If 1996 was a banner year for the automotive industry in Slovakia, 1997 has seen the flag lowered on a number of sales dreams. New customs duties have jacked up retail prices crippling car importers and reducing their market share in Slovakia.
Emerging as the clear market winner is the 'home brand' Škoda which expects to best last year's sales of 22,000.
Any visions of the South Korean auto maker Daewoo outpacing Škoda vanished this year, as car import duties temporarily erased last year's are back in place. "Daewoo has now realized that it's impossible to be bigger and better than Škoda," admitted Martin Gärtner, Daewoo account representative at the advertising agency Image s.r.o..
Car industry statistics for the first seven months of 1997 reveal just how far Škoda has outpaced its market rivals. Daewoo last year sold 12,000 cars in Slovakia for a 14.2 percent market share, and was Škoda's closest competitor. This year it has managed only 3,780 sales until July 31, and has fallen to 10.9 percent (see chart this page). Škoda, on the other hand, has increased its market share from 29.5 percent in 1996 to 46.6 percent in the first half of 1997, and revised this year's projected sales figures from 27,000 to 30,000 cars.
Back to reality
For some in the auto industry, this year's numbers are just a return to business as usual. "The 1996 year was a big surprise for all car brands in Slovakia," said Gärtner. "Dealers wanted to sell new and existing models, and people finally had 'buying power'." In 1997, however, the purchase party is over, and both customers and dealers are sobering up to a glutted market.
What intoxicated last year's consumers was a decision by the Slovak government in September 1995 to suspend customs duties and import taxes on imported cars with engines smaller than 1500 cc. Total 1996 sales surged to 74, 705 vehicles, smashing the previous year's mark of 27,000.
Foreign car dealers were ecstatic as they stole Škoda's market thunder, but the domestic manufacturer was only biding its time. Dušan Koblišek, Director of Škoda outlet BOAT spol. s.r.o., said that people are now flocking back to his showrooms. "Last year was just quick selling (by foreign brands) with no backing," he said. "They were not super quality cars, and needed repairs, but when people had to wait three months for spare parts that were three times as expensive as Škoda, it created some bad feelings."
With 71 Slovak sales and service points to Daewoo's 31, Škoda is able to guarantee its customers quick and cheap support services . Labor in Škoda garages averages Sk 200/hr. compared to 450 at Daewoo. Last year's 'bad feelings' are being soothed by an industry-wide commitment to service, even from minor players like Toyota. "More and more we are finding that people are lazy to go too far, so now we have eleven dealerships," said Marcel Šulek, Toyota Slovakia's director.
Custom cops are back
While Škoda dealers say that product quality and reliable service has brought customers back, foreign manufacturers are crying foul. Recent Slovak customs legislation, they claim, has driven up their prices and made it impossible to compete. "It has always come down to price, definitely price," said Šulek. "Any discount you offer immediately attracts people." Šulek reported that Toyota sales have fallen sharply this year, but remained thankful that "some people still have money."
Toyota's and other car importers' point of contention is with a recent 7 percent import surcharge that adds to a 19 percent duty already in place for car importers. The extra tariff is supposed to replace a complicated system of import deposits that was in effect for much of 1997. What it has really done according to Šulek, is to scare away cost-conscious customers and create crippling uncertainty among importers. "The problem here are unclear, unstable regulations," he said.
Julius Šabo, general representative of Mercedes Benz in Slovakia, agreed. "Economic conditions are often changing," he said. Šabo called chaotic customs regulations their greatest problem. "People don't know if they will pay one million crowns or a million and a half, or if there will even be another tax," he said.
Cost conscience
In concrete terms, 1997 customs regulations have increased the price of Daewoo's lowest-priced model, the Tico, from 180,000 Sk ($ 5,294) in 1996 to about 210,000 Sk ($ 6,146) today, while Škoda's Felicia has remained at 240,000 Sk ($ 7,058). "Last year the difference was very big, 60,000 Sk, and people were influenced by it," said Koblišek, "But now the difference is only 30,000, and people say 'Tico is no car, but Škoda is a normal family car'."
Even the competition concedes that Škoda has recovered from its 1996 drubbing. "Škoda has become a normal reliable brand with VW support," said Gärtner. "Felicia is a universal car for the Slovak consumer, and that's why Škoda is and will be the market leader for the next couple of years."
