Stuck in the slow lane
Poland's car market has endured a rocky ride during the first few months of EU membership, as new car sales have come crashing down and thousands of used autos now flood across the borders, turning the country into Europe's new junkyard.
Research shows that new sales plunged by eight percent in August, marking the fourth consecutive monthly drop. While Poles purchased 20,309 vehicles from main dealers last month, the tally represents a dramatic 14.4 percent fall compared to the same period in 2003.
Yet this nosedive in sales of shiny showroom models is almost overshadowed by the sheer volume of used-and very used-vehicles that are rumbling and bumping over the borders.
During the whole of last year, 33,000 secondhand cars were brought into the country. That figure has been dwarfed in the first eight months of 2004. Statistics from car market analyst Samar show the number of non-new cars brought into Poland between January and July topped a staggering 286,000-that's an eight-fold increase for the year so far.
Gear change Another look at Samar's statistics shows that total new car sales for the January-to-August period this year are still up 4.9 percent over last year. However, Samar's founder, Wojciech Drzewiecki, says that end-of-year figures are likely to be down significantly.
"We have seen big drops in car sales-last month it was 14.4 percent-and we can expect this to continue to the end of the year," says Drzewiecki. "Overall we can expect to see a fall in sales of 5 to 10 percent for the whole year [compared to last year]."
Drzewiecki says the confusing picture must be viewed in light of European unification. "EU membership has played a part in the way companies buy vehicles," he explains. "Until May, companies could write off the VAT on vehicles, but this has changed, making them-in effect-22 percent more expensive. This has had a big influence because previously about 40 to 50 percent of all cars sold were to companies-and its here where we see the big change."
The approaching unification also prompted a big increase in purchases by private buyers who decided to act fast in anticipation of price rises in new vehicles after accession.
"The figures we see now are a reflection of the acceleration in the run-up to EU membership and the loss of VAT breaks," Drzewiecki concludes.
Some, though, believe the recent decline in new sales is deeply rooted in Poland's economic ills.
Downward trend "Figures are going down but it is not just a result of joining the EU," says General Motors' Przemek Byszewski. "Poland's economy has not been good for a few years and the political situation is still not stable."
"Unemployment is still very high and it is not going to change very dramatically in the near future," he says. "People are really afraid to spend all the money they have on a car when they have to think about sending their kids to school and ensuring they have enough food and fuel in the winter.
"Life is more and more expensive after joining the EU but it is not the only reason for the fall in sales."
And many other dealers are similarly reflecting on the downward trend.
"The situation in the market is not good, generally," says Nissan's Adam Potocki. "Nissan sold a total of 608 cars in August. Of these, 577 were personal cars and 31 were for companies. Last year we sold 667 cars in the same period and, of those, many more were company cars."
"However," he says, "in these last few weeks, we cannot say sales are good, but they are better. Our results for August show that Nissan had a market share of 2.67 percent-our best this year. It may not be very big, but in this situation it is very good." Ford, meanwhile is optimistic about its figures. "We have seen a 45 percent growth in sales compared to [January to August] 2003 and we are not suffering from the shrinkage of the market," claims Ford spokesperson Monika Dobrolubow.
"Our best-selling product is the Focus, and sales for this model are still growing. Definitely we will see the effect of a general drop at the end of the year-but now our sales are growing."
'Junkyard' Poland The giant rise in the number of secondhand vehicles entering Poland-while certainly meeting the demand for lower-priced cars-has also had an indirect impact on the new-car market.
Drzewiecki believes the volume of old models has forced prices down on the secondhand market.
"Cars that are more than eight years old have no direct effect on the market," he explains. "But they are having an indirect effect because the bigger import of used cars is decreasing prices on the used car market, so the exchange of cars-new for old-is slowing down too. Fewer people are interested in selling their old car and buying a new one."
The fleet of aging autos-largely sourced from Holland and Germany-is also raising concerns within the industry about roadworthiness and potential pollution problems, while others blame poor regulation for turning Poland into a 'junkyard.'
"There are no real effective regulations that control all these imported cars," says Byszewski.
"Poland now looks like a garbage dump for trash cars from the West. It shouldn't be like this-somebody should prevent it. As long as a car can move, it can be stamped-and we end up with dangerous cars on our roads.
"It seems like someone can put a car together with his brother-in-law out of five different ones. Then, as long as it stands on four wheels and drives, that is enough. It can be dangerous and rubbish, but that's okay."
But as the roads fill up with wreck upon wreck, market watchers say the rising numbers indicate one small jewel of good news among the mass of rust.
"The growth in secondhand cars shows that in Poland there is still a huge potential for growth in selling cars."
His conclusion is echoed by Samar's boss, who agrees that there is good news hidden among the gloomy figures.
The good news "Potentially, the market could see 1 million cars sold annually. Poland has a very low car density and we have to increase [it]. The question is-how quickly Polish sales will gain in the future," says Drzewiecki.
Given that Polish car ownership is about 350 units per 1,000 people, while the European average is 450 or more, experts say that only legislation or a limit on supply will reduce the importation of secondhand cars.
"I don't think any action by the government will stop this," says Drzewiecki. "The only factors that could limit this will be supply and cost. If there is a shortage of used cars from the Western countries where they are being sourced, or if they increase in price, then this will influence the supply.
"The Minister of Finance is working out a system of taxes to tackle the inflow of old cars," he says. "We can expect an announcement in January, but this will then have to be debated and will not be introduced for some time."
Drzewiecki believes some action will likely be taken concerning the quality and roadworthiness of these cars. But he doesn't think this will make much of a difference, as the inspection system in general is not working properly.
"We can expect that changes in taxation will influence the market, rather than inspections," he says.
Recovery So the big question is-when will we see a recovery in the new car market? On this, opinions are mixed.
"As for this year it is difficult to say," concludes Drzewiecki. "If there are some changes in taxation, those changes can influence sales. On the one hand, we can say [new car] sales should be lower by 5 to 10 percent than last year. But on the other hand, if the Minister of Finance introduces taxation changes that will be less favorable for customers next year, that can influence sales this year.
"This is not a good situation for car manufactures because they have to consider whether to increase prices-which will cause a drop in sales-or to stay with the same prices but export more cars to Germany," he says. "The latter will be difficult, because they will face very strong competition from Germany. So they are likely to increase prices; it is really the only way they can go."
Byszewski, meanwhile, takes a longer-term view: "The solution lies in the general growth of the economy," he says. "Government figures show unemployment is going down. In five to seven years, things will change here in Poland."
He cites GM's plant in Gliwice, in Silesia, as an example of investment fostering cooperation between numerous businesses , as well as economic growth.
"The region where we built our factory was a greenfield site. Now there is a complex of companies that we cooperate with. Unemployment has fallen from something like 20 percent to around 5 percent. Opel has announced that it is building another model in Poland at the plant and this will create 1,000 jobs."
So although recovery seems certain, it may be a while yet before Poland's main dealers are recording record sales again.
Research shows that new sales plunged by eight percent in August, marking the fourth consecutive monthly drop. While Poles purchased 20,309 vehicles from main dealers last month, the tally represents a dramatic 14.4 percent fall compared to the same period in 2003.
Yet this nosedive in sales of shiny showroom models is almost overshadowed by the sheer volume of used-and very used-vehicles that are rumbling and bumping over the borders.
During the whole of last year, 33,000 secondhand cars were brought into the country. That figure has been dwarfed in the first eight months of 2004. Statistics from car market analyst Samar show the number of non-new cars brought into Poland between January and July topped a staggering 286,000-that's an eight-fold increase for the year so far.
Gear change Another look at Samar's statistics shows that total new car sales for the January-to-August period this year are still up 4.9 percent over last year. However, Samar's founder, Wojciech Drzewiecki, says that end-of-year figures are likely to be down significantly.
"We have seen big drops in car sales-last month it was 14.4 percent-and we can expect this to continue to the end of the year," says Drzewiecki. "Overall we can expect to see a fall in sales of 5 to 10 percent for the whole year [compared to last year]."
Drzewiecki says the confusing picture must be viewed in light of European unification. "EU membership has played a part in the way companies buy vehicles," he explains. "Until May, companies could write off the VAT on vehicles, but this has changed, making them-in effect-22 percent more expensive. This has had a big influence because previously about 40 to 50 percent of all cars sold were to companies-and its here where we see the big change."
The approaching unification also prompted a big increase in purchases by private buyers who decided to act fast in anticipation of price rises in new vehicles after accession.
"The figures we see now are a reflection of the acceleration in the run-up to EU membership and the loss of VAT breaks," Drzewiecki concludes.
Some, though, believe the recent decline in new sales is deeply rooted in Poland's economic ills.
Downward trend "Figures are going down but it is not just a result of joining the EU," says General Motors' Przemek Byszewski. "Poland's economy has not been good for a few years and the political situation is still not stable."
"Unemployment is still very high and it is not going to change very dramatically in the near future," he says. "People are really afraid to spend all the money they have on a car when they have to think about sending their kids to school and ensuring they have enough food and fuel in the winter.
"Life is more and more expensive after joining the EU but it is not the only reason for the fall in sales."
And many other dealers are similarly reflecting on the downward trend.
"The situation in the market is not good, generally," says Nissan's Adam Potocki. "Nissan sold a total of 608 cars in August. Of these, 577 were personal cars and 31 were for companies. Last year we sold 667 cars in the same period and, of those, many more were company cars."
"However," he says, "in these last few weeks, we cannot say sales are good, but they are better. Our results for August show that Nissan had a market share of 2.67 percent-our best this year. It may not be very big, but in this situation it is very good." Ford, meanwhile is optimistic about its figures. "We have seen a 45 percent growth in sales compared to [January to August] 2003 and we are not suffering from the shrinkage of the market," claims Ford spokesperson Monika Dobrolubow.
"Our best-selling product is the Focus, and sales for this model are still growing. Definitely we will see the effect of a general drop at the end of the year-but now our sales are growing."
'Junkyard' Poland The giant rise in the number of secondhand vehicles entering Poland-while certainly meeting the demand for lower-priced cars-has also had an indirect impact on the new-car market.
Drzewiecki believes the volume of old models has forced prices down on the secondhand market.
"Cars that are more than eight years old have no direct effect on the market," he explains. "But they are having an indirect effect because the bigger import of used cars is decreasing prices on the used car market, so the exchange of cars-new for old-is slowing down too. Fewer people are interested in selling their old car and buying a new one."
The fleet of aging autos-largely sourced from Holland and Germany-is also raising concerns within the industry about roadworthiness and potential pollution problems, while others blame poor regulation for turning Poland into a 'junkyard.'
"There are no real effective regulations that control all these imported cars," says Byszewski.
"Poland now looks like a garbage dump for trash cars from the West. It shouldn't be like this-somebody should prevent it. As long as a car can move, it can be stamped-and we end up with dangerous cars on our roads.
"It seems like someone can put a car together with his brother-in-law out of five different ones. Then, as long as it stands on four wheels and drives, that is enough. It can be dangerous and rubbish, but that's okay."
But as the roads fill up with wreck upon wreck, market watchers say the rising numbers indicate one small jewel of good news among the mass of rust.
"The growth in secondhand cars shows that in Poland there is still a huge potential for growth in selling cars."
His conclusion is echoed by Samar's boss, who agrees that there is good news hidden among the gloomy figures.
The good news "Potentially, the market could see 1 million cars sold annually. Poland has a very low car density and we have to increase [it]. The question is-how quickly Polish sales will gain in the future," says Drzewiecki.
Given that Polish car ownership is about 350 units per 1,000 people, while the European average is 450 or more, experts say that only legislation or a limit on supply will reduce the importation of secondhand cars.
"I don't think any action by the government will stop this," says Drzewiecki. "The only factors that could limit this will be supply and cost. If there is a shortage of used cars from the Western countries where they are being sourced, or if they increase in price, then this will influence the supply.
"The Minister of Finance is working out a system of taxes to tackle the inflow of old cars," he says. "We can expect an announcement in January, but this will then have to be debated and will not be introduced for some time."
Drzewiecki believes some action will likely be taken concerning the quality and roadworthiness of these cars. But he doesn't think this will make much of a difference, as the inspection system in general is not working properly.
"We can expect that changes in taxation will influence the market, rather than inspections," he says.
Recovery So the big question is-when will we see a recovery in the new car market? On this, opinions are mixed.
"As for this year it is difficult to say," concludes Drzewiecki. "If there are some changes in taxation, those changes can influence sales. On the one hand, we can say [new car] sales should be lower by 5 to 10 percent than last year. But on the other hand, if the Minister of Finance introduces taxation changes that will be less favorable for customers next year, that can influence sales this year.
"This is not a good situation for car manufactures because they have to consider whether to increase prices-which will cause a drop in sales-or to stay with the same prices but export more cars to Germany," he says. "The latter will be difficult, because they will face very strong competition from Germany. So they are likely to increase prices; it is really the only way they can go."
Byszewski, meanwhile, takes a longer-term view: "The solution lies in the general growth of the economy," he says. "Government figures show unemployment is going down. In five to seven years, things will change here in Poland."
He cites GM's plant in Gliwice, in Silesia, as an example of investment fostering cooperation between numerous businesses , as well as economic growth.
"The region where we built our factory was a greenfield site. Now there is a complex of companies that we cooperate with. Unemployment has fallen from something like 20 percent to around 5 percent. Opel has announced that it is building another model in Poland at the plant and this will create 1,000 jobs."
So although recovery seems certain, it may be a while yet before Poland's main dealers are recording record sales again.
