Dealerships turn to service work to make ends meet.

TALLINN -- According to BMI's latest Estonia Automotives Report, the Estonian automotive market has been badly hit by the international financial crisis and the country's economic recession, with sales down 24.8 percent in 2008 and a further 32.4 percent fall forecast for 2009.

In fact, the survey showed that growth was reliant on strong wage increases and rising consumer credit, with around 80 percent of new car purchases made through loans, and a sharp decrease in wage levels and contraction in credit availability knocked Estonian buyers off their foundations. Estonia is facing its worst recession since 1992, with real GDP growth forecast to come in at -8.8 percent in 2009 and private consumption down 8.0 percent. A recovery is not expected until 2011, when GDP growth is set to rise to 4-5 percent.

While experts expect a return to positive growth in 2010, they caution that the rate of expansion will be a moribund 0.7 percent. Furthermore, the average annual growth rate for 2011-2013 is forecast to come in at just 3.5 percent, well below the 8.1 percent average seen in 2003-2007. Consequently, BMI does not foresee a return to the pre-recessionary levels of car sales, with sales reaching 25,975 units by 2013, still 10.8 percent below 2008 figures and 30.7 percent below the market's peak of 2007.

In terms of the manufacturers operating in the market, Toyota Motor and Honda Motor maintained their position as the two biggest players in 2008 with sales of 3,100 and

3,020 units, respectively. Whereas carmakers such as Nissan Motor, Skoda Auto, Subaru and Fiat made substantial gains in terms of sales, the likes of Opel, Renault SA and Peugeot saw a substantial fall in sales during the year. Meanwhile, British luxury manufacturer Jaguar Cars sold 33 percent more vehicles in the period thanks to its 2008-launched XF model. However, Jaguar's success was offset by a 54 percent y-o-y drop in sales for its sister concern, Land Rover. Amid the collapse in sales, BMI expects a radical consolidation of Estonian car dealerships in 2009 and beyond, and dealers are expecting narrow margins and low profitability.

According to statistics in July 2009, only 643 new cars were sold in Estonia, which can be considered to be the weakest month for 2009. However, according to Helena Hyldahl, the senior manager of Marketing and Customer Care at AS Silberauto, the situation in automotive market is quite challenging indeed. "At the moment service is giving us the majority of turnover, around 70 percent. Still, it should be pointed out that comparing the service and repair works with previous years, there is a clear tendency that clients are postponing the service visits, and also, the average service visit time has decreased--meaning no additional extra work is ordered."

Sales of new vehicles is very low as is easily found from total market figures. As Silberauto is dealing both with personal and commercial vehicles, there is a bigger difference between these segments--the main drop is felt in commercial vehicles sales," said Hyldahl.

She added that the automotive market is very much affected by leasing company policy, so as the automotive market is running on a very conservative strategy at the moment, it slows down the automotive market remarkably. So the latest trend, in comparing last year's results, is in the immediate payment required for the vehicle, all at once.

"It is quite difficult to give comments towards the automotive industry's future, as it clearly follows the situation of the total economy. Hopefully the better times are starting from mid- to the end of next year," says Hyldahl.

She adds that "Our strategy at the moment is to be a good partner and give good, cost efficient solutions to our regular clients, such as campaigns for finding better insurance offers or good service offers. Of course, we are making good offers also for new vehicles, but we feel that it is not the time to push very strongly on sales campaigns, especially on the high end segment. How will the automotive companies survive? It is clear that all will not and, in some respect, these times are also good--meaning you have to find better solutions for cost management, you can continue with the best people and best ideas and products, so in total, the surviving companies will be more client-orientated and efficient."