Automotive industry hits the comeback road
After a dismal period where it fell six consecutive times, Romania's automotive sector started two years ago to pull the steering wheel in the right direction and it plans to keep the headlights on this year also. Alexandra Cioboata (Lopotaru) talks to major automotive companies to look into stimulating factors, bottlenecks and trends of the industry that seem to want to turn increasingly more green
Romania′s automotive industry was hit hard in past years, with the market for new cars dropping by about 80 per cent after 2008, from around 300,000 units in 2007 to less than 60,000 cars in 2013. Influenced by the economic instability and watching their disposable income and investment capital decrease, Romanians postponed buying or replacing of vehicles for as long as they could. After a previous good period of growth, when the drivers had gradually grown accustomed to quality and even luxury vehicles and to a healthy replacement cycle, experts say the crisis in 2008-2009 wiped out their confidence and this was reflected immediately in their investment behaviour.
As of 2014, however, the downturn of the automotive industry has finally stopped and the market has started to grow once again. Starting from such a very low point, the growth was not very significant, although it was double digit, rising by 21.6 per cent compared to the previous year, to around 70,200 cars. The most encouraging aspect for the automotive players was that the growth continued in 2015 to more than 81,000 units - an almost 16 per cent increase - and 2016 seems not willing to stay behind. Thus, in the first two months, the new car segment rose by 21 per cent and the second-hand sector grew by 14 per cent, according to the Directorate for Driving Licence and Vehicle Registration (DRPCIV).
According to the same source, last year new car registrations had positive outcomes for all brands of cars that have a local importer, the only exceptions being Lancia and Opel. The top five most popular brands in Romania′s auto market in 2015 were Dacia (26,840 units, up by 20 per cent), Skoda (7,514 units, up by 8.8 per cent), Volkswagen (7,184 units, up by ten per cent), Ford (5,749 units, up by 0.5 per cent) and Renault (4,900 units, up by 19.7 per cent), while the top five auto brands that grew the most were Smart (89 units, up by 790 per cent), Kia (1,701 units, up by 162 per cent), Citroen (670 units, up by 75 per cent), Lamborghini (five units, up by 66 per cent) and Honda (755 units, up by 51 per cent), according to DRPCIV, quoted by Wall-Street. In addition, the DRPCIV data shows that premium brands are gaining ground, registering increasingly higher sales, as Mercedes-Benz sold more than 2,700 units, more than 18 per cent growth, while BMW sold almost 2,000 vehicles, up by 20 per cent.
The main factors that have managed to resurrect and turn the automotive industry on an upwards trend after a six-year decrease include sustainable economic growth, the ′Rabla′ fleet renewal programme, the greater diversity of models, especially in terms of compact SUVs, and also the change of perception where gradually people and especially companies realized they need to replace their cars, say experts. Another interesting trend noticed lately in Romania is the orientation of the market towards greener cars, with less and less CO2 emission, the introduction of policies to encourage the purchase of electric and hybrid vehicles by the Government being of great impact.
According to the Automotive Manufacturers and Importers Association (APIA), cars with "zero emissions" are increasingly more popular on the Romanian market, where electric and hybrid car sales rose by 89.7 per cent in the first two months of this year, to 74 units compared to 39 cars sold in the same period last year. Moreover, some automotive dealers are one step ahead and start to invest in proper infrastructure for such vehicles to sustain the "green evolution", while others prefer just to keep their eyes open.
Nevertheless, there are still a lot of bottlenecks which hinder the proper development of the market, according to experts, the most-cited aspects including the environmental stamp that hampers the acquisition of new vehicles, the turmoil from the insurance market, infrastructure and lack of long-term governmental strategy.
The Diplomat - Bucharest talked about all these key points with important automotive players, stressing their perspective on the Romanian automotive industry this year, business strategies and ways to pin the market on the road to recovery for good.
2015 was the second year of growth for Porsche Inter Auto
2015 was the second year of growth for Porsche Inter Auto Romania, the retail division of Porsche Holding and one of the largest dealers in Romania, seeing growth across all its brands, from Skoda and SEAT to Volkswagen and Audi, according to Peter Copetti, the managing director of the company. Moreover, the luxury segment also had a very good performance last year, with record sales on Porsche, Bentley and Lamborghini, he says. As Porsche Inter Auto is part of a listed group of companies, it cannot disclose country-specific financial performances, but according to the managing director the company had a good 2015 and expects to be on the positive trend this year as well.
"As of 2014, the downturn of the automotive industry has stopped and the market has started to grow once again," Copetti tells The Diplomat - Bucharest. "Starting from such a very low point, of course, the growth was not very significant, although it was double digit. The most encouraging thing was that the growth continued in 2015, and gradually people and companies realize they need to replace their cars. (...) As we have a very diverse portfolio, we managed as best as we could and we continued our investments despite the setbacks. Our premium and luxury centre in Pipera has been very successful, as these segments were less affected by the crisis. Over the past two years, as the consumer confidence has increased, the growth expanded to the other price segments - to the volume brands and the second hand offers. 2015 was the second year of growth for us. Despite the nice percentages, it is still moderate growth, and therefore we remain cautiously optimistic. We hope the positive trend will continue in 2016."
Speaking about the latest legal changes and their impacts on the automotive industry, Copetti confesses that, apart from the economic downturn, the company was influenced by the VAT deductibility, as many of its customers are companies. Porsche Inter Auto service shops were also impacted by the permission to equip vehicles with parts from third party suppliers.
"We usually tend to recommend original parts, as they enable us to guarantee our customers the well-functioning and the long life of their vehicles, but of course, when costs are an issue, it is fair to look for alternatives," he says. "We have also felt the impact of the events in the insurance market. We want to make things easy for our customers and to be able to spare them of all the time needed to recover their money from the insurance companies, but this also requires that the insurance companies be financially sound and able to pay on time."
Copetti goes on to add that Romania has traditionally had a very good potential to grow and that the potential is still there, although it was put on hold for several years. If disposable income continues to grow, if the Government is able to generate predictable legislation and if investments in infrastructure continue, he believes the company will be able to sustain the growth for the years to come. In addition, Porsche Inter Auto has prepared special offerings on both sales and service and has developed a variety of financial solutions to enable the customers to get the cars they want.
"We stay in close touch with our clients and we try to react to their changing behaviours and expectations," he says. "We are developing new offerings every year and we are investing in digital communication, in order to communicate more effectively with them during the entire life cycle of their cars," he concludes. The retail business of Porsche Romania was founded in 1998 and was transformed in 2007 into Porsche Inter Auto. The company, dealers for Volkswagen, Audi, Skoda, SEAT, Porsche, Bentley and Lamborghini, has five auto centres, Porsche Pipera being one of the largest auto centres in South-eastern Europe, opened in 2013 after an investment of 15 million Euro.
Autoklass Group to focus increasingly on vehicles with low CO2 emissions
Autoklass, member of the Romstal group and one of the largest authorized sales and service centres for Mercedes-Benz, Smart and Honda, recorded in the first two months of 2016 a positive evolution in terms of sales of new cars, Mercedes-Benz increasing by 17 per cent, Smart by 81 per cent and Honda by 47 per cent compared to the first two months of 2015. The positive outlook of the beginning of the year is a continuation of last year′s performance, where Autoklass recorded increases for all three segments in terms of number of units sold compared to 2014: Mercedes-Benz (new) up by 25 per cent, Mercedes-Benz (second-hand) up by 24 per cent, Smart up by 100 per cent and Honda up by 117 per cent. In addition, the company sold 23 hybrid or electric units in 2015, the focus of the dealer towards the selling of vehicles with low CO2 emissions becoming more pronounced.
"The Romanian auto market will continue to grow in 2016 by at least ten per cent and I think that it will be redirected to the vehicles with low emissions," Daniel Grecu, general manager of Autoklass Group, tells The Diplomat - Bucharest. "The sale of electric and hybrid cars is a lasting process, but our company is ready to promote them. We own the first private infrastructure of charging stations for electric or hybrid vehicles, which are installed in each Autoklass branch [an investment of 25,000 Euro]. Starting with February this year, we provide to our customers the Mercedes-Benz GLE 500e 4 Matic plug-in hybrid with CO2 emissions of 78-84 g/km, and starting with February 2017, the new ′Smart electric′ model will be available in Romania also."
According to APIA (Automotive Manufacturers and Importers Association), cars with "zero emissions" are increasingly more popular on the Romanian market, where electric and hybrid car sales rose by 89.7 per cent in the first two months of this year, to 74 units compared to 39 cars sold in the same period last year. According to Grecu, the introduction of policies to encourage the purchase of electric and hybrid vehicles by the Government and the reduced taxation for hybrid and electric cars have positively influenced this market segment. Nevertheless, the entire new car market is still below its real potential and, in order for it to grow, the Government needs to take some measures.
"One does not pay tax for electric cars," says the general manager. "In addition, the Romanian state has increased last year the bonus awarded to the acquisition of green vehicles from 12,000 RON to 20,000 RON, the equivalent of more than 4,400 Euro, but this reduction applies only to 100 per cent electric cars through the ′Rabla′ programme. Moreover, those who buy hybrid cars will receive an eco-voucher of 5,000 RON, which is around 1,100 Euro. However, in order to encourage people to buy new cars, the Government should continue the fleet renewal programme and eliminate or substantially reduce the environmental stamp. In addition, authorities should limit the possibility of cars registered in Bulgaria to run in Romania."
Autoklass opened its first branch in Constanta in 1996, subsequently following Sibiu, Bucharest and Timisoara. Now, the company holds seven branches, the largest of the group and one of the largest in Romania being the Bucharest - Chitila centre. In this location, the company has the entire logistics related to the repair of damaged trucks, including the paint booth for trucks and buses, along with all the equipment necessary for the recovery of damaged truck chassis and the repair of aluminium parts. With 326 employees, Autoklass Group recorded a turnover of around 80 million Euro in 2015, an increase of over 20 per cent compared to 2014, and for this year the company foresees an increase of over 12 per cent.
"Autoklass′ strategy is based on consolidation, relying on effective customer relationship management," says Grecu. "For 2016, we expect a sustainable moderate growth in terms of turnover, at 90 million Euro. We want to continue to invest in the professional development of our team members, allocating additional resources for each direction or department that develops sustainably," he concludes. Autoklass Group is the only dealer that sells new Smart cars in Romania and 40 per cent of its portfolio is owned by fleet customers.
Vlasin, BMW Group: "We need a long-term planning in terms of fiscal measures"
The automotive market is very important for the Romanian economy due to the fact that it generates high turnover, as some of the biggest Romanian companies come from this industry, and generates high income for the state budget as it is a transparent business, according to Cristian Vlasin, sales manager at BMW Group Romania. However, a long-term planning is a key aspect for the growth of automotive industry and the Romanian Government should change its approach and adopt a long-term strategy especially for fiscal measures.
"As all over the world, the automotive industry has a huge impact on the economy," Vlasin tells The Diplomat - Bucharest. "We are seeing this all over the world - Germany is an important example, leading in the premium segment, while Spain has based much of its economic development on it. The automotive industry is important because large production facilities like Dacia and Ford have generated the development of a strong supplier network and a wide series of investments, not only by the direct manufacturers. Also, important automotive suppliers, like Continental, have a strong base in Romania, not only with production, but also with R&D facilities. However, we feel the need for a strategic approach of the Romanian Government. We represent well organized businesses, with high investments in the market, which need to have a coherent plan over several years. In the past, there were several short-notice fiscal changes, like the limited deductibility for car costs, that had a huge influence on the market. Also, the first registration tax dramatically changed several times, and significantly affected the stability of the market."
BMW Group Romania ended 2015 with an increase of 30.2 per cent compared to the previous year and reached 1,941 units sold mainly due to the diversification of its models portfolio, the dealer network expansion and new services. In addition, the first two months of 2016 have also seen a positive trend, the company recording an increase of 50.3 per cent for BMW, to 287 units, and a growth of 20 per cent for Mini, to 18 units. For the future, Vlasin believes that electric and hybrid cars will play an increasingly important role in the company′s model mix throughout the world and will contribute, alongside conventional engine cars that are optimised continuously, in decreasing the emissions and the environmental impact of the cars. According to him, Romania′s total electric and hybrid car market is less than 0.5 per cent, but there is high potential for growth.
"We have just launched the BMW i brand in Romania, with fully electric BMW i3 and the BMW i8 plug-in sport car and we see a high interest for both models," says Vlasin. "We are about to deliver the first BMW i8 and the first small fleet of BMW i3."
Furthermore, the company is lunching plug-in hybrid models, cars that mix a conventional engine and an electric engine and offer 20 to 40 km electric range for city commutes, throughout its model range, from the large SUV BMW X5 to the compact MPV BMW 2 Series Active Tourer. A key aspect in the positioning of the new models is the price, says, Vlasin, that is less than a diesel and slightly above a petrol engine car with similar power. "We are seeing high interest from the market, and we just delivered the first three plug-in BMW X5 models in January and have several other orders that are about to be delivered," he adds.
Vlasin goes on to note that the company is looking forward to the start of the much-anticipated "Rabla" programme for the support of the electric car market. According to him, in the markets where the Government was actively involved in supporting the electric cars, like Norway, Netherlands or California, the market started to develop immediately. "As these are new technologies, they still need public acceptance and trust, and governmental programs can play an important role from this perspective," he concludes.
Owner of ATP Exodus expects the market to settle down after a long turmoil
ATP Exodus was founded in 1995 to import and distribute spare parts for trucks and the company has since continuously developed, today offering, through its approved sales and service centres for Mercedes-Benz, Mazda, Opel and MAN, a complex range of goods and services for vehicles. Mircea Cirt, founder of the company which now counts 800 employees, 32 branches in Romania, five in Bulgaria and one in Hungary, believes that the Romanian automotive market will settle down after the years of turmoil and 2016 will see an upwards trend as did previous years.
"I would describe it [the Romanian automotive industry], metaphorically speaking, as a market which got through storms and earthquakes of all sorts," Cirt tells The Diplomat - Bucharest. "I am expecting things to settle down and to start building something sustainable and on a long term. The positive trend from previous years will maintain, but I am expecting a growth once things are settling and we are going from speculations to laws for serving not only the state, but also the people. (...) Regarding the measures that should be taken by authorities to encourage the market growth, I would like to mention the tax reduction, a VAT taxation at the insertion and registration of a used car in the country, the improvement of the infrastructure and the implementation of long-term projects."
Cirt adds that in terms of insurance regulations, he expects the changes that will be implemented to bring improvements such as an auto dealer or an auto service not being impelled by the insurance company to reduce the level of quality. "The insurance company wants to reduce the fixing costs and they are forcing you to fix what the brand producer does not allow," he says. "I foresee a positive impact on the changing of registration procedures when the indispensability of presenting the bill registration of the VAT will be introduced. Why? First, because the competition with the countries from the European Union will turn into a fair competition, with similar rules, and second, the VAT speculation will disappear by acting this way."
The founder of ATP Exodus also believes that as long as there are used cars on the market, carrying further with the "Rabla" programme is a good thing and a justified investment of the Romanian Government. About the buy-back and trade-in programs, he thinks that this becomes a normal issue which is related with the dealer′s responsibility of applying a warranty to a used car for which is signed an insurance contract with the specialized companies.
"If we think to evaluate the cases in which the buying of a used car without warranty from western countries, even if the legislation is allowing, a lot of used cars came into the country with modified kilometres on their boards, things that will only be perceived later, together with the costs," he says. "If we were to think in a preventive manner, I would say that stimulating the buy-back and trade-in tendencies will answer to the client′s necessities and will provide a warranty on a product, which is related to preserving a permanent business relationship."
Regarding the latest trend of electric and hybrid cars, the owner of ATP Exodus cannot think to develop in this direction as long as Romania does not have the required infrastructure, he says. In terms of business development, the company registered growth in every brand from its portfolio. However, if the sales of new cars has been increasing, sales of used ones decreased in comparison to what the company had planned because, on this segment of the market, the company is competing with the grey market, says Cirt. Nevertheless, ATP Exodus plans to keep increasing as it has a well-defined plan until 2020. "We are expecting growth until 2020 and we will grow because we are always reaching our goals," he concludes.