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BUSINESS FOCUS - AUTO FOCUS - THE CURRENT AUTOMOTIVE BOOM CAPS MORE THAN A HALF CENTURY OF SLOVAK PRODUCTION HISTORY

Suppliers Slovakia's quiet heroes

THE AUTOMOTIVE industry in Slovakia is primarily connected to the German carmaker Volkswagen, which has operated in Slovakia since 1992, producing 280,000 cars a year. In forthcoming years the production of vehicles should almost triple thanks to new investors PSA Peugeot Citroen and Hyundai/Kia.
The overall exports of the Slovak automotive industry in 2003 amounted to Sk250.8 billion (€6.2 billion), while imports were at Sk195.9 billion (€4.9 billion). The car production industry traditionally reaches a foreign trade surplus; last year it was Sk55.7 billion (€1.38 billion).

THE AUTOMOTIVE industry in Slovakia is primarily connected to the German carmaker Volkswagen, which has operated in Slovakia since 1992, producing 280,000 cars a year. In forthcoming years the production of vehicles should almost triple thanks to new investors PSA Peugeot Citroen and Hyundai/Kia.

The overall exports of the Slovak automotive industry in 2003 amounted to Sk250.8 billion (€6.2 billion), while imports were at Sk195.9 billion (€4.9 billion). The car production industry traditionally reaches a foreign trade surplus; last year it was Sk55.7 billion (€1.38 billion).

According to the data of the Automotive Industry Association of the Slovak Republic (AAI), exports by the Slovak automotive industry comprise 32 percent of the country's overall industrial exports. When the company paused to reinstall its production line, for example, it significantly hurt the foreign trade results of the whole country.

The turnover of production companies in the automotive industry reached Sk278 billion (€6.71 billion) last year, which represented a 25 percent share of the whole industry. In a year-on-year comparison, turnover increased by almost Sk100 billion (€2.48 billion).

According to Jozef Uhrík, the president of AAI, this performance appeared not only thanks to Volkswagen but also the network of components producers, which accounted for more than one third of the favourable results. The production of components in Slovakia reached almost Sk104 billion (€2.58 billion) in value in 2003, double the results of the previous year.

According to AAI, there are about 280 companies in Slovakia with services and products that the new carmakers could potentially use. More than 140 companies already serve the automotive industry.

The exact impact of the automotive industry on the volume of foreign trade and income for the whole economy in forthcoming years is still hard to quantify, according to analysts, because of the related companies, such as car component producers or firms that will provide services to the carmakers.

"It would be naive to think that a new factory would experiment with completely new car components producers. Even Volkswagen imported components at first. Since then, investors have come and built plants to be able to supply Volkswagen from Slovakia," said Mária Nováková, the secretary of AAI.

"It will be similar with the new carmakers, although it might be easier for Slovak producers this time. They already have the needed certificates for one carmaker and that might open the door to others for them," she added.

But insiders say that the increasing volume of car production in Slovakia makes the whole economy even more sensitive: A recession in the automotive industry would shake the country's economy.

Economy Minister Pavol Rusko does not agree. He recently told the press that he considers the automotive industry a stable investment and, if it happens that it does see a recession, it is so closely connected to other industrial fields that it would cause a recession in the whole field of industry and in that case "nothing would help us anyway".

"It is possible to consider investments in the automotive industry very stable. The carmakers will not only support employment but also strengthen the export activities of Slovakia; they will become an engine of the Slovak economy.

"Through their subcontractors they will also help develop other industry branches, like eletrotechnics, energy, rubber, and construction," Roman Kuruc, the general director of the Slovak Investment and Trade Development Agency (SARIO) told The Slovak Spectator.

"SARIO does not think that, after EU accession and a gradual increase of wages, the threat of investors leaving to different countries would be real, mainly thanks to a long-term sustainable business and investment environment," he added.

Analysts do not find the bombastic statements that argue that Slovakia will become a world leader of car production an exaggeration, as the country will be rolling out up to 800,000 cars a year from 2007.

"In 2000 we were in 10th place in the number of produced cars per 1,000 inhabitants. In 2008, Slovakia should produce about 150 cars per 1,000 inhabitants which will makes us the number one producer in the world, unless production volumes elsewhere change dramatically," said Nováková.

Slovakia has attracted investments in the automotive industry through its economic reforms, cheap labour, and access to western and eastern markets, analysts said.

Marek Gábriš, an analyst with the ČSOB bank, told The Slovak Spectator that the characteristics that make Slovakia appealing to carmakers are generally known: developed infrastructure, a functioning network of component suppliers, low costs and a skilled workforce, and a reform-oriented business environment.

Former SARIO boss Ján Bajánek told Reuters that Japanese carmakers Toyota and Mazda plan to invest in Slovakia too. However, company officials have rejected the claims.

The history of the automotive industry in the Slovak Republic dates back to motorbike production in the period after World War II.

The industry gradually developed, and trucks and delivery vans, special commercial vehicles, and tractors were produced during the 1950s and 1960s. However, the Slovak car industry then began to produce components for Škoda, Tatra, Liaz, Karosa, and Avia cars and vehicles, whose headquarters operated in the Czech Republic.

After 1990, the production of traditional Czechoslovak cars like the Tatra, Liaz, and Avia slowed down and the Slovak companies had to look for new customers.

In 1992, when Volkswagen established its production plant in Bratislava, the new history of the automotive industry in the Slovak Republic began. The assembly of Volkswagen Slovakia cars increased and the car industry became one of the most dynamic export branches in the country.

With the arrival of the Volkswagen company in Slovakia (Volkswagen Slovakia Bratislava) and the Czech Republic (Škoda Auto Mladá Boleslav), and in response to the changing design of Škoda models, supplier requirements increased.

According to SARIO, Slovak subcontractors were quickly able to bring their production standards into compliance with European standards of quality, logistics, productivity, and personnel activities - with an emphasis on environmental protection.

Step by step the Slovak automotive industry became a subcontractor not only for Škoda Mladá Boleslav but also for the whole Volkswagen concern.

"Increasing production quality, product certification, and systems of environmental management and quality enable the Slovak car components industry to get into the global purchase networks of other car factories," said SARIO.

The importance of car components producers grows from year to year thanks to such global suppliers for the automotive industry as Volkswagen, US Steel, Continental, Johnson Controls, Magna, Tower Automotive, Siemens, Faurecia, INA Werke, Krupp, Yazaki, Leoni, Delphi, and others.

The spectrum of deliveries includes almost all industrial branches - metallurgy, machinery, and the chemical and electrical industries. The highest production volume can be found in seats, modules, and assembly subunits, as well as cable packets and electrical equipment.

Although the automotive industry is on a fast track to making its position in the Slovak economy even stronger, the sale of cars in the country is far from the levels reached in developed countries.

The vehicle fleet of the Slovak Republic consists of 1,763,199 vehicles of all categories, with the average age exceeding 13 years. There is one car for every 4,160 people, and this index lags far behind mobility in neighbouring countries.

Sources: Slovak Investment and Trade Development Agency, Automotive Industry Association of the Slovak Republic

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