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Automotive in CEE during the crisis: tough environment, but still gaining confidence

by Unicredit research

Abstract

The automotive sector was among the most affected by the financial crisis in 2009. World production decreased for the second year in a row: in 2009 production of motor vehicles dropped by almost 10mn units while CEE countries suffered a drop in production of half a million vehicles (-12%). If Russia and Ukraine are suffering from this context, on the other side central-esatern Europe is still an inmportant hub for the automotive sector.
Automotive is the most important sector for CEE economies. CEE countries suffered a drop in production of half a million vehicles (-12%), but the region was able to increase its share in total European production, despite the sharper impact of the crisis on their economies. During the past decade the share of vehicles produced in CEE out of the total European production jumped from 9% in 1999 to 22.4% in 2008 and moved further up to 24% in 2009. The crisis accentuated the speed of the restructuring of the sector, and the West-East substitution of production continued.
Russia and Ukraine were an exception: their economies were particularly affected by the crisis in 2009 and because their automotive sector is less efficient and less export-oriented, automotive production in both countries collapsed, with the result that production plunged by 1.5mn units to only 800,000 vehicles.
Paradoxically, despite the automotive sector is characterized by huge spare capacity, many OEMs are still expanding their capacity in CEE (Fiat in Serbia, Mercedes in Hungary, VW in Slovakia, Bosch moving from Wales to Hungary, Renault and Toyota investing in Turkey, etc.). These trends bode well for the future of the sector in CEE.
Last year, 61mn vehicles – including passenger cars and commercial vehicles - were produced at world level, significantly down from 70.5mn in 2008 (-13.5%), according to the International Organization of Motor Vehicle Manufacturers (OICA), which recently released the data of motor vehicle production for the full-year 2009. Passenger cars’ production dropped by 10%, to 47.2mn, at world level. These results were positively affected by the performance of emerging markets and negatively influenced by the performance of the more mature markets, namely US, Japan, and Western Europe. The more developed countries produced 10mn fewer vehicles in 2009 – indeed ahuge amount - with respect to 2008. Specifically, Western Europe was affected by a drop of 3mn units in production, -20% with respect to 2008.
World production decreased for the second year in a row. The 3.7% drop in 2008 was followed, at world level, by the 13.5% drop in 2009 (following numerous years in a row of positive growth, + 4.5% on average in 2002-2007).
The US producers continued to be the worst hit and this has had the catastrophic effect of the manufacturing industry suffering one of the largest mass lay-offs in its history worldwide. Among the Detroit’s big three, GM and Chrysler got massive subsidies and support (USD 62bn) from the US taxpayer. Chrysler was taken over by Italian Fiat. In summary, Ford, despite the troubles, was the only one among the three to avoid bankruptcy and having to take government loans. The well-known structural problems of overcapacity, saturation and weak demand continued, and were even exacerbated: demand was constantly weakening, not only because of the fluctuations of the economic cycle, but because traditional markets (especially in the US and Western Europe) were already saturated and are no longer offering significant growth prospects.

Original title: Automotive in CEE during the crisis: tough environment, but still gaining confidence

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