Boston, MA -- (SBWIRE) -- 08/22/2012 -- Latest economic data and developments in the autos industry paint a very bleak picture for prospects of any recovery in the autos segment in Greece. On the one hand, the economy contracted by 7.5% year-onyear (y-o-y) in the last quarter of 2011 (accelerating from 5.0% in Q311). On the other, the government announced, in May 2012, an amendment calling for the deregulation of taxis and tour buses in the cities of Athens and Thessaloniki. The major impact of this regulation will be that this will not only increase the average age of the vehicle fleet in the country, but also discourage businesses from renewing their fleet.

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Under these conditions, BMI has further revised down its auto sales forecast for 2012 and 2013 to 24 % y-o-y (from the -10% y-o-y expected previously) and 1.5% y-o-y (from 4.6% y-o-y) contraction respectively. The downgrade also reflects our overall pessimism towards the broader economy where our Macroeconomic team forecasts a contraction of 4.5% in 2012 and 1.2% in 2013 (revised down from a positive 1.3% previously), assuming that Greece continues down the path of further austerity.

Although the market should return to positive growth territory from 2014, we expect this growth to be very modest. The fact that there has been virtually no foreign direct investment into Greece over the last decade and that productive capacity is almost depleted, we see little scope for robust economic recovery during the rest of the forecast period. The only upside will be the favourable base effects, which should help the market return to 86,100 units by end-2016, still a far cry from the 306,800 units sold in 2007.

To a large extent, we attribute the government's awareness of the lack of investments from the businesses to its aforementioned decision to deregulate taxis and tour buses in the cities of Athens and Thessaloniki. With a similar view, the Greek Parliament, in November 2011, passed a bill aimed at lifting the ban on diesel engines cars in Athens and Thessaloniki.

However, mindful of the need to curb pollution in the major cities, a government announced another ruling in May 2012 stating that only cars which comply with the Euro 5 emissions standard introduced in September 2009 will be allowed to drive into or through the centre of Athens during peak hours from September 2012.

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