After steep nosedive, long scramble back is expected

KLAIPEDA - The engines are revving, but the scramble up will be long and resource-conscious, as the new car market is attempting to show some cautious exuberance. No other industry sector has seen such a whopping nosedive in Lithuania – a fourfold drop by last year’s midpoint, compared to 2008. “Everyone was predicting a fall in new car sales, but no one expected it to be so huge,” Mindaugas Beisys, administration director of Lithuania’s Auto Dealer Association (LADA), acknowledged to The Baltic Times.

He related the fall not only to decreased purchasing power, but also to tougher car-lease conditions and a tightened state policy. As for the latter, most Western countries and the United States, seeking a car market enlivening, have employed an array of measures allowing easier new car co-financing for money-strapped buyers. It did not happen in Lithuania, where the government considered this kind of support as contradicting the self-regulating of a free market.

According to Regitra, a state enterprise in charge of registering vehicles, last December 998 new cars were registered, which is a 50 percent rise compared to the previous year’s December. In 2010, Regitra registered 8,911 new cars, which is a 7 percent increase from 2009. New car sales growth that began in July of 2010 extended on a slightly upward trend until the end of the year, peaking in December. Sales in the sector of legal persons also has shown robustness, reporting an 87 percent increase in new car sales last December versus the same month in 2009.

Despite the positive signs, new car vendors do not exude big optimism just yet. “The slightly better sales results do not reveal a full market recovery yet. We all should have in mind that last year’s hopeful sales - 8,911 sold cars - is far from the record sales of over 21,000 new cars in 2008. Thus, we are still nearly two and a half times worse today than we were two years ago,” Beisys emphasized.

However, despite the cautious remarks, he foresees a 10-15 percent rise in new car sales this year, putting the forecast at 30 percent in Latvia and even at 50 percent in Estonia. “Latvians always used to sell more cars than Lithuanians. Besides, despite the economic turmoil in Latvia, new car sales have not been as badly affected as one could expect. As for Estonians, I consider them Scandinavians, with a typical Scandinavian mentality, which means a good deal of optimism to me. The crisis has already ended for them, and that is what we see in new car sales’ numbers in those countries,” Beisys said.

Throughout over two years of the crisis, a certain shift in customer behavior, he maintains, has occurred. Before, people would often see a car purchase as a long-term investment, opting for a pricier car than their income would normally allow. “Nowadays, middle class people tend to acquire moderately priced diesel engine-equipped cars. The prevalence of traditional market leaders, Volkswagen and Toyota, has been considerably shaken by moderately priced French brands, Peugeot and Renault,” Beisys maintained. Thus, for example, during the first half of 2010, 404 Peugeot car sales were registered, followed by 395 Renault car sales, leaving Toyota with 368 sales behind them.

However, traditionally trendy Japanese and German cars have regained their strong positions over the last year. For example, last December Regitra reported 204 new Volkswagen car sales, followed by Peugeot’s 118 sales and Toyota’s 114 sales. Looking at the overall picture, last year was the best for Volkswagen, which has reported 1,152 new car sales and Toyota with 989. However, Lithuania is far from being a new car sales hub; in fact, it remains a major second-hand car destination in the region. Statistically, in the new car ratio per one million people, Lithuania lags well behind the European Union average – 11.7 times behind, to be exact. New car industry experts point out that it shows an absence of transport politics in Lithuania. For many car-dealers from former Soviet republics, Lithuania remains a country with a booming clunker market that has already been resuscitated from the downturn.

While the downturn, due to decreased purchasing power, has significantly altered low and middle-income car buyers’ behavior, it has practically not affected the richest. “While, overall, slightly influenced by the crisis, interestingly and not quite understandably, they have considerably switched to buying BMW cars in the luxury car segment,” Beisys revealed. Thus, last year, BMW vendors reported a 12 percent sales increase from 2009. Interestingly, out of 218 BMW cars sold last year, 70 were BMW 5 series models and 42 BMW X5 ATVs - leaders in the segment of big luxury cars. Thus, BMW sales have considerably overtaken its main rivals in the luxury segment.

Asta Bagdonaviciene, director of Krasta Auto, the official BMW representative in Lithuania, explains the sales growth by the improvement in quality of customer service, as well as new solutions in trade on the Internet and successful debuts of new BMW series models. “We have introduced a new client service quality system which, along with flexible car purchase conditions adopted specially for our clients’ needs, the bustle over our new BMW 5 series model’s introduction on the Lithuanian market and a slowly recovering Lithuanian economy, have contributed to the growth,” Bagdonaviciene maintained. Besides, she emphasized, opening a cozy BMW car series salon in Kaunas has positively affected sales.
New car leasing has also benefited from the overall positive signs in the industry, reporting an 11 percent growth last year compared to previous year.

For the struggling auto market, experts agree, brand new car re-exporting remains a big support to the business, as statistically every fifth new car bought in Lithuania leaves the country. During the first half of 2010, the re-export leaders in Lithuania were Renault car sellers, seeing 119 re-sold cars of the brand, followed by Subaru (39 re-exported cars) and Dacia (25 re-exported cars). Market experts caution that this year’s planned sales of roughly 8,000 new cars, due to high car re-export numbers, should be realistically slashed to 5,000-5,500 cars. “Approximately 30-35 percent of all new cars sold quickly reach foreign countries, distorting the real picture of the market,” Justas Nekrosius, head of Marketing and Customer Service department at Inchcape Motors, specializing in Ford, Hyundai, Isuzu, Jaguar, Land Rover, Mazda and Mitsubishi sales, asserted to The Baltic Times. However, despite this observation, he predicts a 10-20 percent car sales growth this year. “We can see that business trusts that the economy is recovering. Therefore, the optimism is reasonable. Furthermore, we expect livelier sales in the commercial car segment,” Nekrosius said. If car sales retain the current tempo, he expects them to return to the golden age of 2007-2008 in 2016.

Mindaugas Plukys, Nissan Nordic Europe’s marketing coordinator for Lithuania, also maintained that the enterprise’s results were gradually improving in 2010. “Our sales were boosted not only by advertised special sales and discounts, but also by alleviating leasing conditions, the population’s income increase and improvement in general of the economic outlook. If the process gains more rapid acceleration, we will reach the 2008 level much quicker,” Plukys said to a news outlet recently.
Laima Gateliene, director general of Moller Auto Vilnius Audi Center, specializing in Audi car sales and repair, revealed that the enterprise reported a 15 percent plummet in sales in 2010. However, she foresees a 20 percent sales rise in 2011. “I explain my forecast by the positive changes in leasing company policies and, obviously, more active buyers. I am pretty sure we are coming back to the tracks,” she said with optimism.

Robertas Cickevicius, head of AutoTyrimai, a car market research company, predicts that the new car sales market will increase by 12.5 pecent this year, which will reach up to 9,650 sold cars. While researching the Baltic car market, he singles out Latvia, maintaining that it will see the biggest breakthrough in sales. “Considering the mess in its economy, nevertheless, new car sales in Latvia have not been affected as badly as in Lithuania. Hence, their recovery will be more rapid,” Cickevicius maintained to The Baltic Times. He disagrees with LADA’s estimation, given by its administration director Mindaugas Beisys, on new car market growth in Estonia, which Beisys set at 50 percent. “Where did he take that number from? Has Estonia not  been affected by the same adversities? It is a very brave estimation. Let me put my number at half of it,” Cickevicius said.

Auto industry entrepreneurs agree that the car market outlook depends much on the government’s policies regarding VAT, possible introduction of the so-called ecology tax for car owners and special new car sales promoting legislation. “In 2009, Germany, in efforts to ease up the crisis’ aftermath for its auto-makers and car owners, adopted a special program granting 2,500 euros in discounts for  those who wanted to get rid of their clunkers and acquire brand new cars. It is obvious that in Lithuania we do not have any vehicle fleet renewing program. Nobody here cares about ecology and safety behind the wheel. Until Lithuanian authorities do not get kicked by the European Union, Lithuania will remain Europe’s major clunker dump,” Gintaras Kaukenas, KIA Auto director, said, lambasting the current politics.