Dec. 30, 2009 -
PRLog -- The effects of recession have significantly impacted the automotive industry in Latvia. Sales have fallen sharply - a stark contrast to the growth posted in the years before the global economic crisis. Latvia had been the EU's fastest growing market between 2005-2007 but has clearly been affected by the broader recessionary trend in the economy. New car sales fell a staggering 80.2% year-on-year (y-o-y) to 3,179 units in 9M09, according to estimates from the Latvian Authorised Car Dealers' Association (LPAA). The Baltic countries have been vulnerable to the downturn, with GDP in Latvia, Lithuania and Estonia contracting 18%, 13.6% and 13.5%, respectively, in Q109, according to their national statistics offices. BMI believes that the slump in the region highlights the problems facing Emerging Europe. The region has enjoyed robust growth over the past five years, with expanding credit pushing up retail sales. However, with the financial crisis and credit availability now shrinking, markets are failing to maintain the same levels of expenditure. Instead, mounting debt burdens have resulted in sharp retail sector declines. Dealerships in Latvia are having to adapt to the current market and are attempting to entice customers into making purchases. As of August 2009, Citroen was offering extensive rebates on new cars in exchange for older customer cars. BMW has advertised first instalments of 0% interest for qualifying customers, and Toyota has begun selling spare parts and offering car maintenance at significant price reductions. Many dealerships are also diversifying their businesses and getting involved in repairs and spare parts in a bid to carve out additional revenue streams. On the commercial vehicles front, manufacturers face caps on emissions that are likely to further add pressure on sales as the costs of complying with new standards are passed on to consumers. The European Commission has been proposing a cap since 2007, though the final timetable was only just released in October 2009. Under the proposal, between 2014-2016, CO2 emissions are to be capped at 175g per kg, and by 2020 this is to be capped further at 135g per kg. The levels will only apply to new vehicles and it will be based on an average level spread across the entire fleet, so that some models are able to still exceed the proposed levels. Many manufacturers of LCVs feel the proposal is an unnecessary financial burden to impose in light of the current economic situation. Though the EC states that net savings will be made in long-term fuel consumption, it concedes that to comply with the new levels will require investment into the vehicle industry. In line with our core view that economies such as Latvia will be slow in recovering from the global economic crisis, BMI is doubtful of any growth in the autos market in 2010. We expect passenger car sales to decline 19.4% y-o-y. While the drop is still in the double-digit range, it would represent a moderation of the sales plunges posted in 2009 and 2008. However, as the economy bounces back, we expect passenger car sales will recover and reach 13,189 vehicles by end-2014.
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