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Car sales signal economy on rebound

In what analysts have said is yet another sign of Slovakia's improving economy, passenger car sales are on a strong rebound as restrictive economic measures introduced by Mikuláš Dzurinda's government over the past two years come to an end.
In the first two months of this year, car purchases surged 29% over the corresponding period a year ago, following a cumulative decline of over 20% in the 1998-2000 period when restrictive import surcharges and taxes on car imports from most EU countries were in place.
The strong demand for new cars is a strong sign, experts say, that economic recovery is gaining speed in Slovakia. "While the [car sales'] numbers are not as strongly indicative of economic development as they are in the US, for instance, they are used as a preliminary indicator in forecasts here," said Ľudovít Ódor, macroeconomic analyst at Československá obchodná banka (ČSOB).


Sales of personal cars, like this Škoda above, are on the rise again.
photo: TASR

In what analysts have said is yet another sign of Slovakia's improving economy, passenger car sales are on a strong rebound as restrictive economic measures introduced by Mikuláš Dzurinda's government over the past two years come to an end.

In the first two months of this year, car purchases surged 29% over the corresponding period a year ago, following a cumulative decline of over 20% in the 1998-2000 period when restrictive import surcharges and taxes on car imports from most EU countries were in place.

The strong demand for new cars is a strong sign, experts say, that economic recovery is gaining speed in Slovakia. "While the [car sales'] numbers are not as strongly indicative of economic development as they are in the US, for instance, they are used as a preliminary indicator in forecasts here," said Ľudovít Ódor, macroeconomic analyst at Československá obchodná banka (ČSOB).

The government's fiscal programmes and growing demand in the economy is also driving the industry's recovery. Ľudovít Ujhelyi, vice president of the Slovak Auto-Industry Association (ZAP), says that "this year's growth in car sales should come mainly from demand from businesses, encouraged by lower corporate tax rates and higher foreign direct investment inflows".

Vehicle purchases account for about a fifth of total retail sales in Slovakia, which have been rising at a double-digit rate since December last year, the first double-digit rise since mid-1998. The burgeoning retail sales have run concurrently with what companies themselves say is their own improving corporate health.

Slovak firms in industry, construction and retail have assessed their current economic situation as the best in two years, according to January and February 2001 surveys carried out by the Statistical Office.

Increased competition on insurance and leasing markets has also made car purchases more attractive, according to Ujhelyi, who is expecting as much as a 10% increase in car sales for this year.

Smaller car dealers are even more upbeat about their prospects. Branislav Cehlárik of Renault Slovensko says the French auto firm's cars, currently the third most popular brand in Slovakia, should see sales grow 75% on 2000.

Overall, total vehicle sales dropped 18% in 1999 and another 3% in 2000, with demand for passenger vehicles taking the biggest battering. The market was hit hard by the introduction of a 7% import surcharge in July 1998, and was not helped by dramatic hikes in oil prices throughout 1999 and 2000.

But while gasoline prices have come down only moderately since last year, two other changes apart from general economic consolidation have underpinned the industry's apparent recovery: the import surcharge was abolished as of January 1 this year, while another car-specific surcharge of 3.42% on imports from many European countries was also removed.

For some firms, though, the shrinking car market has strengthened their position. Market leader Škoda has seen its market share almost double since 1996 to a 57% share last year, making the brand even more dominant in Slovakia than in its home market in the Czech Republic.

Pricier EU-based producers have been unable to compete with Škoda in price-conscious Slovakia, meaning that Škoda is likely to retain its position at the head of the market, says ZAP's Ľubomír Drahoš.

"Škoda has a historically determined position [having been the home producer in the former Czechoslovakia], while it offers attractive prices for its cars. No other importers can afford to fight its massive ad campaigns," says Drahoš.

But auto industry experts warn that this year's rebound in car sales does not presage a sudden rush of ordinary Slovaks onto the roads. On average, says Drahoš, there are 4.3 Slovaks per vehicle as opposed to three Czechs and two western Europeans.

It costs a Slovak on an average wage (12,000 Slovak crowns - $240) almost 28 monthly salaries for a Škoda Fabia car, a smaller hatchback. In comparison, a Czech needs 18 months' wages, with the number dropping to less than five for an Austrian or German with an average wage.

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