Boston, MA -- (SBWIRE) -- 07/25/2012 -- BMI has revised down slightly its Serbian vehicle sales growth forecasts, as we did last quarter, on the back of the latest industry figures, which suggest that new vehicle demand remains sluggish, and our expectations of a slowdown in economic growth.

We estimate sales to grow just 4.79% in 2012, with total vehicle sales of 30,388. This compares with our last quarterly forecasts when we estimated that 30,4943 vehicles would be shifted in 2012, a rise of 5.15%.

From 2012 to 2016, we expect vehicle sales to grow by a modest 6% y-o-y on average. Again, this is slightly lower than last quarter when we pencilled in an annual average sales rise of 6.8% y-o-y between 2011 and 2016.

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In 2012, we expect the overall consumer profile to weaken as fiscal consolidation measures come into play from H212, with the aim of bringing the fiscal deficit under control. The country's self-imposed fiscal responsibility rule and the need to comply with IMF conditions will see public spending greatly curtailed and the imposition of a freeze on public salaries and pensions, all of which will hurt the affordability of new cars.

We believe the deal between Serbia and the EU calling for a reduction in custom duties on new imported vehicles from 5% to 2.5%, which came into effect from January 1, is unlikely to bolster consumer confidence and hence vehicle sales in Serbia. We believe that the weak domestic picture, constrained credit and poor export revenue from the crisis-stricken EU - its principle revenue earner - will keep consumer spending curtailed.

The country's fast-ageing population - with as much as 21.3% likely be aged over 60 by 2015 - and poor road infrastructure are unlikely to make new vehicle purchases particularly attractive to a significant section of consumers. Moreover, with vehicle loans in Serbia typically having a maturity period of up to 15 years, financing on vehicle purchases will be limited to a smaller consumer base.

Things are slightly more encouraging in terms of production, however.

Owing to the small size of its autos industry, Serbia currently ranks lowest in BMI's Risk-Reward Ratings for the autos industry in Europe, but a slew of recent investments in the country's autos industry - particularly on the supply side - pose significant upside risks to its score and ranking in our ratings system.

French tyre maker Michelin plans to invest close to US$227mn towards expanding the annual production capacity at the Tigar plant in Pirot, Serbia over the next five years. The investment, which is primarily aimed at enabling the company to expand its presence in the Russian, Central and Eastern European, African and Middle Eastern markets, indicates Serbia's improving manufacturing profile and its potential to emerge as a regional autos hub.

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