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How Latvia Exports Cars Without a Car Industry

Latvians who overborrowed are losing their cars to banks

By Niklas Magnusson and Aaron Eglitis

(Bloomberg) — Latvia, which doesn't produce any vehicles of its own, has become a net exporter of cars as banks in the bailout-dependent Baltic state liquidate vehicles that were pledged as collateral by insolvent borrowers.

The value of exported cars was 86.3 million lati ($174 million) in the year through October, compared with imports of 81 million lati in the period, according to the Riga-based statistics office. That corresponds to 10,092 exported passenger vehicles, and 8,509 in car imports in the first 10 months.

Bad debt will continue to swell next year at Stockholm-based Swedbank AB, the largest Baltic lender, the bank's Chief Executive Officer in Latvia Maris Mancinskis said on Nov. 17. That means lenders will keep calling in collateral to offset losses, with car loans representing the biggest retail borrowing item after mortgages. Repossessed cars "largely contribute" to the surge in vehicle exports, the statistics office said.

Banks need to export the cars they're holding as collateral because "domestic demand in Latvia is still very weak and household consumption will be the last to recover," said Lija Strasuna, a Swedbank economist in Riga. "Prices of these cars are more attractive in foreign markets and thus exports are rising."

The former Soviet state sank into the European Union's deepest recession this year after its debt-fueled property bubble burst, forcing Latvia to seek an $11 billion loan from the International Monetary Fund and the EU to stay afloat. Latvians are struggling to adapt to an 18 percent economic contraction this year, forcing banks to export their cars as domestic demand falters.

'Liquid Assets'

"These are liquid assets—a car always has a market value," Mancinskis said last month. "We're able to sell them abroad, some with a loss and some with a profit."

Most of the cars were shipped to Germany, Belarus, Estonia and Lithuania, with Germany alone importing 3,122 cars from Latvia in the first 10 months. Latvia also shipped cars to countries as far away as New Zealand, Saudi Arabia, Ghana, Guinea-Bissau and Costa Rica, according to the statistics office.

SEB AB, the second-largest bank in the Baltics, earlier this year hired an unused airstrip in Latvia to house the repossessed cars and trucks.

Latvian new car registrations slumped 82 percent in October to 218 vehicles from a year earlier, Europe's steepest decline, the European Automobile Manufacturers Association estimates. In neighboring Lithuania, new car registrations fell 71 percent, while in Estonia, they dropped 73 percent.

To contact the reporters on this story: Niklas Magnusson in Stockholm at Aaron Eglitis in Riga at

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