Thursday, April 20, 2006

Carmaking in Eastern Europe

This isn't about the Czech Republic in fact, but about the more general issue of shifting car production to the East as outined in this FT article. As I said in this post, this is a normal pattern to expect as these new EU members move up the value chain, but many in Western Europe still need to face up to this reality I feel.

If the 2,300 workers at Peugeot's Ryton plant are the past, then the future may lie in Slovakia, the country of just 5.4m people that will soon be making more cars per head than anywhere else in the world.............Carmakers from General Motors' Opel subsidiary through to Renault, the Volkswagen group and Ford have set up manufacturing capacity or established joint ventures with Russian and other local carmakers at more than a dozen sites in central and eastern Europe.

By 2008 Slovakia will be turning out 1m cars a year – compared with 1.6m in Britain this year. The reason is simple. The average gross wage a month for a car worker in Slovakia is £350 – compared with about £2,000 for assembly line workers at Ryton.

Slovakia has shot from nowhere to pole position during the past three years as both PSA Peugeot-Citroen and Kia of South Korea followed Volkswagen's early example and chose to build assembly plants there to take advantage of the country's low production costs.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.Peugeot claims that production at Ryton is costing it €415 (£287) more per car than at the company's Poissy plant in France and almost €1,000 more than at its joint venture factory with Toyota in the Czech Republic.

Peugeot will invest a total of €1.1bn in its Trnava plant in western Slovakia, which will start producing the new 207 model in June and turn out 450,000 cars a year by 2009.

Kia will invest €835m in Zilina in north-west Slovakia, where production should start in December.

The economic benefit will be tremendous. Automotive production has grown from 14.3 per cent of industrial production in 1998 to 24.8 per cent last year and it now represents 29 per cent of exports and employs 65,000.

Labour costs are not Slovakia's only advantage. It has a strong manufacturing tradition, having being one of the biggest arms producers in the Soviet bloc, and these skills have been transferred to the automotive sector. Weak unions and a liberal labour code mean that labour is more flexible than in western Europe.

VW's Bratislava plant – the only plant running at the moment – specialises in off-road models such as the Touareg but it has also produced other models when required; when VW's Spanish workers refused to work extra shifts in 2002, Bratislava turned out Seat Ibizas.

1 comment:

universal_observer said...

is is the same edward as with the Hungary Economy Watch? :)
either way, just bringing to your attention: we're starting with a Central-European Economics Watch at: http://ce-economics.blogspot.com.
we'd be glad if you wanted to contribute with short articles about Czech Republic..
all the best for now,

Michal Lehuta