SLOVAKIA has been topping the world car news over the past two years, not only due to massive new investments by KIA and PSA Peugeot Citroen, but also due to curiosity as to what makes this small country such an attractive place for auto industry giants.
Recently, Slovakia has also been on the minds of about 2,300 citizens of Ryton in Great Britain. Their interest has been sudden and far from benign or idle: the major employer in Ryton, the Peugeot factory, is closing down, while Peugeot's investments and production in Slovakia are being ramped up.
The British tabloid media have been quick to link the factory closure in Ryton with the additional PSA Peugeot Citroen factory announced last year for Trnava, but PSA has denied there is any connection.
Company spokeswoman Isabelle Cros told the SME daily that the decision to build the factory near Trnava was made in 2002, while the firm's analysis of the Ryton factory, showing that production was economically disadvantageous there, was completed only recently.
According to a statement by PSA for The Slovak Spectator, the main problems at the Ryton factory are high production and logistics costs. These costs directly influence the return on investment needed for the production of the next generations of cars after the Peugeot 206.
Nevertheless, economists see globalization trends as pushing firms to move production eastwards in search of cheaper labour.
The PSA Peugeot Citroen investment in Slovakia has been broadly perceived as a success. The company launched a trial run at the Trnava plant in early January, and is now assembling cars in order to test all facilities.
PSA plans to launch serial production at the end of the first half of 2006, and to reach full capacity in 2008.
In 2006, the plant might roll out 60,000 cars, increasing this to 240,000 units in 2007.
PSA originally planned to invest €700 million, but in December 2005 announced that it would increase its investment by €357 million.
In early 2006, PSA officials also confirmed that the Slovak factory would be making the latest Peugeot 207 model.
The increase will directly result in another 1,800 job openings at the PSA plant in Trnava, adding to the original estimate of 3,500, and will create another 9,000 jobs in the supplier network.
Slovakia promised to support the additional PSA Peugeot Citroen investment in Trnava with investment stimuli of about Sk2 billion. Cabinet approved the aid package on April 20.
Economy Minister Jirko Malchárek said that the state aid per job created comes to about Sk1.2 million, of which Sk600,000 will be paid in the form of direct subsidies.
When PSA announced its first investment in 2003, the state approved Sk6.3 billion in stimuli for the company.
The European Union also rejected claims that EU funds are behind Peugeot's decision to kill its Ryton plant and move production eastward.
The European Union said that PSA had used no EU money to transfer its production from Western Europe towards the east.
EU rules say that a firm that receives support from structural funds and moves its production to a different state within five years must return the money.
According to the EC, Slovakia could not have received EU funds and passed them on to PSA in the form of investment incentives to transfer car production there. The commission claims that there are very strict controls on how EU structural funds are used.
Meanwhile, the German car giant Volkswagen also announced that it plans to extend the production of its Polo brand due to growing demand for the model, and that Bratislava is one of the favoured sites for making the cars.
The head of Volkswagen's board of directors, Thomas Schmall, said that the VW Bratislava facility had a great chance of gaining the contract due to the high flexibility of its employees.
"We are just checking out the possibilities that the plant has," Schmall said, adding that the company has been hiring more employees for its Bratislava plant due to the planned increase in production of the Audi Q7, meaning that moving the Polo production to Bratislava will not necessarily create new jobs.
Volkswagen has already hired about 500-800 new people for the Audi Q7 line.
The VW Slovakia plant in Bratislava reported sales of €4 billion last year, or Sk151 billion. The company produced 218,349 cars, 368,831 gearboxes and 21.4 million gear components. In addition to the Audi Q7 the company also produces the VW Touareg and Polo and the Porsche Cayenne.
The Handelsblatt German daily wrote that Volkswagen was seeking a new place for production not only because of increasing demand for the Polo but also because it wants to close down its Polo factory in Spain.
Cheap labour, made more "flexible" by recent changes to the labour code making it easier to hire and fire, is one the major attractions of Slovakia for car investors, as well as the country's investment-friendly environment, its location, and its tradition of machinery production.
Even with unemployment at around 14 percent, Slovakia may soon face a lack of qualified labour for its car plants, as in within a few years the automotive industry may need about 100,000 employees.
Kia and PSA Peugeot Citroen are in the midst of massive recruitment drives and plan to hire more than 2,100 people by the end of this year, especially for factory jobs such as assembly line operators, production experts and maintenance staff.
Both plants plan to start production this year. The carmakers currently employ over 3,100 people, the Pravda daily wrote.
Kia in Žilina wants to hire another 800 people between April and December, while PSA in Trnava intends to hire 1,310 people.
Slovakia will be producing about 800,000 cars annually by 2008.
KIA plans to produce 300,000 vehicles per year at its new plant near Žilina, while Volkswagen's Bratislava plant plans to reach the same level within the next few years.
The turnover of the Slovak automotive industry last year increased by 6.5 percent year-on-year to Sk330 billion and is expected to reach Sk400 billion this year.
The automotive industry's share on Slovakia's overall industrial output was 25 percent last year.
Most of the output of Slovak automotive firms is exported; exports rose by 5 percent year-on-year to reach Sk290 billion in 2005, and this year should reach around Sk340 million, based on the estimate of the Slovak Automotive Industry Association.
