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Hans Klemm, US Ambassador to Romania
"The Romanian economic environment has tremendous potential,"»
  Features:      COUNTRY FOCUS   |   SECTOR ANALYSIS   |

How many cars does it take to drive the economy forward?

One of the indicators that show us how a country’s economy is faring is undoubtedly consumption. Let’s take for instance the auto market

September 2011 - From the Print Edition

Unfortunately, in recent years, the local car sector has been in continuous decline, with the most optimistic voices predicting that the market will record the same numbers this year as last. However, despite the hopeful claims of top-ranking industry officials, this seems to be wishful thinking.
The alarm signal is the statistics released by the Directorate for Driving Licenses and Vehicle Registrations (DRPCIV), whose figures are the most reliable owing to their objectivity, albeit lagging behind the actual time of sale.
From January-July, only 40,259 new passenger cars were registered, over 14 percent down on the same period of last year. Taking the July statistics in isolation gives an even worse picture: they are 18 percent lower than in July 2010.
And let’s not forget that July 2010 was the first month when the Government hiked Valued Added Tax (VAT) to 24 percent. It all indicates that new passenger car registrations are still weak, taking into account that to July 2010 registrations were also partially added those passenger vehicles sold in June 2010 and registered the following month.
And as this year, despite the fact that Romania’s cash for clunkers program is still in progress, market players have not even bettered the figures for that month, we must ask what will happen in the coming months? Will this year’s new car sales and registrations reach last year’s level? How will they perform over the year?
If the market maintains its current pace, I would hazard a guess that the auto market will reach about 80,000 new car registrations this year. This would mean a decrease of approximately 15 percent from last year’s results and a leap back in time.
But eventually this year’s market dip will be less important than what happens in the coming years. The question is how dealership networks can survive at this sales level, since there is no hint that the situation is improving. More and more dealers have entered or will enter into bankruptcy, and we will see “the survival of the fittest”.
The cash for clunkers program, on which auto players are pinning their hopes, is not the panacea it seems. And in any case it is not a long-term measure to boost the car market. Unless the program is run non-stop, which would mean ongoing state aid to buy a new car, the scheme will tank the market when the subsidies are exhausted, as potential buyers of new cars will probably defer their purchase until the program resumes. It is true that we’re talking about those customers for whom a EUR 1,000 incentive matters, but this certainly means the majority of drivers who purchase a new car.
Meanwhile, the fee designed to boost the registrations of new passenger cars at the expense of second-hand ones has had only half its desired effect. It is true that registrations of used cars have fallen, but without the concomitant spike in the new car market.
However, these declines could be an advantage for the driver when he or she pulls into the dealership, as the pressure to make a sale at any price is mounting, making “the customer is king” more than just an empty marketing slogan.
It looks unlikely that we will see a market where a car can be purchased in installments over five years with 0 percent actual annual interest – but why not? Maybe dealers should consider these unprecedented alternatives. After all, once the car is sold, the company can boost revenues with after-sales services, which do not come cheap. On a market stalling as badly as Romania’s auto industry, it’s time for players to pull out all the stops.



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