Strong economic growth, rising incomes, and the growth of credit options for car loans combined to make the Bulgarian car market one of the fastest growing in Europe – before the global economic downturn struck. However, car sales have fallen dramatically amid the financial crisis, which has put an end to freely available consumer credit. Wages, which have risen rapidly in the last few years, are starting to slow. The extent to which they slow will likely affect the country’s competitiveness. We believe 2009 will be a difficult year for the economy and subsequently the car market. However, we believe both will return to growth in 2010.

In Q109, new car sales dropped by more than 51% year-on-year (y-o-y) to 6,898 units, according to estimates from the Union of Automobile Importers in Bulgaria (SVAB). The downturn in the economy has put the reins on consumer spending. In 2M09, imports plunged by 32% y-o-y, according to the IMF. The organisation downgraded its economic outlook for the country in April, noting the slowdown in domestic demand and freeze on credit. More than 82% of banking assets are foreign-owned, and the need for highly endebted banks and financial institutions to clean up their balance sheets has led to tighter scrutiny of credit assessment criteria for new loans.

The downturn is also takings its toll on the commercial vehicles market. In Q109, sales of buses and trucks reached a mere 290 units, according to the SVAB. By comparison, sales reached 4,115 in 2008. There have been reports that sales have fallen because customers are delaying purchases while they wait to see how the economic situation develops. There could be as much as a 50% contraction in commercial vehicle sales as industrial producers scale back production, furthermore resulting in less demand in the road haulage sector.

With no domestic manufacturing facilities, Bulgaria imports all of its autos. But that may change as Chinese manufacturer Great Wall Motor (GWM) began construction of a plant in the city of Lovech in May 2009. The EUR80mn facility will produce its Florid models and could create as many as 1,500 direct jobs. BMI believes that this is an encouraging sign; other Chinese brands looking to diversify may also choose to set up in Bulgaria once the global economy recovers.

With the domestic economy forecast to contract by 3.1% this year, car sales are likely to remain depressed through the year. BMI maintains a bearish attitude concerning the prospects for new car sales in 2009, with sales of just 51,674 units forecast. We expect the recovery to take time; economic growth should shrink by 1.5% in 2010 as demand is decreased due to the lack of external credit availability and the deleveraging process gains ground.