Global industry in Slovakia

Automotive production in Slovakia continues to grow even though carmakers operating in the country are not immune to the impacts of shrinking car sales throughout Europe. Despite this, the auto industry set new records in 2012 and its outlook for 2013 remains positive. This is due in part to the varied classes of cars produced and exported, and to the fact that it does not focus exclusively on the European market.

Slovakia is a major carmaker.Slovakia is a major carmaker. (Source: SME)

Automotive production in Slovakia continues to grow even though carmakers operating in the country are not immune to the impacts of shrinking car sales throughout Europe. Despite this, the auto industry set new records in 2012 and its outlook for 2013 remains positive. This is due in part to the varied classes of cars produced and exported, and to the fact that it does not focus exclusively on the European market.

Jaroslav Holeček, the president of the Automotive Industry Association of the Slovak Republic (ZAP), describes the Slovak automotive industry as rather stable when taking into account declining car sales and the overcapacity of car production in Europe.

“Car production in Slovakia oscillates around existing production capacities, which is the annual production of about one million cars,” Holeček told The Slovak Spectator.

Carmakers in Slovakia manufactured a total of 926,555 cars in 2012, a 44.9-percent increase compared with the previous year, due especially to the launch of new models and extending production in factories in Trnava and Žilina to a third shift. To highlight this high number, Holeček cited the production of about 450,000 cars in Italy in 2012. Thus, having produced 171 cars per 1,000 citizens (up from 118 in 2011), Slovakia became the biggest per capita car producer in the world, followed by the Czech Republic. The EU average was 38 cars per 1,000 citizens in 2011.

In 2013 ZAP believes production will exceed 930,000 based on production in the first half of the year. Car production in Slovakia surpassed 556,400 vehicles in the first half of 2013, although carmakers warn that cars sales for the second half of the year are traditionally weaker.

Volkswagen Slovakia (VW SK), the Slovak arm of the German carmaker, which has been manufacturing cars for more than 21 years, produced more than 219,500 vehicles during the first half of 2013, the company wrote in its August 27 press release. This was a 4.8-percent increase compared with the same period in 2012. VW SK manufactured 419,000 cars in 2012.

In May 2013 the company launched the production of the Volkswagen cross up! and it continues to prepare for its production of an electric car, the Volkswagen e-up! VW SK is planning to ceremonially launch the electric car in the second half of the year. It was already introduced at the Frankfurt Auto Show in September. The company expects the volatility of the world market to persist in the second half of 2013.

“The demand on foreign markets affects the current situation in the automotive industry in Slovakia the most,” Vladimír Machalík, spokesperson for VW SK, told The Slovak Spectator.

Between 2012 and 2016, the company plans to invest a total of €1.5 billion in Slovakia. This includes investments in new pressing and body shops. Kia Motors Slovakia also continued to increase its car production. In 2012 it manufactured 292,050 vehicles.

“In spite of the not very favourable situation on the car market in Europe, we at Kia Motors Slovakia manufactured 158,900 cars during the first half of 2013 and reached a 6-percent increase,” Jozef Bačé, spokesperson of Kia Motors Slovakia, told The Slovak Spectator, ascribing the increase to the full usage of its production capacities as well as “the trust of European customers, who managed to appraise the combination of high quality, attractive design and competitive pricing of our cars”.

Because the plant, which began production in late 2006, is now operating at full production capacity for the first time ever, it expects to manufacture more cars in 2013 than last year. Kia Motors Slovakia launched a third work shift in early 2012 thanks to enough orders and preparation for production of new models.

The plant, which is the Korean carmaker’s first in Europe, has invested in the production of new models. During the first seven months of 2013 it invested over €37 million, which went into adaptations of production lines for higher performance versions of the Kia cee’d model, the three-door pro_cee’d GT and the five-door cee’d GT.

Most of the cars Kia manufactured in the first half of 2013 were exported to Russia (24 percent), the UK (14 percent), Germany (9 percent), France (5 percent) and Italy (5 percent). Almost 1 percent of output is sold in Slovakia, the company informs on its website.

PSA Peugeot Citroën manufactured almost 215,000 cars in 2012, compared with 178,000 cars in 2011. In the first half of 2013 it produced 137,000 vehicles, the Hospodárske Noviny daily reported in mid July.

The company currently manufactures two models, the Peugeot 208 and the Citroën C3 Picasso. In October the company confirmed that production of the Citroën C3 Picasso, which makes up about one third of its production, will move to Zaragoza in Spain where General Motors has a plant. Instead of this model the Trnava plant is expected to produce a new Opel. The change should take place in 2016, the Hospodárske Noviny wrote. This decision came from the headquarters in Paris and the reason behind this change is closer cooperation between PSA and General Motors, which made an alliance in 2011.

Peter Švec, spokesperson of PSA Peugeot Citroën specified for the TASR newswire on September 18 that PSA plans to increase production in 2013 by 6 percent compared with 2012 and thus produce a record number of cars in the plant’s history.

Holeček highlighted that car plants in Slovakia are among the most modern and advanced, that their focus extends far beyond Slovakia, and that they export cars to countries whose markets have not become oversaturated.

“It is an enormous advantage that all three carmakers operating in Slovakia are successful within their concerns and that they produce cars neither [solely] for the Slovak market nor the European one, but the global market,” said Holeček. “And when we are speaking about the global market, it is enormously important for us to export cars to Russia, China and other countries, in which the strong development in the sale of cars is ongoing.”

In 2012 Volkswagen Slovakia exported 99.7 percent of its production, with the biggest portion of its output, 40.2 percent, going to the German market, followed by China with 9.5 percent and Great Britain with 7.1 percent. Kia Motors Slovakia in Teplička nad Váhom, near Žilina, exported 99 percent of its production in 2012.

Holeček sees this as a strong competitive advantage of carmakers in Slovakia compared with other European countries, which are experiencing a serious crisis in car sales.

Ivan Hodač, general secretary of the European Automobile Manufacturers (ACEA), estimated for Hospodárske Noviny that Europe has 20-30 percent overcapacity in car production.

Since some plants are very expensive they need to be closed, and Ford, GM, Fiat, PSA and others are already closing some of their facilities. But Hodač believes this will benefit the Slovak auto industry, adding that car production in Slovakia has been increasing every year because it is inexpensive and of very high quality.

“The Slovak automotive industry is modern and the last plants that somebody would want to close would be those [which are the] most effective, and today these are in Slovakia,” Hodač told The Slovak Spectator.


Production overcapacity in Europe’s automotive market leaves little room for car production in a country like Slovakia to expand. However, there is space for further growth in the automotive subcontracting sector, and the current challenge for subcontractors in Slovakia is to boost their exports.

“For the time being, the subcontracting automotive industry makes up about one third of revenues of the automotive industry in Slovakia, which is really positive,” said Holeček. “The subcontracting industry exports more than it supplies; about 40 percent of its production remains in Slovakia and 60 percent is exported. It is important to further develop the subcontracting automotive industry so that its production increases, but especially [so that] the share of parts supplied by local subcontractors grows.”

Holeček estimates that 60-70 percent of car components from which cars in Slovakia are assembled are produced in Slovakia.

Carmakers in Slovakia confirm that the share of components supplied by local subcontractors is growing and that they are interested in increasing this.

“Last year supplies of parts and materials from Slovakia reached the historically highest share of 44.3 percent of the total volume of supplies,” Machalík of VW SK told The Slovak Spectator, adding that this represents a volume of €2.5 billion, up by one fourth compared with 2011. “Our long-term goal is to have subcontractors as close to our company as possible.”

Kia Motors Slovakia divides supplies of components into two groups: parts imported from European countries including Slovakia, whose volume makes up about 70 percent of the total amount, and components supplied by countries outside Europe, Bačé of Kia Motors Slovakia told The Slovak Spectator.

“During the last five years we have managed to increase the share of local supplies by 10 percent, while the long-term goal of our company remains to continue to increase the share of parts from European countries,” said Bačé. “When choosing new suppliers we apply three main criteria: quality, time of the supply and the price.”

Holeček further stressed that the automotive subcontracting industry has moved forward in response to the changing requirements of carmakers, requiring more research and development. In the past, carmakers gave drawings and diagrams to subcontractors, based on which they produced components for them. Now subcontractors have to design, develop and test the parts and modules supplied to carmakers themselves. This has prompted a need for more research and development, and especially applied research, in Slovakia, which could expand the automotive subcontracting industry in the country.

In this respect Holeček added that having a subcontractor close to a producer brings reduced logistics costs and creates new jobs in Slovakia, as well as all of the resulting effects in paid income and payroll taxes, consumption of goods and so on.

In addition to the lack of R&D, another sore point for the Slovak automotive industry is the country’s unfinished highway infrastructure.

“Out of about 275 subcontractors, as many as 200 are in western Slovakia, up to Žilina and Banská Bystrica, and only about 70 subcontractors are located beyond [further east],” said Holeček. “This certainly indicates something.”

ZAP sees room for subcontractors in all industrial sectors to develop, i.e. machine engineering, the electro-technical industry and the chemical industry. Holeček also calls for increasing the basic production of items that he believes are illogical to import, like forged pieces and tools.


The way in which Slovakia’s automotive industry has grown has raised concerns about the country being overly dependent on one industrial sector.

“It is useless to speculate whether the volume of the automotive industry in Slovakia is high or too high; it is here,” Holeček told The Slovak Spectator. “For the time being, we do not have any other alternative but the automotive industry.”

The automotive industry accounted for approximately 6 percent of Slovakia’s GDP in 2012, Martin Baláž, an analyst with Slovenská Sporiteľňa, estimated for the TASR newswire. If subcontractors of carmakers are taken into consideration too, the share would be even higher.

Automotive industry production generates, directly and indirectly, 200,000 jobs, which is 9 percent of the country’s total employment. The industry directly employs almost 61,000 people.

Vladimír Vaňo, head of CEE Research Competence Center of Sberbank Europe AG, specified that production of transport vehicles represents about one third of Slovak manufacturing production in terms of sales. However, many of the suppliers of the automotive industry are classified in other industries (such as textile or rubber production), hence the overall weight of the automotive sector in Slovakia is even more significant.

“There is too much ado about clear dependence of the Slovak economy on the automotive sector,” Vaňo told The Slovak Spectator. “First of all, one has to admit that given the economies of scale required in today’s manufacturing, even three automotive facilities built in a small country like Slovakia can cause such a high degree of concentration in industry. When you look at many other countries of similar size, such a high degree of industry concentration is not so unusual.”

On the other side, one has to recognise, Vaňo added, that the Slovak automotive sector was not created out of the blue.

“Car manufacturers simply discovered the underutilised resource of a well-qualified labour force with craftsmanship and skills required in engineering, which was a heritage of the long-standing position of light and heavy engineering in Slovakia, including production of ‘special vehicles’, basically military production, which was subdued after the Velvet Revolution,” Vaňo said. “Although Slovakia produced virtually no passenger cars twenty years ago, car manufacturers discovered that a labour force skilled in assembling military vehicles can be successfully used in the production of cars.”

Last but not least, according to Vaňo, one has to be aware of the fact that major Slovak facilities are part of the decade-long restructuring process of the European automotive industry: within this process, car manufacturers had to admit that if they wanted to produce price competitive small and medium-sized vehicles, they simply had to adjust their cost base and, hence, they had little choice than to shift production from western countries to the CEE countries with more competitive labour costs.

“However, as the case of high-end and high-priced SUV production in Slovakia points out, the success of the automotive industry is a story of the competitive qualification-to-cost ratio, not the story of cheap labour alone,” said Vaňo.

With regards to measures Slovakia should take to remain competitive, Vaňo believes that keeping the competitive entrepreneurial environment and attractive investing climate are the most important ways in which the government can mitigate the risks associated with the high concentration of industry, as well as in other sectors.

“Crucial long-term measures concern the development of a good educational system, which is indispensable for maintaining the attractive qualification-to-cost ratio of the labour force,” said Vaňo.

For more information about the Slovak business environment please see our Investment Advisory Guide.

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