Bulgaria Autos Report Q2 2012

BMI foresees new auto sales of 24,037 in Bulgaria over the course of 2012, which will represent yearlygrowth of 3.83%. However, this is unlikely to be totally filled with domestic produce. It seems likely thatimported vehicles will make up the majority of cars sold in Bulgaria for some time, at least. We see carsales of 30,784 in 2016, at the end of our forecast period.

BMI believes that vehicle sales in Bulgaria reflect the overall economic activity in the country. With realGDP posting an average growth of nearly 6.4 % y-o-y during 2004 and 2008, vehicle sales surged nearly23% y-o-y during the same period. However, the economy suffered a deep recession in 2009, with GDPshrinking 5.3%, according to BMI's Country Risk team. BMI views the causes of the fall to be consumersceasing their previous spending practices, mostly prompted by tight credit and leasing conditions in thecountry which had otherwise enjoyed strong growth due to cheap credit and market optimism during thepast couple of years. BMI notes persistent weakness in the dynamics of Bulgarian domestic demand,which leads us to discount the possibility of a more robust economic recovery this year.

On February 21, Great Wall, a Chinese firm, officially opened its first European production facility. It isremarkable because it is the first facility in Europe to produce a Chinese car. Located near the northernBulgarian village of Bahovitsa, the factory is being operated by Great Wall in partnership with Litexmotors, a Bulgarian firm. The facility has a maximum production of 50,000 vehicles, and covers 430,000square metres, as reported by autoclusters.eu, However BMI analysis foresees production of around only27,000 for 2012. We see a total of 32,168 vehicles being built in 2016. However, this figure is entirelybased on one production facility, so the fortunes of Great Wall are synonymous with the fortune ofBulgarian auto creation in the near term.

AFP reported in January 2012 that, while initially the cars would be constructed out of components fromChina, there was a definite plan to develop an indigenous component manufacturing industry. The modelswhich Great Wall are set to produce in Bulgaria seem to be priced so as to be competitive with theRomania made Dacia brand. It seems likely, however, that Great Wall made cars will not ‘explode’ ontothe scene, but will pick up market share slowly, with AFP reporting an expected 5% share in some CEEmarkets within six years.

This is a highly significant move by the Chinese company, as it gives it a foothold in the European market– particularly relevant given the growth of the consumer market in the CEE countries, as well as givingaccess to the free trade area. Great Wall is the first production company for over 15 years to operate inBulgaria, and may well herald a resurgence in full production companies in the country.