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News on the ground and official figures corroborate BMIs outlook for a dip in total vehicle sales in Romania in 2011, driven down solely by continuing weakness in the passenger car market. A 5% yearon- year (y-o-y) decline in sales in the segment to 100,803 units was responsible for total sales dipping 3.0% y-o-y to 119,098 units. Indeed, weakened demand in the passenger car market offset healthy gains in sales in commercial, light commercial and heavy segments. However, the decline in passenger car sales is often overplayed and it should be noted that 2011s sales are a significant improvement on the 18.5% yo- y drop seen in 2010 and the very sharp 52.0% y-o-y plunge seen in 2009.

On the sales side, the Ministry of Environment extended its rabla, or cash for clunkers programme, to include electric and hybrid cars in November 2011, a move which is broadly being seen as an attempt to boost sales of these vehicles. BMI is sceptical about the success of the scheme in significantly bolstering demand for these vehicles, given that overall vehicle purchases by private households remain lacklustre. There is some scope for improved sales from businesses.

Estimates from the European Automotive Manufacturers Association (ACEA) show that demand for new cars in Romania declined by more than 10% y-o-y to 55,895 units during the first nine months of 2011, making it a significant underperformer in the broader EU market, where sales were up an impressive 32% during the same period. The decline, which follows three consecutive years of contraction in the new vehicles market, underlines consumers low confidence and their resistance to taking on new credit. More worrying is the fact that the markets performance remains in negative territory despite the re-introduction of the scrappage scheme in March 2011 and the increase of its budget to RON456mn in June. The government is hoping that the extension will support some 60,000 new vehicle purchases. Given the limited effect of the scrappage scheme in bolstering overall car demand, we see little likelihood of electric and hybrid cars becoming popular among private individuals.

We estimate that total sales will rise 6.8% y-o-y in 2012 and stay moderately high until the end of our forecast period in 2016, with an average annual growth rate of 7.7% y-o-y over the five-year period. This will result in total sales of 172,670 in 2016.

Overall vehicle production will grow by 4.5% to 318,154 units in 2011, led by growth in heavy truck output for the year, according to BMIs calculations. Heavy trucks, which represent the smallest segment by far, will see production increase for the first time in two years by 6.0% to 172 units. All other segments will show low to modest growth, with the all-important passenger car market recording 4.8% growth to 298,387 units for the year. We expect to see total output growth accelerate in subsequent years, reaching 8.0% in 2012 and peaking at 9.1% in 2013 as production is driven by sharper growth in passenger cars and heavy trucks. By the end of the forecast period in 2016, BMI sees total vehicle production in Romania reaching 463,070.