Slovakia Autos Report Q4 2009

New car sales in Slovakia increased 18.4% year-on-year (y-o-y) to 41,300 units in H109, due largely to the government scrappage scheme introduced in March. The Economy Ministry has estimated that nearly 35,897 consumers benefited in the period, leaving 8,303 more vehicles eligible in H209. The government, which plans to spend EUR55mn on the project this year, hopes to support 44,200 new car sales. In Slovakia, new car sales average 4,000-5,000 units a month. In June, however, 10,355 units were sold as people rushed to take advantage of the EUR1,000 incentive on trading in vehicles that are a minimum of ten years old for a new car worth under EUR25,000. The incentive increases to EUR1,500 if sellers provide a EUR500 discount of their own. The Slovak Automotive Industry Association (ZAP) now expects 2009 sales to equal 2008 figures.

However, experts at the Institute of Economic and Social Studies (INESS) fear that the incentive has benefited the industry at the expense of other domestic industries as consumers have diverted savings to autos purchases. BMI sees a direct reflection of this in the country's commercial vehicle sales, which declined over 51% y-o-y to 6,523 units in 5M09, according to the Association des Constructeurs Européens d'Automobiles (ACEA). The report is cautious the scrappage scheme is unlikely to sustain sales, with a reversal of H109 growth to come in H2. This prompts us to forecast a 3.5% y-o-y increase in overall 2009 passenger car sales. With this segment accounting for nearly 61% of the country's total new vehicle sales, we expect annual sales of 107,079 units, up from 104,241 units last year.

Slovakia’s scrappage scheme should also have a positive impact on European trade. Currently 12 EU countries have implemented similar projects showing sizeable solidarity in the sector. This is vital as the car industry in Europe employs 2.2mn people and in-directly supports a further 12mn jobs. Annual turnover is estimated to stand at around EUR780bn, generating tax revenues of EUR149bn. Slovakia has received a positive assessment for joining its EU neighbours to support the car sector. Indeed, the scrappage scheme was one of the factors that helped to secure the EUR308mn investment by Volkswagen (VW) to produce its Up! Model in Bratislava.

Meanwhile, in June 2009 it was reported that South Korean carmaker Kia Motors is looking to construct an engine plant in Slovakia with an investment of close to EUR110.5mn. It is seeking tax breaks worth EUR15mn from the Slovak government for the project. The company is one of the three major players in the country, along with VW and PSA Peugeot Citroën, which together have an annual production capacity of 900,000 units. Kia Motors first revealed its plans in November of last year when it said that it was looking to set up a new facility close to its existing base in Zilina. The current plant has an annual production capacity of almost 300,000 units; the new facility could increase this by 150,000 – an annual increase of 50%.