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Slovak government declares auto sector renewal

Hoping to share in the boom enjoyed by its neighbors, the Slovak government has approved a strategic plan for the development of the country's automotive industry. Unveiled in July, the program aims to increase Slovakia's production of cars and components, to attract another major producer of vehicles to Slovakia, and to create 15,000 new jobs in the auto sector.
Alfred Richter, one of the architects of the government's new automotive policy, said that the new policy had to begin with an attitude change. "The conservative side of Slovak managers is alarming," he said in an interview with the Slovak automotive magazine MOT. "We have to show our capabilities to international parties and show them the advantages of cooperation with us and how they can profit if they invest in our companies."


The more the better. The Slovak government hopes to lure more foreign auto firms like Volkswagen.
Courtesy Volkswagen

Hoping to share in the boom enjoyed by its neighbors, the Slovak government has approved a strategic plan for the development of the country's automotive industry. Unveiled in July, the program aims to increase Slovakia's production of cars and components, to attract another major producer of vehicles to Slovakia, and to create 15,000 new jobs in the auto sector.

Alfred Richter, one of the architects of the government's new automotive policy, said that the new policy had to begin with an attitude change. "The conservative side of Slovak managers is alarming," he said in an interview with the Slovak automotive magazine MOT. "We have to show our capabilities to international parties and show them the advantages of cooperation with us and how they can profit if they invest in our companies."

Industry analysts were generally upbeat about the new program, but said that Slovakia was already a long way behind its neighbours in automotive development. Catching up, they warned, would require some systematic changes.

Little investment

The economic importance of a robust vehicle industry was recognized early on by Slovakia's neighbors, such as Poland, the Czech Republic, and Hungary. Poland has done a remarkable job of attracting major foreign makers of autos and parts: as of the end of July, some 30 foreign automotive companies had invested approximately $4 billion into Poland, according to Jacek Zurowski, senior research officer with the Polish Agency for Foreign Investment (PAIZ).

The Czech Republic, which started targeting auto investors back in 1993, also boasts a list of more than 100 foreign automotive investors, while Hungary has attracted several billion dollars of automotive investments.

By contrast, Slovakia has seen only modest investment into its auto industry, mainly in small component manufacturing joint ventures. Although official figures were not obtainable, industry insiders put the number of such joint ventures at about 15, and said that Slovakia should not look only to VW Bratislava for foreign investment.

"Slovakia has not really been featuring on the shopping list of foreign companies looking to increase their capacity or serve their customers better," said David Brown, principal advisor to SNAZIR, the Slovak foreign investment agency. "And it's quite difficult to dramatically raise the profile and really try to catch up [with] the neighboring countries who've been doing this successfully for years."

The new program

According to Richter, the core of the new auto industry program is increasing vehicle and component production, involving both VW Bratislava as well as another yet-unnamed foreign investor (See box, this page).

But some automotive experts said the program was too ambitious. "There are some problems with the quality of Slovak production for the auto industry, especially those companies just starting to produce for the auto sector," said Jan Lesinsky, president of the Slovak Society of Automotive Engineers and a member of the advisory board for the new governmental program. "And there must be a revitalization of the machinery industry."

Josef Doležal, Purchasing Manager for Opel C&S in Prague, said that bigger investment projects in Slovakia are being held back by "more flexible tax policies in the neighboring countries, especially in Poland and Hungary".

According to Doležal, western companies hesitate to enter the Slovak car industry because factories are either too big or too small, because workers lack specific skills, experienced managers are in short supply and because the transportation infrastructure structure is inconvenient. "There are some steps that might improve the situation, but they haven't been completed yet," he said.

But Lesinsky remained upbeat about Slovakia's chances. "Plastics, steel, aluminum, textiles, chemicals, and glass - all of these [can be] produced in Slovakia for automotive industry applications," he said.

VW Bratislava, in the midst of a massive expansion program (see article this page), is a prime example of the production possibilities in the Slovak auto sector. VW's Slovak operations, into which the company has invested over $150 million so far, is seen as a strong anchor for further developments in the sector.

"I think it's highly appropriate that the government is trying to capitalize on the momentum being generated [by Volkswagen Bratislava]," said SNAZIR's advisor David Brown, adding that foreign-owned Slovak component manufacturers such as Sachs Trnava, Yazaki Debnar and Lucas SEI were proof that high quality automotive parts can be produced domestically.

Potential foreign investors, however, must be lured away from the attractive and well established automotive sectors in neighboring Poland, Hungary, and the Czech Republic. To do this, the government program calls for extensive R & D of high volume production technology, human resources initiatives that coordinate education programs, an automotive research centre and the creation of communications and transport infrastructure.

Richter estimates that the investment required to achieve the program's goals is about SK 60-80 billion by the year 2010. Given the undercapitalized status of many Slovak companies and the lack of available bank credit, he said, 65%-85% of the planned investment is expected to come from foreign sources.

Advisor Brown was enthusiastic about the Slovak market's potential. "Perhaps by working hand in glove with VW, going through their supplier list and getting some good market intelligence in terms of who's moving and shaking, and with a real crisp proposition, then I'm sure we can get decision makers on a plane to take a closer look [at Slovakia]," he said.

Jeffrey Jones is editor-in-chief of the Central Europe Automotive Report

Highlights of Government Automotive Program

* Continued production of cars by VW Bratislava, which includes a tripling of production to 120,000 units in 1998 and gradually increasing this to 240,000 units by the year 2010;
* Production of cars by another renowned foreign producer, reaching a volume of 100,000 to 150,000 units by the year 2010;
* Production of new medium sized commercial vehicles after the year 2000, with volume gradually reaching a target production of 2,000 to 3,000 units a year;
* Production of a mini car in cooperation with a foreign partner after the year 2000 at a volume of 2,000 units per year;
* Production of buses for renovating the Slovak bus park at a volume of 500-800 units a year after the year 2000; and
* Production of automotive spare parts, components, equipment, and supplies

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