Car market dilemma in 2006: spend more for the same sales

The better than estimated growth of the car market last year will show in the sales of new cars this year, which could witness a decline for the first time since 2000. The boom in the sales of new cars, which tripled over the last five years, could end this year, players in this industry say.

After rapidly rising profits and turnovers, car dealers are now seeing themselves forced to invest more money in promotion this year and start a price war to maintain sales at least as they were last year, which will reduce profitability across the sector.

“I believe the car market will witness a 5-10% decline this year. Under the circumstances, competition will intensify and this will unfortunately be felt in the reduction of the profit margins,” says Jean Michel Sicre, Dacia”s commercial manager.

He believes that even if the car market goes down, the domestic manufacturer will maintain a sales level that compares to last year”s figures.

“We will increase our advertising spending, however, because we have several new products we will launch this year, such as the 1.6 litre engine and 107 HP version or the Logan station wagon,” Sicre adds.

Nicolas Ianculescu, Renault Romania”s general manager, the local importer of the Renault and Nissan brands feels the same as Sicre.

“The promotion of our products cost us approximately 2.5 million euros in 2005, 25% higher than in 2004 (…).

“In order to boost the sales volume we need certain operations conducted for commercial purposes and they cost money. Therefore the profit per unit goes down and the global profit goes up,” Ianculescu says.

He estimates Renault sales for this year to stand at approximately 20,000 units compared with 24,000 units last year, when the importer doubled its sales.

The largest local importer, Porsche Romania, is more optimistic about this year”s performance.

“We still see a moderate growth (of Porsche Romania”s sales i.e.) of 5-10% as possible.

On the other hand, these additional volumes are necessary to ensure profitability for dealers, considering the service tariffs in certain regions are still lower than the European average,” says Brent Valmar, general manager of Porsche Romania, which imports Audi, Seat, Skoda and Volkswagen brands.

The estimates of the players on the market, however, do not take into account a possible resumption of the Car Fleet Renewal Encouragement programme, which contributed approximately 15,000 units to the sales of new cars.

“We are lobbying for this programme through the APIA (Association of Automotive Manufacturers and Importers of Romania), but we do not have any answer in this regard from the specialised ministry yet,” Sicre says.

The car market has grown at a steady pace over the last five years. Whereas a little more than 84,000 new cars were sold on the domestic market in 2000, 2005 took the total new car sales to more than 250,000 units, worth approximately 2.5bn euros. ionut.bonoiu@zf.ro