Switching lanes
Booming car market expected to slow down
written by Eszter Breuer

New car sales in Hungary are rising, and are expected to be up 20% this year, according to a survey by GKI Gazdaságkutató Rt. and Wallis Autó Holding Rt. While the number of new cars sold in 2002 grew by 16% compared to the previous year, the first three months of 2003 saw an increase of 25%. But the general price hikes expected after Hungary’s May 2004 European Union (EU) accession are bound to discourage potential car buyers.

Hungarians purchased more than 101,000 new cars and all-terrain vehicles (ATV) during the first nine months this year, according to the Association of Hungarian Vehicle Importers (MGI). Demand is predominantly for small subcompact cars, such as the Suzuki Swift or Daewoo Matiz, the sales of which almost doubled (45.8%) and accounted for 56.4 % of new car sales. “Hungary is a small car country,” sums up Nándor Kern, chief sales manager at Fiat Autó Magyarország Kft. “Small cars are bought for entire families, unlike abroad where subcompacts are bought as second cars used in town for shopping, for example.” The Hungarian preference for five-door small cars that can be used as family cars has prompted car companies to promote certain models that are virtually unknown in Western Europe, such as the Renault Thalia, a mutation of the Clio model enlarged with an enormous trunk and sold for about HUF 2.1 million.
At the same time, luxury cars, sport cars and ATVs do not constitute a significant segment of domestic car sales. The latter two accounted for a mere 0.3% of all car sales, while their number was nonetheless double last year’s sales.

Expectations not so high
Although data by research institute GKI Gazdaságkutató and MGI show an upward trend in car sales, future prospects are not so bright. With Hungary's accession to the EU, rules and regulations concerning imported cars will change significantly, while the country’s entry to the single market is likely to drive prices down. “The financial burden on the import of cars will decrease with the country’s EU accession, and this might lead toward dropping prices,” said Kern. He is also quick to add that dynamics of the open market will have the opposite effect.
“The import duties will indeed disappear, being replaced by a registration fee, but there will be a necessary price harmonization with other EU members where the prices of small cars tend to be much higher,” Kern said.

Hungarians prefer to purchase small cars over larger models, prompting some car companies to promote models virually unknown in Western Europe

Before Hungary’s entrance to the EU on May 1, 2004, the law on car imports will have to be amended. Currently Hungarians must pay customs fees, VAT, an environmental fee and consumer tax on every car bought and brought into the country. The customs fee is already zero if the car is imported from the EU. Following EU accession, all other fees are likely to disappear, ensuring the free movement of goods. Negotiations and discussions on fees and taxes are still underway, primarily at Hungary’s Ministry of Economy with various interested parties. “While the whole system is changing, it is already confirmed that the consumer tax on cars will be replaced by a registration fee the amount of which will be defined by the environmental class of the vehicle and the cylinder capacity,” said an unnamed source inside the ministry. VAT paid on used cars will be paid to the EU member country where the vehicle is bought. Good news for Hungarians is that VAT rates are cheaper in Hungary than in all EU countries except for Sweden and Denmark. Hungary’s VAT is currently 25% of the net price. Final decisions on the import of cars are expected by year’s end, the ministry source said.

Buying the same car for more
Although the termination of import duties signals a price decrease, experts do not expect a drop in car prices. In the local small car market, with prices around HUF 2 million, Kern foresees a price increase in the years to come. “If the current depressed prices caused by fierce competition remained unchanged, all of Western Europe’s car dealers would come to Hungary to buy cars,” he said. According to Kern, car producers have an extremely aggressive price policy in the small car market in Hungary. Hence, unrealistically low prices.
“To sell a Fiat Punto for HUF 2 million is nonsense in Western Europe,” he said. “I believe that with the EU accession, Hungary will have to harmonize the now artificially low small car prices with those in other EU member countries.” Consequently, he forecasts a decrease in car sales, an opinion confirmed by GKI, although GKI also points to growing consumer anxiety caused by increasing energy prices. According to a GKI study, 71.5% of Hungarian households are sure they will not buy a car during the next two years. In addition to buying small cars, Hungarians tend to buy vehicles at minimal prices with no extra comfort.
“Most of our customers buy the first new car of their lives. If you have driven an old car without an airbag, adjustable seats or operational heating system, than a completely basic model offering such accessories seems to be a big step toward luxury,” Kern remarked.

The lucky few
Dealers of luxury cars, however, might expect a brighter future by experiencing a beneficial effect of the anticipated price harmonization. High category cars like BMWs or Alfa Romeos are currently priced higher in Hungary than in the EU. “The reason for that might be that luxury cars are mostly bought by companies where costs are more generously planned than in a household,” Kern said. He deemed the significance of luxury car sales marginal, in accordance with findings of the study by GKI. “We sell some 10,000 Fiat Puntos but only 600 Alfa Romeos annually,” Kern said."

However, according to GKI figures, the majority of enterprises do not consider investing in cars in 2004. Only 14% said they would buy vehicles in the next two years, resulting in the sales of an estimated 20,000 new cars. The majority (41%) of these cars will be bought by small-size enterprises, and micro-enterprises will account for 27% of all car purchases. As a general rule, companies typically like to buy cars in the middle category, such as an Opel Astra.
Concerning used cars, Kern expects a massive decrease in the amount of ‘gray’ car imports following recently abolished high import duties. As used car prices tend to be much lower in the EU than in Hungary, experts count on a massive wave of imported used cars manufactured later than 1996.

Cars we like and cars we drive
Brand preferences do not significantly define purchasing habits in Hungary, the choice primarily depends on the price, said Nándor Kern of Fiat Autó Magyarország Kft. A recently published survey by GKI Gazdaságkutató, however, showed that the majority of Hungarian enterprises prefer cars made by Opel or Volkswagen, followed by an equal degree of preference for Ford, Renault and Peugeot. The less appreciated brands are Daewoo, Hyundai, Suzuki and Alfa Romeo. Statistics of car sales in Hungary show a different figure. In the first half of 2003, Suzuki led the market with a 21.7% share, or 22,000 vehicles sold. Opel came in second with 12,700 thousand cars sold, accounting for a 12.5% market share, followed by Renault (9%), Skoda (7.6%), Peugeot (6.8%) and Volkswagen (6.8%), according to data from the Association of Hungarian Vehicle Importers (MGI).