Dallas, Taxas -- (SBWIRE) -- 10/06/2010 -- The Czech auto industry continues to be one of the most important in Europe, despite the global economic crisis which has hit the Central European industrial centre particularly hard. In 2009 the economy shrank 4.1% as the export-oriented economy suffered under collapsing global demand. The economy has begun to pick up again in 2010, but the situation is far from perfect with relatively stagnant consumer demand in Europe. This is likely to be exacerbated as many countries in Europe pursue a policy of fiscal retrenchment which will dampen any rising consumer demand. Luckily for the Czechs, however, their largest auto export market, Germany, shows little sign of cutting an already small deficit.

Despite these troubled times, Czech auto production has staged a remarkable comeback. Improved Q1 production was quickly followed by the fastest half-year growth in nine years. Total production stood at 559,000 units – which represents 18% growth year-on-year (y-o-y). This figure is overwhelmingly composed of the 557,000 passenger cars produced. This increased production was driven largely by Škoda Auto and Hyundai Motor, whose production grew 17% and 84% respectively. The bulk of Škoda’s increased production was driven by sales in China, which now represents the firm’s largest market with 22% of all new Škodas sold in the country. Hyundai’s production growth is particularly marked, with the firm now producing 92,000 units at its Czech plant. However, non-passenger vehicle production has continued to be disappointing, as light commercial vehicle (LCV) sales have fallen 54% to 5,903 units. This has been attributed to the continued imbalance between the VAT regimes for passenger cars and for LCVs. Similarly, lorry sales have fallen 6.4% as the economy at large continues to experience the sluggish growth common to much of the developed world.

These figures indicate a successful year is ahead for the Czech auto industry, yet this must be tempered with reports that company purchases of passenger cars are being scaled back as they seek to save money on car benefits – which are often generous in the Czech Republic. This is significant given that 56% of the Czech car market is made up of corporate purchases. This said, the composition of the Czech car market has changed since 2008. Despite economic difficulties, higher-value models have gained market share. The share of sales comprised of small and mini cars has fallen from 50% in 2008 to 30% in 2010. This strategy has increased the market share of combi models to around a third. This shift is largely owing to the aggressive pricing strategy adopted in the Czech market, which is ensuring that otherwise anxious consumers are purchasing new high-end vehicles. While this strategy has squeezed margins on what are otherwise profitable models, this shift represents greater potential for future profits. Due to this, and many other broader economic factors, the Czech auto market is likely to see a promising growth in sales.

BMI expects the Czech Republic to maintain its position as one of Europe’s most important centres of auto production. Despite the somewhat volatile link between auto demand and broader economic confidence, the improving global situation is providing the industry with an opportunity to adjust to consumer preferences and expand into new and profitable areas. Despite rising costs, firms have demonstrated a long-term commitment to the Czech market and are increasingly demonstrating effective cooperation with local workforces pushing for higher wages.

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