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SLUGGISH EU AUTO SALES CAUSE PRODUCTION CUTS AT SLOVAK SUPPLIERS

Layoffs hit car-parts makers in eastern Slovakia

WHILE some foreign firms are setting up new businesses or expanding their operations in Slovakia, pushing the country's unemployment rate to the lowest level in five years, other established investors are suffering from the global economic downturn and releasing some employees.
One of the biggest manufacturing producers and employers in eastern Slovakia, German company Siemens Automotive, and its regional suppliers are shrinking their production and reducing their workforce by around 500.
The decision to lay workers off came after Siemens Automotive's principal customer, the carmaker Ford, cut its orders of automotive cable harnesses by 23 percent earlier this year, citing the global decline in car sales as the main reason for the decision.


AUTOMOTIVE production is still driving Slovakia's economy, but slower global sales are hurting some suppliers.
photo: File photo

WHILE some foreign firms are setting up new businesses or expanding their operations in Slovakia, pushing the country's unemployment rate to the lowest level in five years, other established investors are suffering from the global economic downturn and releasing some employees.

One of the biggest manufacturing producers and employers in eastern Slovakia, German company Siemens Automotive, and its regional suppliers are shrinking their production and reducing their workforce by around 500.

The decision to lay workers off came after Siemens Automotive's principal customer, the carmaker Ford, cut its orders of automotive cable harnesses by 23 percent earlier this year, citing the global decline in car sales as the main reason for the decision.

The recent economic downturn in cash-rich Western markets has been cutting into the sales of many industrial players, which has been affecting foreign investors in Slovakia like Siemens Automotive, based in the eastern town of Michalovce.

The company currently employs 1,800 people in the Košice region of eastern Slovakia, which has the country's highest unemployment rate, at over 22 percent.

"We are sorry to lay people off in this region, where it is difficult for them to find other work. But our customers were in a totally different situation a few years ago, and we decided to expand our production when they increased their orders," said Andreas Kranz, legal representative for Siemens Automotive, adding that Ford purchases about 90 percent of the production at Siemens Automotive.

Siemens has started searching for new partners even outside the car sector, but so far no deals have been set up. According to Marek Jakoby, an analyst with the Mesa 10 think tank, many carmakers are currently scrutinising their long-term contracts with suppliers because overall sales are falling.

"In fact, only those car production plants that have recently developed some new products are growing. Others, including their suppliers, are recording lower sales," he said.

"For example, Volkswagen's Slovak plant near Bratislava is expanding its output because it has started producing the new Taureg sport-utility. The plant and its Slovak suppliers even contributed to developing the vehicle," said Jakoby.

"Now they are growing their sales, but they will be doing so only for a couple of months. Later on, they are expected to be hit by the global downturn too," he added.

According to statistics from the Slovak Car Industry Association, there was a 2.8 percent decline in the number of cars sold in the European Union last year, to 13.9 million from 14.4 million in 2001.

Analysts have recently downgraded economic growth predictions for the 12-member euro-zone, reducing forecasts of 1.8 percent growth to 0.9 percent. Although growth in countries using the common European currency was 1.5 percent in 2001, last year growth had already declined to 0.8 percent.

While production of electronic automotive components in Slovakia, including the harnesses supplied by Siemens Automotive, has been growing markedly in recent years, the pace of growth has been slowing, in part due to the cooling of the global economy.

In 2001, the value of components produced in Slovakia reached Sk13 billion (€315 million), up from Sk9.2 billion (€223 million) the year before. In 2002, Slovakia produced electronic automotive components worth Sk14.4 billion (€349 million).

But Siemens Automotive is not the only company in the region that has been suffering from the current downturn on world markets.

Just down the road from the Siemens Automotive plant in Michalovce in the same industrial zone, another German company, BSH Drives and Pumps, part of the Siemens group, recently released 150 of its 1,000 employees, and will soon dismiss 50 more. The company makes motors for home-appliance manufacturers, and saw its sales drop by 20 percent last year.

"Our major customers, Siemens and Bosch, have reduced their orders, so the reason why we and Siemens Automotive are releasing employees seems to be quite similar," said Thomas Mergler, production manager at BSH.

"We cannot really do anything about it. We and Siemens have been doing business here for 10 years. We have established good cooperation with the region and we are really satisfied with the quality of the local labour," he added.

BSH Drives and Pumps had been interested in expanding its business in Michalovce and luring a part of its supplier base to the planned industrial park. But due to its ongoing sales difficulties, it has opted to put off a final decision.

But some analysts expect limping sales figures to recover, and believe that those who have been laid off will be hired again.

Ján Fenčák, executive manager of JAS-Elmont in Snina, one of Siemens Automotive's three regional suppliers, said that the firm was forced to lay off 200 employees in the aftermath of the Ford announcement, but that the current situation could improve in the near future.

"We have received some preliminary promises that at least the same number of people that have been released could be hired again sometime at the end of this year or at the beginning of next year. They will be making harnesses for Ford again," Fenčák said.

"For now, we've started helping those who have been laid off to search for new jobs, but it's been quite difficult," he added.

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