The Czech Republic is one of the smaller and newer central European nations, having been established as an independent nation in 1993, when the former Czechoslovakia was split into the Czech Republic and Slovakia. The country was admitted to the European Union in 2004, but maintains its own currency, the Czech crown.

The Czech Republic has had a long involvement with the motor industry. Tatra, which has evolved into a specialist truck maker, claims to have the oldest vehicle factory in Europe, having begun production in 1850. The first car was produced in 1897 and the first truck in the following year. Now the company is a specialist producer of heavy off-road and military trucks.

Czech car maker Skoda makes a similar claim to Tatra – as one of the five oldest vehicle manufacturers in the world. Like Tatra, it has produced a range of motorised vehicles from cars to trucks and railway locomotives. Today it is a wholly owned subsidiary of the VW Group and produces cars, engines and transmissions in the Czech Republic. Once the company’s expansion plans have been completed, it will be able to produce up to 2,400 cars a day at its Czech facilities.

Alongside the established Czech brands, other manufacturers have also chosen to produce vehicles in the Czech Republic. Toyota and PSA Peugeot Citroën established Toyota Peugeot Citroën Automobile (TPCA) as a joint venture near the city of Kolin in the early 2000s. The plant was built to produce the Toyota Aygo/Peugeot 107/Citroën C1 and production began in February 2005, with Toyota responsible for vehicle production. The plant can produce up to 300,000 cars per year, and around 99% of those are exported. TPCA invested over €650m in the plant, which had a turnover of €164m in 2011.

Toyota and PSA have not been the only manufacturers to be attracted by the Czech Republic’s central location and workforce skills. Hyundai established an assembly plant at Nošovice in the east of the country, not far from the Slovakian border. The plant began producing the i30 in November 2008. In mid-May 2013, the factory produced its one millionth car. Hyundai has invested €1.2bn in the plant, which has an annual turnover of €3.2bn. Almost 3,500 people are directly employed there and produced 300,000 i30, ix20 and ix35 models in 2012.

SOR and Iveco also produce buses in the Czech Republic. According to the US Central Intelligence Agency, the automotive industry is the largest single industry in the country, accounting for almost 24% of Czech manufacturing. The industry produced over one million cars for the first time in 2010, of which over 80% were exported. OICA statistics show that the Czech Republic produced 1,171,774 cars and 7,164 commercial vehicles in 2012, an overall reduction of 1.7% compared with 2011.

The Czech Confederation of Industry does not expect to see a significant revival in the country’s domestic economy in 2013 and expected to see a moderate fall in sales across the economy in the early months of the year, followed by a modest revival in the second half of the year. The expected result is sales growth of around 1.5% in 2013.

ACEA data shows that registrations in the first four months of 2013 were down 14.3% to 51,514 compared with the same period in 2012 and down 9.2% for April 2013 to 15,061, compared with April 2012. In 2012, car registrations for the year totalled 193,369.

According to ALD’s general manager in the Czech Republic, Petr Kohout, some 120,000 of those sales were company driven, over 60% of new cars. ‘It has been increasing over time, because the retail market is slowing down enormously,’ explains Mr Kohout. The total new car sales figure is possibly distorted though, he thinks, because several brands re-export cars, exploiting different prices in different countries. ‘The estimates are roughly 10% to 15% of all claimed sales are re-exports.’

It is not surprising to find that Skoda has a strong position in the Czech new car market. Mr Kohout says that overall Skoda has a market share of around 30%: ‘For the business sector we are talking around 50% for passenger cars.’ Add Volkswagen, particularly the Passat, to the equation and it climbs further. ‘I don’t have official statistics on the business sector, but based on our leasing company portfolio, we are talking here about 60% market share when you take Skoda and Volkswagen combined.’

The Octavia is the Skoda of choice for business users. ‘Octavia is absolutely number one’, says Mr Kohout. ‘The Octavia is considered a lower-medium segment car. If you take cars like the Volkswagen Passat or Ford Mondeo, for example, which are in the medium segment, they are also compared with the Skoda Superb.

‘Skoda hopes that the new Rapid will kind of bridge the gap between Fabia and Octavia, but so far we haven’t seen that happening much. Whoever does not want an Octavia wants to save money on lower ranking positions in the company hierarchy, goes for the Fabia.’

The picture is different for the commercial vehicle sector, which is in the region of 5% to 7% compared with the size of the total car market. Ford used to lead the market with the Transit, but now there is a more even spread of manufacturers. The LCV market has been more affected than the car sector with falling sales. ‘Ford, Fiat, Renault, Volkswagen, Peugeot have comparable sales figures for all five brands, with Citroën close behind.’

Business cars are subject to an additional tax compared with private cars in the Czech Republic. According to ARI Fleet’s International Fleet Taxation Guide, this tax, known as road tax is levied according to engine size. The rate varies from CZK 1,200 (€46.4) for cars with engines below 800cm3 capacity to CZK 4,200 (€162.4) for cars with engines over 3,000cm3 capacity and is payable quarterly in advance, in April, July, October and December, although reductions are applicable.

There are exemptions to road tax, for electric and alternative fuel vehicles. These include electric and hybrid vehicles as well as vehicles fuelled with compressed natural gas (CNG), liquefied petroleum gas (LPG) or E85 ethanol.

Almost 50% of business cars are financed externally, says Petr Kohout of ALD. ‘The most popular method is a loan and this accounts for around 56% of business car financing in the Czech Republic,’ Mr Kohout explains. ‘Until 2008, finance leasing was the dominant product. Then the law changed. The advantage of leasing was that you could amortise the lease costs faster than if you bought the car as an asset. So you could amortise the leasing instalments or the car value over 36 months, while for a direct purchase, it could be amortised over 48 months, so you had a one-year advantage.

‘Unfortunately for leasing companies like us, this advantage has been lost, by the change. Now basically, leasing does not have any advantage over outright acquisition, from the income tax law perspective.’

Not surprisingly, the change in treatment of financial leases has had a noticeable impact on the take-up for them. ‘Unfortunately, financial leasing has been in decline; for example last year, almost 25% year-on-year. The proportion of finance leasing on the total financing is now less than 10%. Operating leases account for around one-third of all finance. Obviously there are specialists in operating leases such as ALD, LeasePlan and Arval. Finance leasing and loans are typically provided by a bank, or the leasing companies.’

The Czech car parc is ageing and ALD expects that environmental concerns will increase the pressure to renew the existing fleet, ‘But this is a long-term prospective in terms of the volume of new cars,’ says Petr Kohout. ‘What we see today is companies are buying used cars to save money, so we need to distinguish long-term and short-term trends.

‘In terms of financing, it is difficult to predict because it very much depends on the regulatory framework. Our government is discussing the acceleration of the amortisation regimes for new investments as a pro-growth strategy.

‘We believe the operating lease must grow proportionally at least, because it is a standard Western European method of financing and unfortunately we haven’t seen such rapid growth over recent years, so we don’t see such a convergence, but we believe it will grow. We also believe that unless financial leasing changes the regulatory framework, it will basically become extinct in time, so we will be here talking about loans and operating leases.’

Mr Kohout says that the proportion of financed cars declined last year by a few percentage points. ‘That’s not a big thing, but it may be explained by two things,’ he says. ‘You take a loan in a bank and it’s difficult to track if the load is used for buying the car or not. If you are a company you can have a capital loan for the acquisition of cars.

‘The second aspect is that companies are generally thought to be holding on to their cash, so they don’t feel it’s the right time to increase their commitments to financing.’