Slovenian vehicle production stood at 221,207 units in 2011, according to figures released by the European Automobile Manufacturers Association (ACEA). Virtually all of Slovenias vehicle output comes from the Revoz car plant (100% owned by French carmaker Renault). This marked a 2.0% increase year-on-year (y-o-y), according to ACEA. Breaking down the headline figure, Slovenia produced a total of 210,005 passenger cars (up 1.8% y-o-y) and 11,203 commercial vehicles, an increase of 4.9% yo- y.

Output in 2011 was affected by the Japanese earthquake and tsunami of March, which led to a shortage of electronic car parts from Japan. This led to Revoz announcing in May 2011 that it would be scaling down production, with the company night shift scrapped on 23 May and over 500 staff (390 temporary and 130 employees on fixed-term contracts) losing their jobs as a consequence. Although half of the night shift was resumed on 29 August, with 300 workers getting back their jobs, it is clear that the blow to output caused by the Japanese tsunami will likely be significant.

We believe that there is scope for Slovenian auto production to advance more rapidly in the years ahead. From 2013, Revoz will start production of Daimler Benzs Smart car, as part of Renault- Nissan/Daimlers joint Edison project. Revoz will also build the new Twingo model, which is due to go on sale in 2013. Consequently, although we remain cautious on the near-term outlook for production (only currently forecasting a 2.55% increase in output for 2012), we believe there is scope for stronger growth over 2013-16, leading to a total of over 250,000 vehicles produced by the end of our newly extended forecast period. Further information on Revoz is available in the Company Profiles section at the end of this report.

In similar fashion to production levels, Slovenian new car sales have also fallen slightly over 2011. As of end-November 2011, a total of 55,137 CBUs had been sold, representing a decline of 1% y-o-y. Worryingly, however, Novembers sales figure of 4,212 units represented a 9% decline y-o-y. This follows an October when sales figures were down by 3.6% y-o-y and could indicate the start of a renewed declining trend in sales as we enter 2012.

Certainly, we believe that risks are currently weighted to the downside. Q311 GDP growth showed a surprise 0.5% contraction, with some commentators believing the country is now headed back into recession. For now, our macroeconomic team is currently forecasting just 0.5% real GDP growth for 2012.

The political situation in the country is also currently uncertain, following inconclusive general elections held in December 2011 which resulted in no one party gaining an overall majority. This would indicate that the centre-left Popular Slovenia party, which won 28.5% of the vote, will now have to enter coalition negotiations with other smaller parties. Given the significant policy differences between the parties, it remains to be seen if a stable government can be formed to help the country get to grips with its growing deficit problems.

Given this unprepossessing economic and political backdrop, coupled with the fact that the countrys banking system remains under strain, which will likely limit banks willingness to lend money to Slovenians seeking to buy a new car, we predict that new vehicle sales will increase by 5.6% y-o-y in 2012.

Renault remains the dominant player on the Slovenian new car sales market, with its Clio model the bestselling car (356 units) in November 2011. The Megane was number 3 in the sales charts (120 units), with Volkswagens (VW) Polo splitting the two Renault cars in second place (158 units). In terms of year to date sales, Renault has sold 8,848 CBUs over the first 11 months of 2011, for a market share of 16%. In second place is VW, on 7,570 CBUs (13.7%), followed by Opel (4,698 – 8.5%), Citroen (3,926 – 7.1%) and Peugeot (3,904 – 7.1%). Both Citroen and Peugeot do particularly well in the LCV segment.