Stavros Paraskevaides, CEO of "Mercedes-Benz Serbia and Montenegro" – maximum decrease in prices of imported vehicles in 2009 – by 6.5%

Global financial crisis, as well as announced decrease in duties on import of vehicles from 20 to 10%, brought the projected sales of "Mercedes-Benz Serbia and Montenegro" for year 2008 in question. According to the company’s plans, the projected net income exceeds 140m EUR. In spite of the crisis, this company has recently completed some very big investments in Serbia, but it does not intends to take part in the tender for sale of Automobile Factory Priboj although the company was mentioning the possibility of cooperation in production of trucks before.

Stavros Paraskevaides, the Director General of "Mercedes-Benz Serbia and Montenegro", points out in the interview for eKapija that that company is very satisfied with previous operations and development in Serbia, in which it has invested about 10m EUR in less than two years.

eKapija: How does current financial crisis influence automobile manufacturers?

- The crisis has the special impact on the automobile manufacturers because most vehicles are not bought by cash, but with the assistance of financial institutions. Some leasing companies have discontinued the approval of loans for automobiles, even for their long-time clients. An additional problem occurs if they are already ordered from the factory. Also, we have more vehicles on stock than usual. That problem is also present in Serbia because foreign banks are dominant here. However, I do not think that the effects of the crisis will be as big in Serbia as they are in Western Europe because there is no developed capital market here and the economy is underdeveloped.

eKapija: The additional problem for the automobile companies that operate in Serbia is the Government’s announcement that the duties on import of foreign vehicles will be drastically reduced starting January 1st. How much did this decision influence "Mercedes-Benz SCG"?

- Pretty much. The biggest problem occurred when potential buyers got the wrong impression that the prices of automobiles would be significantly decreased, by up to 10%. The opinion of "Mercedes-Benz SCG", as well as all other manufacturers that operate in the market of Serbia, that, in the best case, that decrease will amount to 6.5%. Larger decrease in price is not possible because of the way in which tax on foreign vehicles is determined and because of the factory prices. But, since the story about drastic decrease in price is constantly present in the public, the sales currently dropped and we have big number of vehicles on stock. The sales has practically been frozen since October when the decrease in prices was announced, and I expect that they will stay the same way until January. Therefore, we must organize various promotional campaigns and offer attractive prices.

eKapija: Privatization Agency has recently announced tender for sale of 86.5% of capital of Automobile Factory Priboj (FAP) in restructuring. Are you going to bid on the tender?

- "Daimler’s" truck sector has concluded that it has no interest to enter FAP, especially at the time of financial crisis. If we bought that factory, we would have to invest much money in it because the factory’s equipment is 23 years old. On the other hand, the location is unacceptable. The only possible form of cooperation is technical cooperation and FAP could become one of the partners that would be producing some of the parts for "Mercedes" trucks. We are thinking about that option and, of course, it will not be possible if FAP finds a strategic partner in the meantime.

eKapija: Which are the main reasons why Daimler selected Hungary and not Serbia for assembling of "Mercedes" automobiles?

- There are several reasons. First of all, "Daimler" has never been interested in investments of that type in Serbia and it has never sought the location, but we got the offer. In addition, the offer came late. The biggest obstacle was the fact that Serbia is not a member of European Union and the vehicles are intended for that market. It would be much too complicated to operate in the country that is not a member of EU since we require specific regulations governing production, import, export, etc. Also, Serbia does not have developed network of manufacturers for electronic components, seats, radiators, etc. On the other hand, Hungary offered excellent locations with complete infrastructure for our collaborators. Also, one of the problems, which is not easily visible, is high fee that the company must pay for its employees. That fee is much higher in Serbia than in any other European country. Although the net incomes are lower, the company’s real costs are high. Many investors don’t want to invest in Serbia because of that, but I am glad that the Government intends to solve that problem. I must point out that the offer from Serbia was financially very acceptable.

eKapija: You mentioned that you are satisfied with the operations in Serbia. How does that sound in numbers?

- The projected income for year 2008 is 140m EUR and, if we achieve it, it will represent a good result. The profit in 2007 exceeded 6m EUR and we expect, in spite of the current crisis, that this year’s profit and number of sold vehicles will be higher than last year. We hold about 3% of the passenger automobile market, we sold 730 automobiles in 2007, mainly to individual buyers, while the percentage of the vehicles sold to the companies is still small and amount to about 20%. Serbia is the 8th in Europe in number of sold trucks and it is a very significant market. It is going to be even more significant if the Government starts realization of large infrastructural projects, one of which is development of Corridor 10.

We are also proud of the investments in Serbia. From mid-2007 until today we have invested about 10m EUR, the major share of which was set aside for development of the automobile showroom in Krnješevci. We have hired 50 workers over the last year, so that we now have about 186 employees.

We own 100% of stocks of "Evobus Srbija i Crna Gora" and, as we announced at Beotruck trade fair in May, "EvoBus SCG" will become a part of "Mercedes-Benz Serbia and Montenegro" in 2009.

eKapija: What makes operations in Serbia difficult to "Mercedes-Benz", not including current crisis?

- Voluminous bureaucracy. Complicated procedures that make realization of projects harder. We require the system that will make it possible for the investors to invest. There are, let’s say, numerous benefits for Greenfield, but only when you decide to cope with the number of problems that hinder the business. I am glad that the Government wants to change these things, but, concerning the fact that this market is still developing, the things are going slow. We have been waiting for two years to obtain permits for another showroom within the existing center in New Belgrade.

eKapija: "Mercedes-Benz Serbia and Montenegro" is known as a company that cherishes socially responsible operations. What are the relevant projects?

- Ethical obligation of the company that makes profit in some country is to help that community. We decided to help the children without parents in Care Center "Vera Blagojević" in Banja Koviljača. The campaign started in 2005 and, officially, in February 2006. Our primary goal is to offer a chance for happier life to these kids. We are now gradually furnishing the Care Center, we help the kids educate and we provided an English language professor. We are very proud of hiring the first kid from this center in our showroom and he is very satisfied and serves as a model to other kids.

In addition to donations to Care Center "Vera Blagojević", we are also working on environment protection, which is not something other companies do. We also do our best to reduce the issue of harmful gases. Serbia has a beautiful nature and errors of the countries of Western Europe, which went through quick industrialization, must not be repeated.

T.S.

note : Mercedes-Benz Serbia and Montenegro is an active member of German Business Association in Belgrade (DWB) for many years