current difficulties, Opel (Poland), Suzuki (Hungary, Poland) and Hyundaï (Slovakia). Other Asian manufacturers are also said to be studying investment opportunities.
The equipment suppliers’ dual strategy of accompanying the manufacturers which have set up in the CEEC and profiting from the competitiveness of the region has led to a great density of suppliers: firstly in the Czech Republic, where more than half of the leading 100 world equipment suppliers are located and, more generally, in an “oval” which passes through Wroclaw, Katowice and Cracow (Poland), Martin-Zilina (Slovakia) and includes western Hungary. This oval is clearly widening more and more towards Romania, where the flow of incoming FDIs in the sector has been accelerating for 2 years. Starting from a qualified assembly relationship (importation of components and re-export of cars), more and more of the region’s countries are climbing the production chain by entering the component and spare parts sector.
In 2003, the Czech Republic, Hungary and Poland showed a trade surplus in automotive equipment (more than USD 7 bn), whereas in 1995 they were all in deficit. Hungary and Poland show large surpluses in engines: by 2006, these two countries should be producing 3.5 million engines. Slovakia is the only country which has shown a surplus in car seats. Conversely, in the “parts and accessories” subsector (clutches, wheels, shock absorbers…), all the countries of the region (except Slovakia) were in surplus, details for this category of products being nevertheless heterogeneous. Lastly, only the Czech Republic was a net exporter of electrical equipment.
The competitiveness of the region is mainly underpinned by four factors:
- A qualified labour force at a relatively low cost;
- Proximity to the main centres of European demand and a strong regional demand expected in the longer term;
- The States’ support to investors, in particular for training and the attainment of vocational qualifications;
- Lastly, more and more external economies of scale, with the presence of competitive industries upstream (plastics, metals, electronics), which are fully interconnected, are reinforcing gains in productivity. This will facilitate the absorption of the wage catching-up process, particularly in the context of an ageing population and a demography declining even more than in Western Europe.
3- The demand anticipated in 2010, a key factor in the CEEC’s attractiveness
Cost competitiveness would undoubtedly matter little without the anticipated double catching up process in the demand for cars in the region: on the one hand, the car ownership rate is low, currently scarcely half the former EU 15 average and, on the other hand, as the existing car stock is old – 12-13 years compared with less than 8 years in the Union of 15 members – there is a significant replacement demand. Most experts thus estimate the regional demand for new vehicles at 2.4 million units per year in 2010, that is, more than 15% of the projected demand of the EU15 against 6% currently. In the much longer term, and according to these countries’ share of the total European population, the CEEC’s potential might be estimated at 4 million new vehicle registrations per year. These prospects justify the commercial aggressiveness of the manufacturers, the region being a strategic issue in the medium term, where market shares are still volatile. But catching-up is a slow process and may prove cyclical:
- thus, Spain’s car ownership rate rose from 71 vehicles per 1000 inhabitants in 1970 (39% of EU15 average) to 459 in 2002 (EU15=491), but its car stock is ageing, 35% still being more than 10 years old;
- the fall in demand of almost 50% in Poland between 1999 and 2001, which followed a +71% rise between 96 and 99, reveals this product’s sensitivity to economic cycles.
In terms of nature, demand remains concentrated on lower end products: the A and B segments currently weigh 50% of the sales in Slovenia, the richest country with GDP/head, in parity with purchasing power, amounting to 72% of the former EU15 average. Segment A includes models like the FIAT Seicento, the Daewoo Matiz and the VW Lupo. In segment B, one finds the Renault Clio and Thalia, the PSA 206, the FIAT Punto, the Skoda Fabia and the VW Polo; segment C includes the VW Golf, the Renault Mégane, the Skoda Felicia, the Opel Astra, and the PSA 307 and Xsara.
According to the expected GDP/head in 2010, the Czech Republic and Estonia could thus have a new car sales structure close to that of Slovenia currently or even Spain. The Poland/Hungary/Slovakia group should tend towards rebalancing to the benefit of the medium price product range, and the other countries should still exhibit over expansion of the A and B segments.
In order to seize this medium term potential, the car manufacturers began with strategic purchases of local companies, in general investing in those companies with which they had technical cooperation agreements, as in the case of VW, Renault and FIAT. On these narrow markets, large greenfield investments were not very rational, whereas, at the beginning, the purchase of local brands made it possible to rely on critical market shares. At group level, these local brands explain the market share differences existing between the former EU15 and the CEEC.
Thus, the bulk of VW’s market shares is due to Skoda (VW), which accounts for 40% of its sales in the Czech Rep. and 31% in Slovakia ; Dacia (Renault) weighs 45% in the Romanian sales. Where no national producer exists, this “chauvinism” is transferred to the first established foreign manufacturer, as in the case of Suzuki in Hungary, which produces lower end cars considered as “Made in Hungary” by the locals. After having invested massively in their distribution networks, the “outsiders” can from now on rely on a critical mass of sales to establish themselves on an industrial level, as PSA or Toyota are currently doing, the latter having clearly decided to target Central Europe as one of the production bases for its pan European development strategy.
In the longer run, one may thus anticipate a reduction in the local brands’ market shares, as happened with Seat, which currently accounts for around 12% of all new car sales in Spain. It remains difficult to estimate a level and a speed of convergence, but if the “national” market shares contract as a result of the “Europeanisation” of consumer behaviour, a manufacturer like Skoda, for example, will have to find niche markets for its models within the enlarged European pattern of vehicle prices and ranges.
4- France’s catching up in Central and Eastern Europe
In terms of trade, the graph opposite illustrates the positive sum game which has been played for more than 10 years.
In 2004, exports from France in the automobile sector were more dynamic than those of goods and services put together (+8.6% against +6.1%).
On the import side, the CEEC’s sales in France stagnated somewhat during the 90’s, illustrating the poor competitiveness of the cars and equipment manufactured in the region at that time. But more recently, product renewal and the development of the component sector have stimulated these sales.
The trade surplus of € 1.5 bn in 2004 remains however the best illustration of the positive sum game currently being played between the CEEC and France. If the whole region is considered (10 CEEC + Albania, Croatia, Macedonia, and the former Yugoslavia), in 10 years it has become the leading destination for French automobile exports outside the former EU 15, with a 22% share of the total value exported (vehicles and components).
As regards manufacturers, the French automobile groups currently rank 2nd and 3rd in Central and Eastern Europe, in spite of the punishing geographical distance. But strategies differ from one group to another:
The Renault-Nissan group is improving its global European market share with the CEEC (18.6% against 13.7% in the former EU15), a position stimulated by its three manufacturing bases in this regional basin: in Slovenia (production of the Clio), in Turkey (Thalia and Mégane) and, more recently, in Romania under the Dacia brand*. Renault sets itself apart from its competitors through the location of its factories, but also by its product strategy, with one vehicle, the Logan, which conforms to western European standards but is primarily directed towards the low income markets. Production of this vehicle was launched in 2004, at a “first price” roughly at the level announced a few years earlier (€ 5,000 plus tax), an achievement considered a true industrial success which the group will seek to replicate in Iran, Russia, and also in Colombia, Morocco and India. The success of the project is due in particular to the large proportion of locally produced components used in the manufacture of this vehicle.
Conversely, the market shares of the PSA group remain below the level of the Union with 15 members, in spite of a very strong increase between 1998 (6.2%) and 2004 (10.2%). With the advent of enlargement, taking into account the new structure of the Union’s demand, the geography of PSA’s facilities showed an over large concentration on the western side of Europe. PSA therefore chose to set up at the heart of the regional automobile pole, investing with Toyota at Kolin in the Czech Republic and at Trnava in Slovakia. These factories will directly benefit from the existing externalities on the supplier side as well as from the dynamic demand. The manufacturers will thus be able to tackle these markets, including Germany, “with the same production conditions” as one of its biggest European competitors, Volkswagen.
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