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back to index backEUROtalk June,  2005


International car makers continue to see the attractions of Eastern Europe

Slovakia has cemented its status as Central Europe's premier automotive hub, with Kia Motors (South Korea) finally beginning construction on its €1bn ($1.29bn) plant in Zilina.

The deal, Slovakia's biggest foreign investment to date, was threatened by delays after several local landowners refused to sell, leading the Slovak cabinet to approve expropriation of some property.

But with construction on track, Kia expects to start producing 200,000 vehicles a year beginning in late 2006 or early 2007. It will join PSA Peugeot Citroën (France), which is also currently building a plant, and longtime investor Volkswagen (Germany).

Components makers are following suit. Getrag Ford Transmission, a joint venture between Ford (US) and Getrag (Germany) has announced plans for a €300m ($386m) gear box plant in eastern Slovakia.

Valeo is building a factory in eastern Slovakia to supply keys, locks and other components, while Visteon (US) is working on a €40m plant to produce car interiors and climate control systems.

Johnson Controls is to invest €25m in a new facility in the south of the country to produce foam parts for seating systems. Continental (Germany) is meanwhile investing up to €60m in a brake plant in Zvolen.

Winning ways

Slovakia beat out Poland for the Continental investment, and won the Kia deal over Czech and Polish offers. Auto investors cite Slovakia's low monthly wages, still below Polish and Czech averages, the country's favourable tax regime, and, most important, the presence of all the other auto investors.

Nevertheless, the Czech Republic isn't faring too badly, having two years ago won one of Central Europe's biggest FDI deals to date, a joint venture by Toyota (Japan) and PSA. The state-of-the-art, €1.3bn plant near Kolin is scheduled to begin production at the end of February, and is expected to roll out one car per minute once the factory is running at full speed.

Some 80% of all parts are to be sourced in-country, and Toyota has said that 40 Japanese companies, most of which are connected with the new car factory, have located to the Czech Republic since the joint venture was announced.

Meanwhile, car parts producer Kiekert (Germany) is building a new production facility in Prelouc, and US competitor Stant, a unit of Tomkins (UK), is planning a €6m factory to produce fuel caps and valves for fuel tanks.

In Poland, Toyota is producing engines and transmissions in Walbrzych for the Kolin factory, while car-parts maker Sanden (Japan) has announced that it would build a €110m factory near the German border. But losing the Kia and Continental deals to Slovakia were a blow to Poland's auto aspirations.

Moreover, Poland's vast domestic market is looking less appealing to automakers as well. New car sales are down as used cars have flooded the market since EU accession. Some 820,000 used cars were brought into the country last year, compared with 36,000 in 2003, while new car sales fell by 11%.

Foreign affair

The Russian market, by contrast, is looking hotter than ever. Russians spent more on new foreign cars than on domestic models for the first time last year. Hyundai reported that sales more than tripled in 2004, while Toyota and Ford saw sales nearly double.

Russian brands still account for around 60% of sales, with Ladas leading the pack, but foreign carmakers still expect further growth for 2005. This has once again led automakers to explore in-country production. Currently, Hyundai and Ford assemble some cars in Russia and import the rest. Renault (France) has a joint venture with the Moscow government, while GM has a deal with Avtovaz. Volkswagen is expected to clinch a deal to start car assembly in Russia, and Daimler-Chrysler is also reportedly mulling over its Russian options.

Toyota currently imports but is keen on domestic production, with Japanese media reporting recently that the company was in the final stages of talks with the Russian government to build a plant in St Petersburg. Toyota could be followed by Nissan, which is weighing a joint venture with Russian GAZ or existing partner Renault, or a greenfield investment. Ssangyong (South Korea), owned by Chinese SAIC, is also making inroads into the country with a deal to export CKD kits of its sports-utility vehicles to Russian Severstal Auto.


Source: Economist IU
- GAI


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