With the advent of e-hailing services and home office, car ownership has fallen down the pecking order for younger generations.
Eastern European car market : Production over sales
Eastern Europe is more popular as a production location than the sales market. Ever since the fall of the Berlin Wall, Western European automakers like Daimler and VW have been largely outsourcing their production facilities to the eastern parts of the continent. The region has replaced the inefficiency and low standards of Soviet-era manufacturing with some of the most modern and productive plants in Europe.
Eastern Europe has been the only large region apart from China to increase its market share of car production since the beginning of the millennium. By establishing production facilities in the East, automakers do not only hope to expand their network and improve profitability but also evade taxes and tariffs.
According to Forbes’ findings, “while hourly labor costs in Germany range from €40-€52, the costs decrease to €13 per hour in Hungary, and to below €5 per hour in Romania and Bulgaria.”
The benefits of outsourcing
Audi was one of the car brands to have shifted production to existing lower-cost plants in Eastern Europe. The automotive powerhouse planned to assemble two new models in Volkswagen plants in Slovakia and Hungary. The plan was to begin production of a full-sized Q8 SUV at a factory in Bratislava, Slovakia, in 2018, and the following year, to add the sporty, coupe-style Q4 SUV in Gyor, Hungary.
The prospect of changes certainly brought excitement about the brand in the region. Moreover, the automaker was not only increasing its brand value but also disrupting the manufacturing environment in a positive way.
Thanks to the Gyor production plant, Audi won the title of the “most attractive employer” in Hungary six years in a row. In that sense, the automaker’s presence in the region contributes more to the overall brand image than the monthly balance sheet.
Another man’s treasure: The secondhand car market
The region is famous for importing used cars from the West. The second-hand vehicles get a second chance in the Balkans and the neighboring countries. These markets have a tendency for increasing the average age of passenger vehicle fleets. In Bulgaria, for example, nearly 50% of the cars registered in the country are age 20 or older.
In Eastern Europe, the exchange and sale of the already used vehicle are nothing spectacular. It’s almost like neighbors swapping sugar for eggs at their doorsteps. If you ever lived in the region, you wouldn’t even think about it as a phenomenon. Nobody does, anymore.
Whether it is your neighbor’s old car or an old car from the neighboring country, it doesn’t matter. The point is that the car is cheap and isn’t falling apart (just yet). Who cares that there are a million newer models somewhere out there in the West? As long as it can handle your trip to the beach, you’ll take it.
However, not all cars come from the West. Interestingly, in this pool of automotive relics, you will often find one particular Soviet model. You can delve into its story by reading our post on Lada Zhiguli.
The real division between East and West
Generally, the demand for new cars in Eastern Europe is low. Instead, people rely highly on second-hand vehicles imported mainly from Western countries. But this is predefined by certain economic and social factors in the region. There are some major differences between the wealthy West and the “poor East” that affect people’s buying potential and purchasing habits.
Priorities vs. realities
In Eastern Europe, many people are still getting their hands on a personal vehicle for the first time. In the past, most families used to have only one vehicle. Today, the situation is changing as more people have the desire to get a taste of western freedom.
But the main focus in the region is still on mobility. As more people look for job opportunities outside of their local community, mobility solutions become a necessity. Cheap mobility solutions, to be precise. This alignment of priorities puts factors such as depreciation and CO2 emissions further down the checklist.
Electric vehicles are also just a dream for the majority of countries in the post-Soviet bloc. At the same time, however, the West already considers them a common sight in the streets. The consciousness about the environmental impact of cars is much higher among people in Western Europe than in the East. Some even consider the flow of second-hand cars to the Eastern region as an act of exporting pollution.
But it’s not that the people in the East are less educated or poorly informed. It’s just that their priorities are still focused on practicalities rather than self-actualization. This scheme of things largely defines their choice for second-hand vehicles.
Outsourced production vs local market
Some Central and Eastern European (CEE) countries — notably the Czech Republic and Slovakia — are exporting large numbers of vehicles while their domestic markets remain small. These two countries produce more than five times their levels of domestic demand. Therefore, plants in these countries operate almost entirely independently of the local market, relying on high demand in the destination countries in Western Europe.
Apart from the increase in brand equity, automakers do not get much financial profit from the local market. The produced vehicles are shipped back to countries like Germany, France, and the UK. Locals receive only the second-hand models from abroad.
As one might expect, the three big countries Poland, the Czech Republic, and Hungary are the predominant sales markets, accounting for nearly 80% of all new car registrations in the Eastern region. The others still rely on their cousins who travel West to bring the second-hand option with the best price-quality ratio.
Market potential vs. financial incapability
The living standard in the East remains the biggest obstacle for automakers. Income levels are generally lower, but the negative demographic trends are only making the situation worse. However, automakers expect vehicle sales to grow in the next decade of years.
As economic activity begins to pick up in Eastern Europe, combined with lower vehicle ownership rates, automakers and dealers hope to see an increase in sales. With wages as low as €5, however, this might be hard. People in these countries do not believe in big automotive companies because they seem way out of range.
The brands that will most likely enjoy the increase in buying power in the East are the ones positioned in the middle segment, like VW and Skoda. The “modest ones,” as automakers call them.
In Bulgaria, for instance, VW is the brand that dominates the country’s fleet. In 2016, there were more than 485,000 VW vehicles in the country. For comparison, Audi was enjoying less than a third of this number (a little over 176,000). Reality is nobody would mind driving an Audi. But few can actually afford one. Even if it’s second-hand.
The glorious life of a VW Golf
The Golf was first produced in 1974 and since then has become famous not only in Europe but also in North America and China. And no wonder. Currently, it is manufactured in Germany, Spain, and Slovakia. In 2009, the brand won the title “World Car of the Year”.
Golf is the most wanted graduation gift among teenagers. It’s common in Eastern Europe to receive a car from your parents as soon as you finish school. There’s a high chance it will be your dad’s old Golf, but hey, as long as it runs, you won’t mind. If you are a girl, this would be the last step to independence!
The Volkswagen Golf in Eastern Europe is many youngsters’ first real possession. It is often a family heritage passed down from one generation to another. A toy for the truly handy men, and a symbol of social status for the brave Eastern European women. It is the car everyone goes through.
This is why the Volkswagen Golf has been topping the monthly sales figures in Eastern European countries for all models for a very long time. The Volkswagen Golf VII even became the European car of the year in 2013.
The Indian Summer in the East
In the end, we would like to look at the current scheme of things as a chance for each vehicle to have a happier elderly life. If it weren’t for Eastern markets, old cars would die in a Western metal landfill much sooner, wouldn’t they? Instead, they are carefully tended by entire generations of families. Until they can no longer run.
We can’t keep our eyes closed to the potential safety and environmental threats old vehicles cause, however. There must be active control of the import of second-hand vehicles in the East to ensure quality and reliability. And we hope to see serious regulations passed soon.
While traveling through Europe, we have visited an old junkyard – a real treasure chest of Eastern European automobile history. Don’t forget to check our report from that visit.