2014 has proved a very positive year for new passenger car sales within Croatia. Indeed, it has marked the first year since the financial crisis when a long period of pent-up demand for new vehicles within Croatia finally resulted in a strong sales performance by the local market. As such, this strong demand created in the automotive sector over the course of 2010 to 2013 - when sales remained at less than half their 2008 levels - outweighed our previous view that Croatia's passenger car market still had room to fall alongside falling private consumption and a sluggish macroeconomic backdrop.
Over the first 10 months of the year, passenger car (PC) sales were up by 24.4% year-on-year (y-o-y), at 30,064 units, according to figures from the European Auto Manufacturers Association (ACEA).
Commercial vehicle (CV) sales have also been powering ahead. 9M14 figures from ACEA show a total of 4,181 light commercial vehicles (LCVs) sold in country, up 13% y-o-y with a 712 medium and heavy commercial vehicles sold (up 64.8%), plus a further 89 buses (-9.2%), for a total of 4,982 units sold year-to-date, up 17.7% y-o-y.
Adding the 4,982 CV units to the 27,623 PCs sold over 9M14 makes for a total new vehicle market of 32,605 units. On current sales trends, this leaves the Croatian new vehicle sales market well placed to record its strongest annual performance since 2009.
However, despite this strong performance over 2014, BMI is yet to be convinced that it marks the start of a lasting turnaround in the fortunes of the Croatian autos sector. Looking forward, therefore, we retain a cautious stance towards the local sales market, for a number of reasons which we outline below.
To start with, BMI maintains that the 24% growth in PC sales for 2014 is not symptomatic of the Croatian automotive market's shift into a recovery phase. Rather, we believe that the current uptick is due to an extremely low base effect and pent up demand after years of disappointing sales. BMI's European Country Risk team continues to forecast a dire picture for private consumption in Croatia over the remainder of our 2014 to 2018 forecast period. As declining wages, high unemployment and high household indebtedness continue to erode disposable incomes we forecast real private consumption to decline by 2.3% in 2014 followed by weak annual average growth of 1.5% for the remainder of the period. This will translate into weak consumer demand for big-ticket items such as passenger cars. High unemployment (of around 20%) also reduces the amount of Croatian consumers who will be able to afford used, let alone new, vehicles. Adding to this gloomy picture, we believe that the government will need to raise taxes and cut public sector wages across 2015, as it looks to cut its ballooning budget deficit.
Rounding out a fairly downbeat economic picture, despite the country currently experiencing low inflation, ongoing kuna weakness is forcing the central bank to keep interest rates relatively high (the discount rate stood at 7% as of October 2014). As such, there is little scope for any near-term cut in interest rates, which, in turn, makes it unlikely that loan rates for car purchases will fall any time soon.
Against this fairly gloomy backdrop, BMI is targeting a 1.7% annual increase in new vehicle sales for 2015, with PCs (+2.0%) set to perform more strongly than CVs (+0.3%).
Over the full forecast period to 2018, BMI is currently forecasting 15.5% growth in new vehicle sales. However, even with this growth, we do not anticipate annual new vehicle sales to surpass 2008's peak of 88,265 units at any point before 2018.
One area of support for PC sales over our forecast period to 2018 could come from the key car rental market. BMI's Tourism team expects foreign arrivals to remain robust as the country benefits from its growing position as an alternative to more expensive European destinations such as Greece, Spain and Italy. The government hopes to win membership of the Schengen area of passport-free travel in 2015, which would make the country easier to visit in the future.
Looking at the best-selling brands in 2014, German carmaker Volkswagen (VW) remains the dominant player in the Croatian new car sales market. Although VW-branded cars have lost market share over 2014, the company's Skoda subsidiary has seen strong sales growth in the year-to-date, rising from sixth position in 10M13 to third position in 10M14. Indeed, if VW adds its own market share to those of its subsidiaries (Audi, Porsche, SEAT and Skoda), then the combined Volkswagen group accounts for over 30% of all Croatian new car sales year-to-date.
Looking at sales figures for the first 10 months of 2014, VW had sold a total of 4,904 units, for a market share of 16.2%. In second place is Opel, on 3,512 units (11.6%), followed by Skoda on 3,087 (10.2%).
The top six best-selling manufacturers in the Croatian market are all based in Europe. There are also two Korean manufacturers ( Hyundai and Kia), one US manufacturer ( Ford) and one Japanese manufacturer ( Toyota) rounding out the top 10.
This report also contains new and fully updated Company Profiles (including SWOT Analysis) for Auto Zubak and Renault Hrvatska, two of the leading dealerships in Croatia.