TWO years ago Slovakia took considerable pride in being called the New Detroit. Now the news headlines from Detroit’s tottering auto giants have made the nickname less appealing. But the problems of the car manufacturing sector are global: car sales have been dropping world-wide as a result of the economic downturn and the automotive industry in Slovakia is now feeling the effect.
The major carmakers in Slovakia have admitted that they expect production to drop in 2009 by between 10 and 25 percent. One of the three car making giants will lay off 190 employees; one has reduced production from three shifts to just one shift per day; and the third is reportedly offering severance payments to employees who agree to leave the company.
Several automotive industry suppliers have closed their factories, contributing to Slovakia’s rising unemployment figures.
Industry overall hit the brakes in December, posting an annualised 16.8 percent fall in production, the steepest drop in a decade. Vehicle manufacturing experienced the deepest cut, at 35.7 percent, the Slovak Statistics Office reported.
Statistics showed a significant 41.83 percent drop in the number of new passenger cars and small commercial vehicles registered in January 2009 in Slovakia compared to the same month in 2008, according to the Automotive Industry Association.
The Slovak government has been discussing with industry representatives options for preserving employment and Slovak state officials have called for a unified European approach to suit all member states.
European automotive manufacturers also urged European Union leaders on February 10 to coordinate efforts to restore the functioning of financial markets, and called on governments to take urgent measures to prevent a prolonged recession.
“A coordinated European policy would not only ensure more fairness and greater respect for EU competition rules but - more importantly - greater efficiency in a single, European market,” said Carlos Ghosn, president of the European Automobile Manufacturers’ Association (ACEA) and chief executive of both Renault and Nissan, in an official press release.
Vehicle makers directly employ 2.2 million people in the European Union, and another 10 million jobs are indirectly dependent on the sector, according to the ACEA.
European car manufacturers also called for access to liquidity to be improved by allowing state guarantees for low-interest loans and by increasing and providing better access to funds through the European Investment Bank. They also asked the governments to preserve the competitiveness of the industry by postponing costly new regulation.
Passenger car and commercial vehicle sales in Europe fell sharply in 2008. Automobile production was subsequently trimmed back by around 20 percent in the last three months of 2008, resulting in a 5 percent year-on-year fall, said the ACEA, which expects European car manufacturing to decline by at least 15 percent this year.
On February 10, Korean carmaker Kia Motors told The Slovak Spectator it had changed working hours at the company’s Žilina plant to two six-hour working shifts daily. Only two days later the carmaker announced production would be reduced further, to just one shift a day for the next two weeks. Employees not required to work will be paid 60 percent of their normal income.
Dušan Dvořák, the spokesman for Kia Motors Slovakia, said that the production plan has been gradually modified.
“Our latest expectations [for 2009] are for 170,000 cars, but the reality could be different, since production does not reflect actual demand on the market,” Dvořák told The Slovak Spectator.
Kia Motors Slovakia, the first assembly plant built in Europe by South Korea’s Kia Motors Corporation, launched production in December 2006 with a plan to produce 300,000 cars a year and provide jobs to about 3,000 people.
Referring to the departure of car industry suppliers from Slovakia, Dvořák said that this could potentially cause headaches for carmakers, but that it depends on which suppliers leave.
“In many cases, producers have the option of using alternative suppliers, though quality, price and speed of delivery are important,” Dvořák said.
Asked whether Kia planned to make use of assistance measures proposed by the government to support employment, the company said it would only decide whether to apply for these once clear conditions for their implementation had been adopted. In response to reports that some EU countries are considering assistance specifically for domestic producers, Dvořák said that maintaining the principle of non-discrimination was key.
“Since countries should keep to the rules of the European Union, it is necessary in our view that no producers are discriminated against in the market,” Dvořák concluded.
French carmaker PSA Peugeot Citroen has announced plans to lay off 190 of the 2,300 workers at its Trnava plant between March and November 2009. The company said it was not planning any further layoffs, the SITA newswire wrote.
According to PSA spokesman Peter Švec, the company is pinning its hopes on its new Citroen C3 Picasso model, to be introduced in late March, for which it hopes there will be a strong market. Švec told SITA that the company wasn’t planning any changes in its production shift patterns.
The Slovak branch of German car giant Volkswagen (VW) confirmed that its Bratislava plant will continue to produce the same four models as in recent years – the VW Touareg, Audi Q7, Škoda Octavia and body-shells for the Porsche Cayenne.
“We only produce cars to order so the plan changes continually based on the wishes of our customers,” Zuzana Kissová of the company’s press department told The Slovak Spectator. “Planning meetings are held every week, but that does not mean the plan needs to be adjusted each time.”
The company said that it would not publish production figures for 2008 until March 2009.
Commenting on the departure of some suppliers from the Slovak market, Volkswagen Slovakia said that in the last few years the company has striven to develop sustainable partnerships with its multitude of suppliers.
“Rather than leaving the Slovak market, we expect more of them to establish their operations here,” Kissová said. “We see a trend towards an increasing share of Slovak suppliers in our production, which rose from 36.5 percent in 2007 to 37.7 percent last year, ensuring them the greatest part of the supplier cake.”
Call for protectionism?
Meanwhile, recent statements by French President Nicolas Sarkozy, intended to persuade – or perhaps browbeat – French-owned carmakers and suppliers who have invested in factories abroad to revert to manufacturing in France, have evoked strong responses from both Slovak state officials and the market. Sarkozy suggested offering assistance and tax cuts for carmakers to narrow the difference between production costs in France and in some of the new EU member countries. Such countries include Slovakia.
Slovakia’s economy minister, Ľubomír Jahnátek, said that protectionism by individual countries would be harmful to the EU. Jahnátek said he would prefer a joint move by the European Commission to support the automotive industry, which would apply to all EU members.
The prime minister, Robert Fico, also criticised Sarkozy’s statements, describing them as ‘unfortunate’. Fico added, according to SITA, that Europe as a whole could cope with the crisis but that individual states were unable to handle the situation on their own.
Protectionism doesn't have a place in a united and free market, Slovak Finance Minister Ján Počiatek told a meeting of the EU’s Economic and Financial Affairs Council (ECOFIN) in Brussels on February 10.
“The introduction of such protectionist measures will only deform the market again and in the end create further problems for the countries that introduce them,” said Počiatek, as quoted by the TASR newswire.
Government’s helping hand
The Slovak government has been seeking ways to maintain employment at the major carmakers in Slovakia. The companies have the option to use a new approach, known as flexikonto in Slovak, intended to help them retain skilled labour and avoid massive layoffs.
Top car company managers were interested in the state's proposal to seek joint solutions to situations in which producers are forced to reduce working times. The state said that in the event that working time is cut to 60 percent the Labour Ministry could cover part of the carmakers’ costs by co-financing training and requalification for employees during the 40 percent of their working time during which they were not directly involved in production, according to an Economy Ministry media release.
Flexikonto is a long-term worked-hours account which is intended to manage employees’ working time flexibly during swings in production. It allows employees to stay at home on full pay, with the unworked hours recorded in individual accounts. Later, over a period of months or years, the employee is expected to work the hours in the form of overtime.
The fact that the government is dealing with the problem by preparing such a programme is itself positive, Jozef Uhrík, President of the Association of Industry of Slovakia and the president of the Automotive Industry Association, told The Slovak Spectator.