Hungary

For a motorist stuck in Budapest's gridlock traffic on any given weekday it may be hard to believe that only 10 years ago automobiles were a luxury in Hungary. In 1992, three years after the end of Soviet occupation, the few cars on the road were mostly utilitarian models like the Russian-made Lada or the East German Trabant. Today almost every auto make in the world is present on Hungarian roads - including a heavy dose of Japanese models.

A surprising number of cars on Hungarian roads today are Japanese: nearly one third. Leading the pack is Suzuki, which commands 20 percent of the passenger-car market and most of the motorbike market. From its manufacturing plant in Hungary, Suzuki churns out nearly 30,000 cars per year for the domestic market alone.

Magyar Suzuki managing director Tadashi Kondo says that Suzuki's image as a "local" company helps endear the brand to Hungarians. Perhaps just as importantly, Suzuki is able to compete strongly on price because its local production base exempts it from import duties.

Toyota Motor Hungary President Kazuyuki Muto

Not the same story for Japanese importers like Toyota, Honda, and Mazda, who face a 13 percent tariff on imported passenger cars.

"It is challenging to compete against the European manufacturers because of this. We are operating on much lower margins," says Mazuyuki Nozawa, managing director of Honda Hungary. Honda has been present in Hungary since 1994 and today offers a full line-up of passenger cars and motorbikes imported from Japan, the US, and the European manufacturing plant in Swindon, UK.

"We would like to move more production to Europe," says Nozawa. "We especially need production capacity for small vehicles because demand is increasing for this segment."

Honda benefits from a very strong brand image as a sporty car, often compared to BMW. However, the particular market preferences of Hungary have presented a special challenge for the company. "In most of Europe, people choose the 5-door Civic, which is manufactured in our UK plant. However, Hungarians prefer the 4-door, which we must import from Japan," says Nozawa. The Civic is Honda Hungary's top-selling vehicle, so this makes a great impact on the company's bottom line.

Nonetheless, Honda and the other importers have benefited from the recent strengthening of the Hungarian forint, which -- after losing 60 percent of its value against the Japanese yen in the 1990s -- has made a recent comeback. Also, the outlook for the market as a whole is promising. Nozawa uses Austria as an example for comparison.

"Hungary's population is 10 million, but the automotive market is currently only 150,000 per year. Austria's population is 7.5 million, but the automotive market is 300,000 per year because of their higher spending power. So as Hungarian spending power increases, the automotive market will expand."

Seventh-ranked Toyota Motor Hungary shares optimism in the market. As a vote of confidence, Toyota introduced the Lexus luxury sedan to Hungary this spring.

"Although brand recognition of Lexus is still quite low in Hungary, Toyota expects to promote the luxury brand as the flagship product of Toyota in Hungary," says company president Kuzuyuki Muto. "We are concentrating on providing the local market with as much information on the Lexus as possible."

Despite the entry of high-end products like the Lexus Land Cruiser, Hungary remains a price-driven market. "This is a tough market. People compare prices and specifications very carefully," says Muto. "After-sales service is considered one of the key factors in helping customers decide which brand to choose."

Honda Hungary Managing Director Masayuki Nozawa

In a country where the average household income is less than $5,000, purchasing an automobile is a much bigger decision than it is for customers in Western Europe or Japan. With this in mind Muto wants his company to be a leader not only in sales but in terms of providing good service.

To Muto, the past decade's growth in Hungary's automotive market comes as little surprise. From 1990 to 1993 he was one of the staff in charge of developing the Hungarian, Czech, and former Yugoslavian markets.

"Personally, I expected the future development of Hungary and the automobile market based on my original visits. So I'm very happy I have been able to participate in helping Toyota Hungary get stronger in the past year," Muto says.

If the country's automotive market is growing quickly, its motorbike market is nothing short of booming.. Granted, the total market is small, but last year saw 40 percent growth.

It may not seem like a large sum in a nation of 10 million people, but it is impressive given the role of motorcycles in Hungarian society. The average motorcycle owner in Hungary puts less than 1,000 km on the odometer every year.

Yamaha Motor Hungary general manager István Bödös elaborates: "In Hungary the motorcycle is not used for commuting and everyday use. It's mostly used for fun, for weekend use, or even as a status symbol."

Yamaha arrived in Hungary in 1991 and today operates as a daughter company of Yamaha Austria. For several years, Yamaha has controlled more than 30 percent of the local market. In fact, the main competitors in the two-wheel market are all Japanese - Suzuki, Honda, Yamaha, and Kawasaki. All of them compete not only against each other, but also against used vehicles which are imported on the grey market.

Two-thirds of Yamaha's sales are motorcycles and scooters. The rest comes from marine business, outboard motors, four-wheel vehicles, spare parts and accessories.

In particular, Bödös would like to see his marine business grow. However, motors are currently outlawed on most of Hungary's waterways -- including the expansive tourist haven Lake Balaton. Bödös and others in the business feel this legislation is outdated because it was passed more than 10 years ago, when most marine engines available were non eco-friendly, Soviet models. Today, Yamaha and other importers offer wet bikes and marine engines that are in-line with EU environmental regulations. "Hungary could really increase its summer tourism revenues if it allowed motorboats and waterskiing," he points out.

In the meantime, motorcycle sales continue to look good. In fact, Bödös plans to move the main dealership, which also holds the company headquarters, to a new larger building. When the current Yamaha headquarters was erected in 1994 it sat on the busiest intersection in Hungary. Since then some of the traffic has since been diverted to other routes.

As consumer purchasing power and the market in Hungary continue to change, all automotive players will have new challenges and opportunities to face. And the traffic is bound to get heavier.

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