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Ukraine Autos Report Q4 2010
Business Monitor International, Sep 2010, Pages: 63
The Ukraine Autos Report provides industry professionals and strategists, corporate analysts, auto associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's automotive industry.
As Ukraine's economic recovery continues, the car industry has begun to strengthen and display less volatility, though performance differs markedly between the various companies. Despite having been among the economies hardest hit by the global economic crisis, Ukraine's economic recovery has exceeded many industry forecasts. The conclusion of an IMF agreement to provide USD15.1bn in loans to the Ukrainian government has also reassured analysts. However, concerns remain over Ukraine's susceptibility to any potential 'double-dip' in the global economy and the government's ability to implement the IMF agreement to the satisfaction of the international financial organisation. These fears have played a role in dampening the auto industry's recovery and ensuring that performance so far has been disappointing.
Following this trend, auto production in Ukraine marked its first month-on-month (m-o-m) growth so far this year in July with output reaching 7,530 units, up 11% compared with June this year, according to estimates from the Ukrainian Motor Vehicle Manufacturers Association (UkrAutoprom). Although the worst is clearly over for the country's industry, BMI believes that the underlying weakness in domestic demand fundamentals in the country will continue to make carmakers extremely cautious about any significant increase in production this year.
The extent to which Ukraine's industry has been hit is evident from the fact that it has struggled to return to growth despite the economy surging out of recession in the first quarter of 2010. Flash estimates from the State Statistics Committee showed that real GDP expanded 4.8% year-on-year (y-o-y) in Q1, well above the -7.0% and -20.3% headline growth posted in Q409 and Q109 respectively. In contrast, cumulative domestic sales for H110 have fallen 18% y-o-y, to close to 71,000 units.
Also, while the quarterly figures are encouraging, yearly comparisons are less so. UkrAutoprom estimates that auto production fell 14% y-o-y, to only 38,519 units, in the first seven months of this year. While we see positive trends in the near future – mostly as a result of the low base effect from last year's production – we expect production to be contained at only 71,500 units by the end of this year, an increase of nearly 9% y-o-y. On a positive note, we see potential for improved capacity utilisation from 2011 as carmakers move in to take advantage of their increase exposure to exports markets and meet the pent up demand for vehicles domestically. By the end of 2014, we expect production to reach 271,600 units, still far from the total production capacity of close to nearly 350,000 units a year at present.
Overall, we conclude that the sector is still showing signs of trouble. Sales have begun to recover, but are still at levels far below the pre-crisis peak. Ukrainian producers are still very dependent on exports – a trend which is not expected to reverse in the near future. However, assuming that the global economy sustains its current recovery, producers will be likely to expand. New markets have been found in parts of the former Soviet Union; Škoda's Ukrainian arm Eurocar is expected to be producing 100,000 by the beginning of 2011; and a potential free trade area with Turkey offers the possibility of increased investment from an important player in the global components industry.'
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