The Estonian automotive market is set for a slowdown in 2008 as consumers become more cautious about making high value purchases amid tougher lending conditions and the market reaches saturation point.

In 2007, automotive sales grew 26.0% y-o-y to 38,725 units, with passenger car sales up 25.8% and commercial vehicle sales up 27.0%. However, there were signs of a downturn in sales in Q407, with December seeing the first monthly year-on-year decline in sales in 2004. This coincided with a slowdown throughout the economy, with retail sales growth in decline. Car dealerships indicated that they expected the decline to continue into 2008, while others were more optimistic and predicted a soft landing in the car market. The consensus is that car sales growth is likely to be in the region of 10%. BMI is more pessimistic, forecasting sales growth of just 9.0% in 2008 with 34,782 cars sold. We expect the economic cycle to pick up in 2010, with a concurrent rise in car sales growth. By 2012, we expect car sales to reach just under 51,800 units, a still impressive 62.3% rise in sales over 2007 levels.

The commercial vehicles segment is also witnessing a slowdown due to a combination of the overall downturn in the economy and the problems affecting road freight transportation between Russia and Estonia. BMI anticipates that Estonia’s commercial vehicle market will rise by 40.8% between 2007 and 2012, which is well below the 56.8% growth expected for the Baltic region as a whole. Lower rates of growth are related to an anticipated slowdown in road freight movements caused by Russia’s decision to severely restrict Estonian truck movements. BMI believes that some road haulage firms are likely to go out of business, although some consolidation is likely.

Meanwhile, foreign investment in the parts sector should help the indigenous industry to continue to grow. We anticipate growth rates for this sector of between 10-15% per annum during the forecast period, in euro terms. Sales results from the Estonian seat belt manufacturer AS Norma in 2007 show that Russian sales remain buoyant. In H107, Norma’s sales amounted to EEK595mn (EUR38mn), an increase of 12% y-o-y, with sales to Russian customers rising 55% y-o-y. Estonia’s position as a low-cost automotive components manufacturer was further boosted in December 2007 when Stoneridge, a manufacturer of automotive electronics, announced plans to close its UK plant in Gloucestershire and move part of its electrical switches production to its Estonian subsidiary, Stoneridge Eesti.

Toyota remains the most popular brand on the Baltic passenger car market, with a 13% market share and 11,100 vehicles sold in 2007. The second most popular was Volkswagen with 8,990 registered new cars (10%), followed by Honda with 7,300 sales (8%). Toyota has the market lead in all three Baltic states, but the strength of other brands varies from market to market with Mazda particularly strong in Estonia, for instance.