Automobile re-exports inflating the figures

Each time a shiny new car rolls off a dealer's forecourt in the Czech Republic, another notch is added to the tally of total vehicle sales in the country. Yet in many cases that extra statistic could be contributing to a distorted picture of the size of the local car market.

The reason is that often the ultimate recipient of that vehicle is not a company or motorist based in the country, but an overseas buyer. The controversial but legal practice of "re-exporting" vehicles is, according to analysts and some car producers, routine for some brands.

Estimates suggest more than 10 percent of cars registered in the Czech Republic are subsequently deregistered and re-exported to another country where they are re-registered. It is done because new car prices in the Czech Republic are often significantly lower than those in neighboring countries, especially Germany, Europe's largest car market.

As a result, the already dismal start to the year seen in car sales here could be even more downbeat than figures suggest.

In February, new car registrations were down 22 percent to 10,562, while in the first two months of the year, the overall drop was 14.5 percent.

"Importers are motivated to import as many cars as possible, and they're finding ways how to sell cars not only to Czech customers, but [also] … to some customers from abroad," said Jan Linhart, a partner responsible for the automobile sector at KPMG in the Czech Republic.

According to Lidové noviny, nearly 17,000 of the 111,814 cars registered in the Czech Republic in the first seven months of last year subsequently had their registration removed and were re-exported.

Among the manufacturers said to be most heavily affected are luxury brands such as Audi and Mercedes. Reports suggest one-third of their Czech sales are accounted for by re-exports.

Price differences can be significant. In the Czech Republic, the cheapest Mercedes C-Class model costs 655,000 Kč, which translates to 25,643 euros. In Germany, the least expensive C-Class is advertised for 27,925 euros. For the larger E-Class, the situation is similar, with prices in the Czech Republic starting from 820,000 Kč, which converts to 32,102 euros, while in Germany prices begin at 33,975 euros.

Jan Klíma, a spokesman for Volkswagen, which secured second place in sales in the Czech Republic last year with an 8.5 percent market share, said price variations between markets were to be expected.

"It is natural that different markets have different price levels according to local economic situation and other factors. Volkswagen, as one of the players on the Czech market, has to act accordingly," he said.

Many manufacturers insist they are keen to stop re-exports. According to Klíma, Volkswagen "does not support exports of our cars by any means," and Martin Hejral, a spokesman for Opel, said his company and some others "fight against it."

"Opel has applied a very strict internal policy for a very long period and, based on this policy, re-export is strictly forbidden for Opel partners," he said. However, he said some other car producers "use this tool massively."

"Various sources estimate the share of re-exports on the level from 10 percent to 35 percent of the total sales," he said. "Our own conservative estimate is that approximately 15 percent of new cars sold and first registered in the Czech Republic are moved or sold abroad."

Tolerating re-exports allows importers to secure extra sales and, according to Linhart, the practice also allows carmakers to sell to motorists abroad who would otherwise be unlikely to buy their vehicles.

"They're targeting customers who wouldn't buy the car abroad, but they're not destroying the price [in the re-export market]. They are targeting customers who cannot afford to buy the car in the other country," he said.

Overall last year, the number of new cars sold in the Czech Republic increased 0.42 percent to 174,009, but if the number of re-exported cars is removed from statistics, sales could have actually fallen. This is partly because the number of re-exported cars may have grown as price differences between the Czech and foreign markets have increased.

Several years ago, according to Linhart, re-exports were made into the Czech market rather than the other way around.

"Three or four years ago, the Czech Republic had some of the highest prices of cars in Europe, so the opposite was more common: People were buying cars abroad and importing them to the Czech Republic. There was quite a different price, " he said.

"As the prices were decreasing more, people from the other countries started looking for a car in the Czech Republic."

The phenomenon of re-exports has been a long-running issue in Europe, with many UK motorists having bought cars in Continental Europe in the past and importing them to their home country, where prices have historically been higher.

Daniel Bardsley can be reached at
business@praguepost.com