On 29 December 2004, just one day after being sworn in, the new Romanian government decided to radically change the tax system. Since 1 January, profit taxes have been reduced from 25 per cent to 16 per cent, and the graduated income tax was replaced with a 16 per cent flat tax. Both employees and business executives suddenly realised they had more money to spend — and auto showrooms have been a favourite destination.
“I now earn almost 200 euros more each month. I can afford the payments for a 15,000-euro brand new car,” explained Stefan Petru, an IT specialist from Bucharest. “I was planning to buy five new cars for my company. But the new taxation system will allow me to get two more,” said Marian Albu, the owner of a real estate agency.
More than 56,000 vehicles (about 48,300 cars and 8,000 commercial vehicles) were sold in Romania in the first quarter of the year, at a total of 600m euros. The figure sets a record, representing a 62 per cent increase compared with the first three months of last year. About 32,000 of these cars were locally produced brands — including more than 24,000 Dacias, a 128 per cent increase from 2004. Another 24,000 were imports, the preferred brands being Renault, Skoda, Volkswagen and Peugeot.
While the flat tax largely explains this unprecedented buying spree, last year’s 8 per cent economic growth rate (expected to be about 6 per cent this year) probably also played a role. The 10 per cent appreciation of the national currency exchange rate to the euro and US dollar made cars more affordable too, as their prices are fixed in foreign currencies. Dacia sales were helped by the launch of the new Logan model, manufactured by the Dacia Renault factory in Pitesti, a city of 150,000 people.
The Logan’s release gave a powerful boost to the domestic production industry. Local factories, which produced 26,500 cars from January to March 2004, registered an 82 per cent rise in production during the same period this year. Exports experienced the most impressive growth, from 3,100 to 10,500 — a 233 per cent increase.
However, the high demand has also created headaches for dealers. There are too many clients for a limited number of personnel and showrooms, as well as a limited number of cars. “When the sales over-run the forecast up to 20 per cent, it is not a problem, but if the difference reaches 40 per cent or even 50 per cent, the delivery time for a car might be longer than 30 days,” said Radu Cristian, commercial manager of Peugeot dealer Trust Motors.
The boom has defied predictions that growth in 2005 would be a moderate 10 per cent to 15 per cent. Last year had been the best ever for the Romanian auto market, with more than 180,000 vehicles sold. If the first quarter trend continues, however, nearly 300,000 will have been sold by the end of 2005.