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EUROPEAN CARMAKERS ARE LOOKING TO FURTHER EASTWARD EXPANSION

VW head: Slovakia an opportunity

THE AUTO industry in Slovakia has become key to the country's industrial economy. Car production, currently anchored by German manufacturer Volkswagen's industrial complex outside Bratislava, has been increasing steadily for the last decade, and in 2002 exceeded 225,000 vehicles plus €1.3 billion in turnover from automotive components.
The sector received a huge boost with the January announcement of plans by French auto giant PSA Peugeot Citroen (PSA), Europe's number-two carmaker behind Volkswagen, to build a new €700 million car factory near the western Slovak town of Trnava.
Although construction of the new plant will not begin until fall, auto suppliers have already begun looking to set up operations in Slovakia, and existing companies are set to expand. The Trnava facility should be producing 300,000 cars per year by 2006, and Slovakia's overall car production could triple by the end of the decade.


VOLKSWAGEN chairman Jozef Uhrík.
photo: Volkswagen Slovakia

THE AUTO industry in Slovakia has become key to the country's industrial economy. Car production, currently anchored by German manufacturer Volkswagen's industrial complex outside Bratislava, has been increasing steadily for the last decade, and in 2002 exceeded 225,000 vehicles plus €1.3 billion in turnover from automotive components.

The sector received a huge boost with the January announcement of plans by French auto giant PSA Peugeot Citroen (PSA), Europe's number-two carmaker behind Volkswagen, to build a new €700 million car factory near the western Slovak town of Trnava.

Although construction of the new plant will not begin until fall, auto suppliers have already begun looking to set up operations in Slovakia, and existing companies are set to expand. The Trnava facility should be producing 300,000 cars per year by 2006, and Slovakia's overall car production could triple by the end of the decade.

The Slovak Spectator recently spoke with Jozef Uhrík, chairman of the Volkswagen board of directors and head of the Slovak Car Industry Association (ZAP SR), on the future of the Slovak auto sector.


The Slovak Spectator (TSS): To what extent is the new PSA plant in Trnava going to affect operations at Volkswagen Slovakia? Given that both companies will be using some of the same suppliers, what effect will competition have on supplier prices?

Jozef Uhrík (JU): The new PSA plant in Trnava, which will concentrate on the final stage of car production, is bound to influence the development of automobile production in Slovakia. It will afford an opportunity for current Slovak subcontractors to boost their range of offers for other producers in the world.

It will open up possibilities to rationalise production, which in the final analysis will affect all concerned, i.e. those making the final products, as well as those producing components and those engaged in assembling cars. But at the end of the day the price will always be dependent on the situation on the market.



VW Slovakia has increased production every year.
photo: File photo

TSS: Will PSA's operation lead to competition between the two carmakers for workers? Will this cancel some of the wage advantages that Slovak production is supposed to bring?

JU: In all honesty I have to say it would have been more advantageous for us and the Slovak economy as a whole if this project had been realised a little further east from the western Slovak region. However, it is the investors' sole discretion where they want to develop their production activities.

We at Volkswagen in Slovakia must come to terms with this and act accordingly. At any rate another car-making facility which is not far from our plant will mean that the workforce in this region will be able to choose between two big employers. This means that we will have to take a closer look at ways of increasing labour productivity and the optimisation of procedures.

By the time PSA begins operations, we will already be at a stabilised stage. For us, the presence of PSA in Slovakia will mean that we are faced with competition. In this respect, however, we at Volkswagen Slovakia have experienced a long period of "training", not only within VW, but in the context of the global car industry.


TSS: Volkswagen Slovakia has been steadily increasing its production over its 12-year history, but many auto analysts see declining sales in Europe this year on economy and war worries. In addition, price deregulation and government austerity mean Slovaks will have less money to spend this year. How will these factors affect Volkswagen's production figures?

JU: During the history of our company we have increased production year by year. Our production programme is relatively broad and thanks to our flexibility we have introduced a new model practically every year.

In taking into consideration the Slovak car market, we must emphasise that it does not have a decisive influence on the development of our company. In the course of the entire history of sales on the Slovak market, the volume was never greater than 2.5 percent of the annual production. Our company is above all geared to export.


TSS: PSA's stated goal in locating its plant in Slovakia is to move production closer to their fastest-growing market - central and eastern Europe. Does Volkswagen expect this to cut into local sales of Volkswagen and subsidiary Škoda, which currently account for over half of new cars sold in Slovakia?

JU: In establishing itself in Slovakia, PSA, as the second-largest producer of cars in Europe, has pursued the philosophy that it wants to be in the vicinity of both prospective markets and production. Notably the sum total of sales on the markets in central and eastern Europe is not declining but, on the contrary, is increasing.

There are several factors that will influence the structure of the share of the automobile market in Slovakia and in central and eastern Europe as a whole. But it will depend mainly on the kind of offers the producers make to the customers in product portfolio, in quality, and in the price sphere. These are the factors on which each manufacturer depends.


TSS: Has there been any noticeable backlash in western European countries as automakers move production to the east - particularly Volkswagen's shift in Polo construction from Spain to Slovakia?

JU: I do not think there is any particular reason for transferring production from western Europe to Slovakia. We have to bear in mind that sometimes in the past Volkswagen products were exclusively made in Germany.

Gradually, as the concern began to apply globalisation in its production and sales policy, production expanded to some other countries in western Europe: Spain, Portugal, Belgium, and yet not a single plant in Germany was closed down.

Volkswagen was the first massive car producer to expand activities to the Czech Republic, to Slovakia, and to Hungary, as well as to the states of the former Yugoslavia. And we can expect this process of expansion to the east to continue.

At the same time, the management of the concern's guiding principles lies in the optimal use of capacities in each of the given operations and in meeting the needs of each of the markets. If the market offers ample prospects for a particular model then the production is introduced not in a single facility but at several places, which truly affords the optimal utilisation of the available capacity.


TSS: Volkswagen has recently announced plans to begin car assembly in Ukraine. How will Volkswagen Slovakia or its suppliers be involved in this? Will there be any shift of suppliers from Slovakia to Ukraine?

JU: The decision to possibly start the production of cars in Ukraine is an integral part of our intention to expand in central and eastern Europe, not only sales but also in the production section. This constitutes an enormous opportunity for Slovak subcontractors and for us as a company, being the most eastern production locality of the concern in Europe.

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