Bonus-less Hungary sees plunging car sales

Car sales are falling sharply in Hungary in contrast to many other European countries where governments have launched car scrapping bonus schemes to get the auto industry back on its feet.

"Unfortunately here in Hungary, the government didn't jump to the aid of car retailers," said the head of the auto retailers' association, Attila Fojt.

Fojt forecast sales of 70,000 units for the whole of 2009, compared with 160,000 in 2008. The record was 208,000 in 2003.

As a result, around 110-120 car showrooms have been forced to close so far this year out of a total 600 nationwide.

Hungary, which turned to the International Monetary Fund, the World Bank and the EU for a 20-billion-euro (29.6-billion-dollar) bailout last year, decided against a bonus scheme so as not to tear an even bigger hole in its budget.

Elsewhere in Europe, car scrapping schemes have led to a pick-up in sales.

But in Hungary, which builds cars for the likes of Suzuki, Fiat and Audi and makes parts for others such as Opel, the domestic market is still in reverse.

According to figures compiled by JATO Dynamics, a leading provider of automotive industry data, barely 2,500 vehicles were purchased in August compared with more than 11,000 a year ago.

Given the current environment, it comes as no surprise that Hungarian consumers are reluctant to make big-ticket purchases.

The economy is in its worst recession in 18 years and is projected to contract by 6.7 percent this year and then by a further 0.9 percent next year.

Data published this week showed that household spending slumped by 6.6 percent year-on-year in July.

The government has had to prescribe drastic belt-tightening measures as one of the conditions for IMF bailout. Among them was a hike in sales tax from 20 percent to 25 percent. And that has soured retail sales, analysts say.

Another factor hitting the car market was the increased unwillingness of banks to lend customers money, said GKI analyst Anna Munkacsy.

"This greatly discourages consumption in this sector," she told AFP.

Gabor Gyozo, head of the Hungarian car importers' association, agreed.

"Earlier, you could buy a car with little more than an identity card. You could take out a loan for 120 months with no immediate payment. Now, it's the other extreme," he said.

According to the Hungarian Leasing Association, leasing agreements accounted for 69 percent of all car sales in the first six months of last year. In the corresponding period this year, it was only 32 percent.

The value of car purchase loans has slumped correspondingly.

"In the first six months of 2008, a total 333 billion forint (1.216 billion euros) were taken out in loans. In the same period this year, it was barely 116 billion forint," said leasing association chief Gabor Levai.

With rising unemployment -- the central bank projects the jobless rate to rise to 11 percent next year from 9.6 percent at present -- the number of loan defaults is also increasing, Levai said.

"These are typically people who have leased small and medium-sized vehicles and who can no longer afford the monthly instalments, either due to exchange rate movements or because they've lost their jobs," he said.

Munkacsy from the independent economic think tank GKI said she was forecasting a slight upturn in car sales in the last three months of this year as prices drop. For 2010, she was pencilling in stagnation.

"But car sales will long stay way below the 2008 levels," she said.

Analysts at Capital Economics in London said in a note to investors that household spending in Hungary is set to contract further next year.

"When coupled with a weak banking sector, which is likely to keep credit conditions tight in spite of cuts in official interest rates... we expect private consumption to contract by a further 2.0 percent in 2010."