LONDON - Recent turmoil in Russia may have hit the auto industry hard, but the emerging markets of Central and Eastern Europe still provide automakers with a major opportunity for rapid future growth, according to a new report by London-based Harbour Wade Brown.
Whether it be in tiny Albania, which recorded 45 new-vehicle sales in 1997, the last year for which data are available, or giant Russia, which registered 906,968 sales, the future for automakers in Central and Eastern Europe looks bright, the research firm says.
The report reveals some surprising facts about the region:
Poland has surpassed Belgium in new-vehicle sales and is closing in on the Netherlands.
Korean carmakers, represented predominantly by Daewoo, are outselling Japanese makers in the region. The Koreans have a 12.4 percent regional market share, compared with 5.1 percent for Japanese makes.
Sales per dealer in the region are higher than in Western Europe.
The number of main dealer outlets has increased by 31 percent since Harbour Wade Brown published its first report on the region a year ago.
For manufacturers looking beyond mature markets for growth, Central and Eastern Europe present a wealth of opportunity to work with new distribution concepts, said Philip Wade, partner at Harbour Wade Brown.
'What's obviously going on is a struggle for the hearts and minds of motorists of the future - which brands are going to be well established in which markets, and how those cars are going to be sold and serviced,' he said.
Harbour Wade Brown's report, 'New Car Distribution in Central and Eastern Europe,' is the firm's second annual report on the area. Manufacturers cooperated in making the survey as accurate as possible, given the difficulties in obtaining information in these emerging markets, Wade said.
Harbour Wade Brown divides the region into five separate market areas: Central Europe, the Balkans, the Baltics, European countries formerly part of the Soviet Union, and Asian countries formerly part of the Soviet Union.
It is important to note, Wade said, that the latest statistics are from 1997, and therefore predate the economic meltdown that hit Russia in 1998.
RUSSIA IN REVERSE
'The only market in 1998 that seems to have gone into reverse is Russia,' said Wade. 'That has had a big effect on (Lada producer) AutoVAZ.'
Light-vehicle sales totalled 2.2 million in 1997 for the entire region. Growth was most rapid in former Soviet states like Uzbek-istan, where unit sales grew 283 percent, and Estonia, up 162 percent, but volumes were still negligible in those places.
Among major markets, Poland registered the most robust increase, up 33.5 percent over 1996 to 529,251.
Eastern European makes still dominate the region, with 46.6 percent of the total market, Harbour Wade found. AutoVAZ led on sales of 652,939, the majority in former Soviet countries, followed by Daewoo with 244,067 and Fiat Auto with 206,526.
TARIFFS HURT IMPORTS
The region's light-vehicle population is about 45 million. But that population probably is growing faster than new-vehicle registrations would indicate, Wade said, because many imports into Eastern Europe come through unofficial or illegal channels. The used-vehicle market also is strong because new vehicles remain beyond the means of many in the former Soviet bloc.
Tariffs continue to make new-vehicle imports to the region relatively uncompetitive on price - especially where progressive rates are applied to cars with relatively large engines. However, imports from the European Union are benefiting from the annual reductions in duties - toward zero in 2002 - on imports to Central European and Baltic markets.
Average sales per dealer are higher in the emerging European markets than in Western Europe, said Wade. Russia led the way with average sales of 505 units per major dealership during the year, followed by Poland with 407 and Estonia with 206. Albania was at the bottom with 11.
But the region still has a long way to go to reach the kind of market penetration automobiles have reached in Western Europe. For every 100,000 people in the region, only 537 bought a new light vehicle in 1997, compared with 3,855 in the West.
'There are interesting questions about car distribution in this region,' said Wade. 'Do automakers try to build a model of what's happened in Western Europe in the past? Or do they actually leap a generation and anticipate the changes now taking place in Western Europe, so you actually have a leaner distribution system in the East?'
Wade says dealers in the East need not fall behind in the transformation of the auto industry.
'It may be that the challenges posed in these rapidly developing markets lead to a greater level of innovation than in the more mature markets of the West,' he said.