New Transportation research report from Business Monitor International is now available from Fast Market Research

Boston, MA -- (SBWire) -- 07/22/2013 --Although we expect a modest recovery this year - we forecast GDP growth will rise 1.9% in 2013 - Serbian households are set for another difficult year in 2013, weighed down by fiscal austerity measures and high unemployment. The government's 2013 budget caps increases in public sector wages well below inflation, while it also hikes the VAT rate by two percentage points. These factors will curb vehicle sales.

Italian auto manufacturer Fiat announced in March 2013 that it expects production at its Serbia factory to reach between 110,000 and 150,000 units in 2013 following strong output levels over the last few months. BMI maintains a bullish outlook for the site, predicated on strong sales growth in Europe, despite the regional sales downturn, and expansion in higher-growth markets globally. Further, production at the site is competitive.

US firm Johnson Controls, which makes seat components for car interiors for FAS, has also opened a second facility in Kragujevac.

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Fiat will continue investing in the site, and expects to add a further 600 jobs in 2013 on the back of increased output. The automaker made 30,000 500L cars in 2012 following the start of manufacturing in July 2012.

The Kragujevac site is jointly owned by Fiat and the Serbian government. The site benefits from low wages, tax breaks, and government subsidies.

Production at the site is predominantly for export to Western Europe, where sales have generally been weak. In the first two months of 2013, passenger car sales in Europe declined 9.5% year-on-year (y-oy). BMI has become increasingly bearish on most of these market, and we expect many to remain weak over the year (see our online service, March 20, 'Regional Sales Downturn Set To Continue').

In this period, Fiat Group's total sales in the region declined 14% y-o-y. We expect Fiat, along with many other mass market manufacturers, to continue to struggle in the region (see 'Fiat Credit Rating Downgrade Commensurate With BMI View', February 27). Despite the company's downturn, sales of the 500L model are more robust, however, which has served to boost production at the Serbia site. We expect this trend to continue, as the downturn in European sales moderates somewhat over the year.

From June 2013, the 500L model will be on sale in the US, which should also serve to boost demand. Indeed, BMI maintains a generally bullish outlook for passenger car sales in the US. Further, a potential expansion of an existing free trade agreement (FTA) between Serbia and Russia to include autos exports would allow Fiat to access this high-growth market, which would serve to boost demand (see 'BMI View Playing Out As Sales Moderate', March 1).

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