Rising car sales reflect economic recovery, increased consumer confidence

photo:  (Barbora Kmentová)

Both production and sales of cars in the Czech Republic have seen a strong increase this year. Some 94,000 new cars were registered in the country in the first six months of 2014, more than 16 percent higher than in the same period last year. Meanwhile, Czech-based car producers have pushed up output by over 8 percent. The continuing recovery of the Czech economy, along with higher household spending have been driving the rising sales, according to Vojtěch Opleštil from the Prague branch of the PricewaterhouseCoopers consultancy.


“There are two main reasons. One of them is that the Czech economy is growing overall. All the factors we are monitoring are doing pretty well, which means households’ consumption, government spending, corporate investment and last but not least, exports are also doing quite well. So all these factors have an effect on the numbers of new car registrations, and they are rising.”

“The other factor is that we compare the number of registration with last year, and 2013 was pretty bad. It was some 16 percent lower than 2012 which was the most successful year.”

How is the demand spread between companies and households?

“The corporate sector represents about two thirds of the consumption, and households one third. In other words, it’s important to see how the companies are doing because they have the biggest impact on the overall registrations.”

Do you think the surge might have been caused by firms reacting at the end of last year and the start of this year to the weakening of the Czech crown by the central bank?

“That could be one of the reasons. However, right now we believe it was only a minor factor because the effect would most likely appear later this year. Really, exports and overall corporate investment are basically influenced by the growth of the economy both in the Czech Republic, the EU and the rest of the world.”

When we take a closer look at the household demand, would you say the overall performance of the economy has already led to increased spending?

“This is an interesting question. On the one hand, we can see that the level of unemployment has not decreased substantially so far. That’s quite natural because the growth of the economy only translates into decreased unemployment with a certain delay.

“Generally, household confidence is quite good but on the other hand, people are still concerned about possible price hikes. That’s interesting because there are no expected price increases in electricity, gas or other commodities, so it looks like households are still price-conscious, and they will remain so.”

So how do you expect the car market to develop throughout the rest of the year?

“We think the increase will continue; one of the reasons is, as I said, that the baseline from last year was quite low. On the other hand, the second half of 2013 already featured a growth, so the baseline will not be as low as it was at the beginning of the year will be of up to 10 percent.”

When it comes to the actual market, do you see any changes in customers’ preferences?

“I don’t think there are any changes in trends. What was quite interesting was the latest news from Škoda Auto that people are increasingly buying four-wheel-drive cars. But I’m now aware of any such trends with other brands. So I think that the preferences will be basically the same as they have been until now.”

Speaking of households optimism versus expected price hikes, the Czech government is considering increasing some of the taxes in a year- or two-years’ time. Do you think this could boost the sales of cars, or other goods?

“We have seen these kinds of boots in the past before the announced tax increases. It always depends on car dealers and importers and on how they work with these changes. Other firms from other sectors, such as real estate developers, used the opportunity and it had a positive impact on sales.”

Škoda Auto has a 30 percent-share of the Czech car market. How have their sales helped increase production, and more generally, the economy?

“I would say any increase in sales would help the economy and the performance of Škoda and other Czech-based car manufactures. On the other hand, we need to take into account that the Czech market for Škoda represents some 6 or 7 percent of their overall sales; for the other firms, Hyundai and TPCA, it’s even lower. So even if there is a huge increase in Czech car registrations, it will not have a big impact on the manufacturers’ performance.”

The car industry is doing well, too. In June, Škoda produced a record 98,000 cars in their Czech and foreign plants, and other manufacturers have also increased production. However, some of their key markets such as Russia are reporting declining sales. Do you think their output could drop again later in the year because of this?

“It will definitely have some negative impact on these firm but we need to take into account that the majority of their sales are in western Europe, and Europe in general. Other markets are also important and the companies will need to react somehow but the bulk of their production goes to western countries like Germany, the UK, Italy, and so on.”

And you don’t expect sales there do dip as well?

“Not right now. We have seen that registrations in the EU in general are on the rise. There was a little decrease in Germany in the last two months but according to VDA, the German car manufacturers’ association, the registrations in that country should grow this year. So I’m quite optimistic.”

So how long do you think it will take for the revived car manufacturing to affect job creation and the labour market?

“In general, it takes a year or so for the companies to adjust to new production levels. But anyway, these firms use agency workers, which enables them to react rather quickly.”

But will this affect the unemployment levels since these workers are often imported from abroad, and are not registered in the Czech labour market?

“That’s one of the reasons. But the unemployment rate is affected by the firms’ suppliers so the change coming from the market first affects the car manufacturers and then the suppliers. This means it really takes some time before it impacts the unemployment rate.”

Author: Český rozhlas Radio Praha
Added: 09.07.2014

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