New car sales in Hungary ended 2011 up a modest 3.7% year-on-year (y-o-y), at nearly 44,925 units, falling closely in line with BMI's expectations of 3.4% y-o-y growth in the passenger car segment. This growth comes on the back of five consecutive years of contraction in the market and is far from reflective of improving conditions. In fact, in line with our Macroeconomic team's expectations of Hungary edging back into recession in 2012, with real GDP anticipated to contract by 0.5% y-o-y, we have significantly reversed our vehicle sales forecast from 13.5% y-o-y growth expected earlier to a 1.4% y-o-y contraction.

Growth after 2012 is also likely to be far from steady. At a rate of nearly 11% y-o-y on average between 2013 and 2016, we expect the new vehicle sales market to reach 83,774 units by the end of the forecast period. At that total, the market will still be at less than half the level seen back in 2007.

Hungarian consumers will feel the pinch of restricted credit as some Western European parent banks are now looking to reduce their exposure in Central and Eastern European markets. Austrian banks, which account for more than 20% of total domestic banking sector assets in Hungary, were warned by the central bank in November 2011 to limit any new credit extensions to Hungary. All of this comes at a time when Hungary faces the prospect of increased interest rates, following ratings downgrades by the major credit rating agencies in late 2011 and the ongoing sharp sell-off in the forint. Purchase of vehicles on credit will therefore fall off.

This may determine consumer preference in the year ahead, but for 2011 the most popular model sold in Hungary was Skoda Auto's Octavia model, on 3,079 models sold (market share of 6.8%), followed by Opel's Astra on 2,759 units sold (6.1%) and the Ford Focus with sales of 2,541 units (5.6%). The Octavia is now the best-selling passenger car in eight countries throughout Central and Eastern Europe, after adding Hungary, Croatia, Iceland, Finland and Estonia to the list of markets topped in 2011. Volkswagen and subsidiary companies occupied four out of the top 10 slots in Hungary for 2011, with a combined market share of 14.1%.

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