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The Central and Eastern European automotive market - Central and Eastern Europe’s automotive trends - EY - Global

CEE production will rely on recovery in Western Europe as the engine for growth.

Experiencing significant growth in the past, Central and Eastern Europe (CEE) has also been the recipient of major investments — to serve local markets and to establish a low-cost base for export to Western Europe (WE).

Market growth, specifically in Russia, is expected to accelerate when the current economic crisis abates. However, the region is complex, and some CEE countries have been more affected by the downturn than others, depending on their economic stability.

For insights into the state of the automotive sector in CEE, we invite you to access our quantitative and qualitative analysis on the region as well as on individual countries. Please note, we have highlighted 10 countries geographically located in CEE in addition to select neighboring countries that hold strong positions in the automotive sector*:

Some CEE highlights

  • Russia, the largest market for passenger cars in CEE, has been hit hard by the economic downturn. However, fundamentals for growth remain and the market will likely bounce back.
  • Russia is taking next steps to redevelop its indigenous automotive industry, increasingly partnering with established global vehicle manufacturers.
  • There has been strong demand for small, low-cost cars produced in the CEE accession states by OEMs, fueled by increased demand for these cars in WE, itself boosted by scrappage schemes, a governmental subsidy to encourage citizens to scrap their obsolete car and purchase a new one. The largest of these producers, Czech Republic, defied the trend in the rest of Europe by increasing output.
  • The boom in new car plant investment in the accession states seems to be over as cost differentials erode.
  • There’s concern that the CEE region will miss out on the current round of powertrain innovation in hybrid and electric vehicles as:
    • Customers focus on mobility rather than the environment
    • There is limited regulatory “push”
    • OEMs with plants in the region carry out R&D elsewhere
    • There are few signs of emerging electric vehicle producers, unlike in almost all other regions
  • As a result of cost erosion and the lack of new technology innovation, the CEE region will need to avoid becoming vulnerable to decisions made by OEMs regarding which plants they need to develop and retain.

The global market for passenger vehicles is being split between the mature markets, (e.g., WE) and the emerging markets (e.g., CEE). While almost all the mature markets are down, economic and automotive sector-specific stimulus has meant that WE is not as badly affected as the other mature markets such as North America and Japan.

This is important, as WE is the major destination for most cars made in CEE. Russia has been hit hard by the downturn, whereas other large emerging markets (notably China and India) have continued to grow.

However, Russia is forecast to recover well, while other parts of CEE will benefit from economic development via funding from the EU, and others will grow through general regional development.

CEE: A set of very different countries

Individual countries will find themselves in different positions in the industry longer-term, for example as net exporters or net importers. In addition, investments in new production capacity — most of it committed before the downturn — will move some countries into a more significant position in the industry.

Key producers: Czech Republic, Slovakia

Some CEE countries — notably Czech Republic and Slovakia — are exporting large numbers of vehicles while their domestic markets remain small. These two countries produce more than five times their levels of domestic demand. Therefore, plants in these countries operate almost entirely independently of the local market, relying on strong demand in the destination countries in WE.

Production capacity: expansion versus contraction

While vehicle demand is down and overcapacity is high in Europe overall, there have been no plant closures. Only recently, as markets recover, have GM and Fiat indicated they will close or dispose of plants as they balance production with demand for the medium to long term.

In general, where manufacturers have reduced output, they have done so through reduced shift patterns and extended shutdown periods. Few structural costs have come out of the industry across the whole of Europe.

The CEE region is benefiting from investment in new plants committed some years ago. While that activity has subsided, there is still capacity being added in CEE at a lower level. The most notable is the new Mercedes-Benz small car plant in Hungary due to start production in 2012.

Overall, CEE’s light vehicle production declined to approximately 4.7 million vehicles in 2009, down from 6.3 million in 2008 and is forecast to surpass 8 million units by 2014. However, it’s unlikely that capacity will be added in many CEE countries, with Russia and Turkey still probable capacity expansion candidates in the medium to long term.

*Select emerging markets directly connected to CEE include Iran and other areas of the Middle East. The data herein focuses on the passenger car market, including SUVs and MPVs, but excludes LCVs and HCVs except where otherwise specified.

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