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ACCELERATING INDUSTRY DEFIES PESSIMISTS

Carmaking suits Slovakia

BEING on top of the global car producer chart suits Slovakia and in fact encourages new investment to pour into the country. Pessimists have been warning that for a small Central European country such intense concentration on car production might later backfire, but optimists say that the positives far outweigh the eventual risks.

BEING on top of the global car producer chart suits Slovakia and in fact encourages new investment to pour into the country. Pessimists have been warning that for a small Central European country such intense concentration on car production might later backfire, but optimists say that the positives far outweigh the eventual risks.

The Central and Eastern European region is becoming a key production centre for global automotive manufacturers and by 2011 it is likely to be producing 6 million vehicles a year, according to a KPMG global study.

Slovakia, with 105.7 cars produced per 1,000 inhabitants, has a leading role.

Over the course of 2007 Slovakia became the global leader in car production per capita, while full use of the new Kia and PSA plants by 2010 might push up production by another 50 percent, Ľuboš Vančo, managing partner of KPMG Slovensko, said.

"This unambiguously shows Slovakia's progress in the automotive sector and makes the country an attractive investment destination," Vančo said.

The future offers even better prospects: if Slovakia adopts the euro as of January 2009, the barrier of exchange rate risks, which currently has a strong impact on the automotive industry in Slovakia, will be eliminated, according to Vančo. However, concerns over inflationary pressures, which influence labour costs, will persist, he added.

Martin Lenko, an analyst with VÚB bank, said that the number of cars produced per 1,000 inhabitants reveals more about the concentration of car production in Slovakia than the total volume.

Slovakia could hardly compete with the world's largest car producers, such as the United States, Japan, Germany or China, in the absolute number of produced cars, he said.

However, Lenko sees a positive aspect to this high concentration of car producers in the emergence of clusters of car producers and component suppliers, which are mutually interlinked.

"These clusters create advantages, mainly in logistics, such as a shorter time in supplying components, lower storage demands, higher quality and better control, which after all reduces the costs," Lenko told The Slovak Spectator.

The clusters could inspire the arrival of additional investors who, after joining the network, can benefit from lower costs, he added.

However, Slovakia runs the risk of a heavy blow should a global crisis hit the car industry or world economy as a whole.

The impact on Slovakia's economy would be more significant than in the case of a more diversified structure of industrial production, according to Lenko.

Viliam Pätoprstý of UniCredit Bank does not see any decisive negatives in Slovakia being the leader in car production per capita.

"Even the frequent criticism of excessive dependence on the automotive industry has not appeared problematic so far," Pätoprstý told The Slovak Spectator.

As long as Slovakia can supply its target market - which is the EU and neighbouring countries - cheaply thanks to its low labour costs, the motivation to relocate or reduce production in a time of crisis would be relatively small.

When Slovakia no longer has this advantage, in about 10-15 years, the structure of the economy will again be different, he added.

For now the positive result is a fair volume of added value rushing into the economy which can serve as the cornerstone for the development of research and science and sophisticated services, Pätoprstý said.

The positive experience of investors in the car industry could inspire other business sectors to consider Slovakia as an area for future investment, he added.

Slovakia's automotive heritage is deep, thanks to its shared history with the Czech Republic and its developed production infrastructure for vehicles and components, according to the KPMG study.

Recent capacity increases at the Volkswagen plant in Bratislava together with the completion of a PSA plant in Trnava and a Kia plant in Žilina, mean that total output is likely to exceed 800,000 before the end of the decade, reads the report.

Alongside the main car producers, the automotive component sector has also grown fast and is expected to grow further as the new PSA and KIA plants come on line, the KPMG report said.

Major automotive component suppliers with plants based in Slovakia include Continental-Matador (tires), Getrag-Ford (transmissions), Johnson Controls (seat components), Hella (headlights), Valeo (door locks), Visteon (interiors and climate control), and ZSNP (aluminium discs and gear box castings).

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