Matthew Day in Warsaw -

Step onto the forecourt of a new-car dealership in Poland and you might just see a smile in the salesman's eyes. After years of contending with falling sales and paper-thin margins, business has started to improve as Poles splurge on shiny new vehicles in increasing numbers.

Figures for the first four months of the year from the auto-sector research company Samar put year-on-year growth at 25.2%, with 98,058 cars leaving Polish showrooms. And experts predict that 2007 will see 260,000 cars sold, a slight, but significant, increase on the 235,000 sold in 2006.

Although 260,000 is still a long way short of the 630,000 cars sold in the record year of 1999, for a sector that has had to endure six years of falling sales any upturn in business is welcome.

"Life is very good," says Joergen Hansen, who has been selling Volvos in Poland for 11 years. "You can see that people are buying new cars again. Sales are up 20%. There has been a huge vacuum for new cars on the market."

Source: Samar

In part, the improvement can be attributed to Poland's on-song economy and the legions of Poles toiling in the UK and Ireland who bring back hard cash. Economic growth has increased consumer confidence, and car dealers say that they believe at least some of the £4bn sent home by Poles working abroad has been spent on new cars.

The effects of growing price stability on the second-hand car market have also contributed to the upswing. For many years, the constant stream of used vehicles coming into Poland had pulled down prices on the second-hand market, which in turn made it difficult for drivers to upgrade from a second-hand car to a new car, as they simply could not afford to do so.

Stable laws

While all these factors are important, perhaps the key reason behind the upturn lies in legislative stability. For most of this decade, the new-car sector has looked on in frustration as successive governments tinkered with the tax regulations applicable to new cars – a habit which left consumers confused and hesitant, and dealers suffering. But now, with the government refraining from interference, stability has returned.

"Now nobody thinks that taxes will bring prices down," explains Hansen. "There isn't going to be a new environmental tax, for example. If there is a rumour of a tax reduction, everybody waits before buying, but the sector is moving away from this."

Despite this, some urge caution, saying the somewhat mercurial government may still have an unwanted trick up its sleeve.

"We are growing, but the growth we are seeing is not as sustainable as we would like it to be," says Samar's president, Wojciech Drzewiecki, who believes the market could sustain sales of to 500,000 cars a year. "The situation is stable, but that stability is limited. There are no changes in taxation and legislation, but nobody knows whether or not the government is planning something."

Along with problems with excise duty, Drzewiecki points to concerns over the VAT regime on new cars, which he says "is not in line with EU regulations," as a factor that could have an unwelcome influence on the market.

Such concerns aren't confined to him. In late May, the business newspaper Gazeta Prawna wrote that if Brussels deems the Polish VAT regime on company cars a violation of EU regulations, the government may be forced to refund hundreds of companies in unwarranted taxes.

The government will no doubt view the possibility of having to hand over millions of zloty with askance, and this could prompt it to redraw the legislation. A prospect that will no doubt provoke a collective groan from car salesmen across the country.

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