The Automotive sector in CEE: What`s next?

Transcription

DECEMBER 2007
Your Leading Banking Partner
in Central and Eastern Europe
The Automotive sector
in CEE: What’s next?
Russia
Poland
Czech
Republic
Slovakia
Hungary
Slovenia
Romania
Croatia
Bulgaria
Turkey
A N A LY S I S
BY
T H E
U N I C R E D I T
G R O U P
N E W
E U R O P E
R E S EA R C H
N E T WO R K
Imprint
Published by UniCredit Group / Bank Austria Creditanstalt Aktiengesellschaft
http://www.unicreditgroup.eu
http://www.ba-ca.com
Authors: Andrzej Halesiak, Krzysztof Mrowczynski, Matteo Ferrazzi, Andrea Orame
Edited by CEE Economics Department
(neweuroperesearch@unicreditgroup.eu)
Bernhard Sinhuber, Tel. + 43 (0)50505-41964
Produced by BA-CA Communications Austria (pub@ba-ca.com), Tel. + 43 (0)50505-56141
Printed by Gutenberg
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2
The Automotive sector in CEE, December 2007
Contents
I. The global automotive industry ...............................................................................................................................................................6
II. The automotive industry in Central Eastern Europe – its size, structure and growth ..........................................................................11
III. CEE’s growing integration with the global automotive industry – role of foreign trade ....................................................................17
IV. FDIs as a key driver of the automotive industry’s development in Central Eastern Europe...............................................................23
V. The role of local demand in the CEE automotive industry ...................................................................................................................29
VI. Prospects for the Central Eastern European automotive industry.......................................................................................................36
VII. Country profiles ...................................................................................................................................................................................38
VIII. Annex..................................................................................................................................................................................................48
UniCredit Group CEE banking network ......................................................................................................................................................50
3
Summary
Summary
• Central Eastern Europe has become an important part of the
Eastern Europe), and this share doubled since 2002. Its role is
world’s automotive industry, which is a highly consolidated and
especially significant in the production of small, economical
globalised
business1.
In 2006 total production of motor vehi-
cars where cost savings are essential. This tendency is also
cles reached 69 million units and was dominated by three
notable in bus manufacturing, which is the most labour-inten-
traditional automotive regions (North America and Japan,
sive automotive business. Fast growth in local vehicle produc-
which are the first and second largest world producers, and
tion is also reflected by the expanding supplier segment, which
Western Europe) although the contribution of emerging
accounts for more than half of the industry’s value in many of
economies in car manufacturing is greatly increasing (with
the CEE countries.
China already being the third largest producer in the world).
Currently the global automotive business is experiencing deep
• The Central Eastern European automotive industry is strongly
structural problems (including weakening sales on traditional
export-oriented. Regional export sales have almost tripled
markets, rising material and R&D costs and increasing oil prices)
since 2000 with Western Europe becoming the main export
that have put some leading players on the verge of no longer
market. In some CEE countries (especially those in Central
being profitable (which is particulary evident in the case of
Europe) the contribution of domestic car production to total
American companies). In response to these negative tenden-
exports is extremely high. On the other hand, the CEE countries
cies, global automotive companies are undertaking complex
are not only a relevant production base, but they are constantly
restructuring measures that aim at healing their businesses.
increasing their share in the global automotive import market,
They include strategic alliances focused on single projects, lean
which has doubled since the beginning of the decade. Never-
manufacturing, increasing pressure on suppliers and, most of
theless, the CEE region is increasingly becoming a net exporter
all, relocation to low-cost areas.
of automotive products.
• Central Eastern European countries are among the main ben-
• Rapid development of the automotive industry in Central
eficiaries of these circumstances. The local transport equip-
Eastern Europe would not be possible without huge support
ment sector2 is developing at a very dynamic pace (ca. 20 %
from foreign investments, which have already reached a total
annually in terms of value added). It is almost a EUR 20 bn
industry in terms of value added, generating almost 10 % of
the manufacturing value added in the region. Some relatively
small countries (like Czech Rep., Hungary, Slovakia) are considerably above average in terms of the percentage of value
Passenger cars in Central Eastern Europe and Russia:
production and sales
in thousands
added coming from automotive manufacturing. With 4 million
passenger cars produced last year in CEE and Russia (4.7 million including light vehicles) the area is becoming an important
production base for the EU market. Even without including
Russia, CEE now represents almost 16 % of passenger cars produced in Europe (including production in both Western and
1) The following report covers an analysis of the automotive industry in Central Eastern
Europe. It concentrates on the automotive business in 9 countries in the region including its two main areas: Central Europe (Poland, Czech Republic, Slovakia and Hungary)
and South Eastern Europe (Slovenia, Croatia, Bulgaria, Romania and Turkey). In some
cross-country comparisons data for Russia were also quoted (especially regarding the
role of local demand) as its importance for the whole region is especially high.
2) Please note in the report we often refer to the Transport Equipment sector, while in
other cases we refer to the subsegment Automotive (depending on data availability).
The whole Transport equipment sector (DM according to NACE classification) includes
the automotive sector (DM34, including parts) and other transport equipment (DM35,
motorcycles, railway, ships, aircrafts).
4
4,000
3,500
3,000
2,500
2,000
1,500
1,000
2003
2004
Passenger car production
Passenger car sales
Passenger car sales (excl. Russia)
Source: UniCredit New Europe Research Network
2005
2006
value of over EUR 20 bn. This FDI inflow has rapidly accelerated
mere cost advantages. The large potential of the local markets,
since the beginning of the new century as regional ties with
the proximity of Western European markets and improving infra-
the EU have become much closer. The CEE region has attracted
structure, the growing possibilities of building pan-European pro-
in recent years all of the leading global manufacturers from
duction centres and the regional openess to foreign investments,
Europe, US and Asia, including Volkswagen, Renault, Peu-
together with the fast improvement in the quality of the labour
geot-Citroen, Fiat, GM, Ford, Toyota, Hyundai-KIA, Suzuki and
force, represent important assets to leverage. The local auto sup-
many others. The region mainly lures investors with significant
ply industry has promising prospects as well.
cost advantages but also with a business environment that is
improving quickly.
Overall, we expect that within the next years the transport equipment sector will outperform that of GDP growth in most of the
• The high level of attractiveness of the CEE region also results
CEE countries. The highest growth ratio is expected to be recorded
from its large market potential, which is a combination of its
in Slovakia (which will benefit the most from recent investments
population size, fast growing incomes and under-penetration
from KIA and Toyota-PSA), as well as in Romania and Bulgaria,
in terms of vehicles in use. The total number of registered cars
which became an especially attractive relocation target after their
in CEE has already reached 45 million (75 million including
EU accession.
Russia). New car sales were 1.3 million in 2006 (3 million
including Russia). Car penetration in CEE is much lower than in
Western Europe (less than 20 cars per 100 inhabitants in Russia,
Turkey and Romania, for instance, versus almost 60 cars per 100
inhabitants in Italy and Germany). The expected rapid increase
Location of car assembly plants in CEE
in income will be a major driver of the gradual reduction of this
Red countries under analysis
gap. Many global producers locate their car facilities in the
region counting on the fast development of local sales in the
future. However, the dynamics of new car sales in the region do
Russia
not always meet these high expectations. Especially in the new
EU member states, figures on car sales are strongly distorted by
the import of second-hand vehicles that can be freely imported
under EU law and the markets are very price competitive
against new cars. Apart from this, some CEE markets (especially
Poland
Russia, Turkey and Romania) exhibit significant growth potential,
as their converging economies will be able to absorb an increasing amount of new cars.
Ukraine
Czech Rep.
We think the Central European cluster will remain, or even
expand, as one of the most important centres of automotive pro-
Slovakia
Hungary
Slovenia
Romania
Croatia
duction in the future. CEE countries will likely receive additional
investments, while some lower value-added activities will be
Serbia
Bulgaria
moved to other destinations, in Eastern Europe (Moldova,
Ukraine, Belarus in the future) or Asia.
It is however also clear that the competitive position of the CEE
automotive industry will have to be based on factors other than
Turkey
local ownership
foreign ownership
5
The global automotive industry
I. The global automotive industry
I.1
The automotive industry is a global,
highly consolidated business …
growth, it has already outnumbered Germany as the third largest
car manufacturer in the world (around 10 % of global output).
In 2006, the world’s production of mechanic vehicles exceeded
69 mn units, which was a record figure in its history of over one
The industry’s growth has been accompanied by increasing glob-
hundred years and was 4 % higher than the previous year. Dur-
alisation and consolidation. Right now, the top 5 automotive
ing the last decade, the average production growth rate was 3 %
groups – each operating globally – control over 50 % of the
annually, mainly due to the rising output of emerging countries.
industry in terms of production volume (figure 2), with significant
However, the three traditional regions of automotive produc-
differences at the regional level. Western Europe is an illustrative
tion (North America, Japan and Western Europe) remain lead-
example of a fairly competitive market with 15 brands having at
activity3
with global market shares amount-
least a 2 % market share, whereas the top three American OEMs
ing to 22.9 %, 16.6 %, and 23.4 % respectively (figure 1). China
still control about 50 % of their domestic market. Nevertheless,
is emerging as their main competitor: thanks to its impressive
even American buyers have become more and more open to
ing areas of OEMs’
3) OEM is the Acronym of “Original Equipment Manufacturer”
Main regions of global automotive production
(figure 1)
Vehicle production volume (2006, passenger cars and commercial vehicles, in million units)
Central Eastern Europe*
North America 15.9
USA
11.3
Canada
2.6
Mexico
2.0
Africa 0.6
South America 3.2
*) includes all countries in the region, also those not included in the analysis.
Source: OICA, UniCredit New Europe Research Network
6
5.1
Western Europe 16.2
Germany
5.8
France
3.2
Spain
2.8
UK
1.6
Italy
1.2
Asia and Oceania 28.2
Japan
11.5
China
7.2
South Korea
3.8
India
1.9
manufacturers from other continents in recent years (especially
I.2
Japanese ones), which is a clear sign of further globalisation
trends in the sector. A similar trend has taken place in the sup-
… where external factors as well as
industry-specific factors lead to fierce
competition
plier industry: tightening cooperation between OEMs and their
The global automotive industry is evolving dynamically due to
main part deliverers has led to the emergence of many auto
the changing business environment which intensifies existing
supplier groups that operate worldwide. Such so-called Tier 1
challenges and forces car manufacturers take measures to heal
suppliers were originally linked to single automotive producers
their businesses. Among all external factors affecting the indus-
(domestic ones in the majority of cases). At present, they usually
try one may distinguish:
directly serve several distinct car manufacturers, which makes
• Weakening demand in traditional markets (especially in the
the scale of their activity (in terms of revenues) comparable with
USA and Western Europe), that are already saturated and no
some of their clients. Among the largest automotive suppliers,
longer offer significant growth prospects.
one can distinguish Germany’s Bosch, Denso and Aisin Seiki from
• Rising material costs. Over the last two years prices of some
Japan, Delphi, Johnson Controls, Lear and Visteon from the USA,
automotive-related commodities (such as steel, aluminium,
Magna from Canada and Faurecia from France. However, in com-
copper and plastics) have remained at a painfully high level,
parison to car manufacturers, the auto supplier industry remains
and have also been rather volatile, reducing the possibility of
highly fragmented with a large number of Tier 2, Tier 3, etc.
effective cost planning and hedging against unexpected price
operators that deliver individual parts to larger suppliers.
changes.
• Growing oil prices that make customers change their preferences towards more fuel-efficient vehicles and set the course
for some more demanding technological improvements.
World’s top vehicle manufacturers
(figure 2)
Unit of measure: production volume in mn units (2006)
Production (mn units)
The current situation of global automotive companies is also partially a result of some typical internal issues:
Global share
• As cyclicality is a common feature of this industry, there are
high amplitudes in sales observed over consecutive years.
Total world
production
However, cycles may vary in different regions, enabling car
69.13
General Motors
(USA)
8.9
13.1%
Toyota
(Japan)
8.0
11.8%
Ford
(USA)
6.3
9.2%
Renault-Nissan*
(France/Japan)
5.7
8.4%
Volkswagen Group
(Germany)
5.7
8.3%
DaimlerChrysler
(Germany)
4.6
6.7%
Hyundai-Kia
(South Korea)
3.8
5.6%
Honda
(Japan)
3.7
5.4%
PSA
(France)
3.4
4.9%
Fiat
(Italy)
2.3
3.4%
producers to protect against changing market conditions.
• Another structural attribute of the automotive industry is its
overcapacity, which often comes in at about 20 % of overall
capacity. A combination of factors have led to this negative
phenomenon including: the tendency of OEMs to invest in
quickly developing regions where sales are expected to grow
only in the future, the industry’s cyclicality and investment
strategies that influence OEMs to accept extremely optimistic
sales forecasts during capacity planning. For all intents and
purposes, a problem of overcapacity does not exist in the supplier industry, where assets are much more transferable.
• Growing competition from large low-cost countries, such as
China or India, which is especially visible in the supplier segment. As Asian suppliers gain experience not only in producing
commodity parts but also in even more sophisticated modules,
the economics of the business simply cannot remain the
*) Alliance. Renault’s sales 2.5 million units, Nissan’s sales 3.2 million units
Source: Companies’ annual reports, OICA
same.
The phenomena described above strongly influence the industry’s condition, which is characterised by fierce competition
7
already present on automotive markets all over the world. The
not binding partners involved in such initiatives to a long-term
strategy of the OEMs has become focused on protecting old mar-
commitment. Consolidation will be even more significant in the
ket shares rather than conquering new markets and they are all
parts industry, that are forced to follow OEMs’ relocation moves
suffering from the consequences of a global price war. The lat-
which entail new investments in capacity.
ter seems to be unavoidable. In such a capital-intensive busi-
• The relocation of facilities towards low-cost areas has
ness, car manufacturers are forced to maximise their sales (in
become an important element of every OEM’s strategy (figure
order to optimise capacity utilisation), which usually entails con-
3). There are two main incentives for such an action: first, pro-
siderable price discounts. Moreover, car manufacturers try to
ducers are establishing plants in the countries which show
outdo one another with technological novelties, which results in
promising growth prospects in terms of being able to market
the growth of R&D costs, an increase in the importance of
the cars locally. Secondly, it enables the reduction of opera-
electronic and IT solutions, constant improvements in engine
tional costs, which especially pertains to labour-intensive pro-
efficiency and a vehicle lifecycle that is becoming shorter and
duction (e.g. buses) or the manufacturing of small cars, where
shorter.
margins are usually minimal. As mentioned before, suppliers
tend to follow OEMs in this process as they need to operate
There are also some greater consequences of the issues men-
close to their customers. Although relocation usually turns out
tioned. First of all, the majority of car manufacturers are cur-
to be a good strategic move, it entails substantial capital
rently struggling with declining profitability. Rising investment
requirements result in many projects that are not able to return
expenditures and higher investment risk.
• OEMs are forced to shift more attention to proper marketing
the cost of capital. The combination of these factors is causing
strategies and constantly maintain their market appearance.
the automotive business to become less attractive for potential
• At the same time, they strive for operational excellence, intro-
shareholders, which is especially seen in the U.S., for instance.
ducing lean manufacturing, which results in the shift of value
added and production burden towards their direct suppliers.
OEMs’ suppliers are afflicted by similar troubles. Nevertheless,
These suppliers then become the coordinators of the whole
Tier 1 suppliers are generally able to earn higher profit margins
process. This process helps to simplify the business and to
despite tremendous pressure from the upper and lower seg-
keep costs relatively low. They also try to compensate for
ments of the value chain. This is possible because of the nature
declining profitability by putting intense pressure on suppliers
of their activity, which entails the generation of a relatively high
to lower their margins and increase innovation and global
level of value added in comparison to car manufacturers. However the situation of automotive suppliers is very diverse and
depends on the respective scale of operations and business
model.
Changes in the world’s production
of passenger cars
I.3
Thousand units
The industry is responding with cost
reductions, a shift towards lean
operation and closer vertical and
horizontal cooperation
Automotive companies are undertaking various steps against the
1,499
(figure 3)
1,397
809
Δ
Japan
Δ
South
America
124
49,887
887
6,305
41,216
– 1,518
progressive deterioration of profitability:
– 832
• Further consolidation, which, in the case of the OEM sector, can
assume different forms. Whereas basic mergers and acquisitions
were common over the last two decades, leading to the dominance of large automotive groups like GM or Volkswagen,
strategic alliances and joint-ventures aimed at single projects
(e.g. common platforms, engines) are much more prevalent
today. The latter has become a convenient solution for car manufacturers as they help to share R&D costs and operational risk,
8
Production Δ
2000 NAFTA*
Δ
EU-15
Δ
Δ
Δ
Asia
Eastern S. Korea
(without Europe
Japan and
Korea)
*) USA, Canada and Mexico
Source: OICA, UniCredit New Europe Research Network
Δ Production
Africa
2006
expansion. For further cost reductions, they even outsource
their success are a perfectly organised production process,
(offshore) supporting functions such as accounting or human
proper product positioning and excellent intuition about upcom-
resources.
ing trends (e.g. Toyota succeeding with its hybrid-engine cars).
• In order to bring the business back on course, automotive
• On the contrary, American OEMs, mainly positioned on the
companies are implementing even more restructuring mea-
domestic market, are experiencing extremely hard times.
sures including the reduction of the number of direct suppli-
They are much too vulnerable to cyclical downturns on the
ers and downsizing programs.
domestic market. Moreover, they are consistently losing market share to expanding Japanese firms. The recent failures of
All the processes mentioned above are redefining mutual rela-
American producers were caused mainly by their chronic
tions inside the industry, which is illustrated in figure 4.
inflexibility towards changing market trends. An excessive variety of brands which causes a loss of brand awareness and the
I.4
Japanese producers are the industry’s
winners, with emerging countries
becoming increasingly important
over concentration of big fuel-demanding cars have led some
of their clients to choose more attractive solutions offered by
competitors. Another typical problem for American OEMs is the
Not all car makers are successful and the situation of the various
enormous legacy costs they have to bear in connection with
global automotive groups is rather distinct:
various pension and healthcare programs. These costs often
• Japanese and other Asian manufacturers are undoubtedly
pull their financial results under the profitability line.
among the best performers. While all regional leaders arose
• European car manufacturers are generally faced with similar
from their respective domestic markets, the Japanese were the
problems. Sales have remained stagnant for many years and
first to effectively adapt to increasing global competition. They
the expansion of Asian brands makes competition on the local
are expanding on both fronts: constantly growing in the U.S.
market even more intense. However, European companies
and Western European markets and maintaining a strong com-
are generally able to perform better than their American
petitive position on their own territory. The main factors of
counterparts. They are more used to operating in fiercely com-
Mutual links between car manufacturers and their suppliers
OEMs
Engines
Bodies (design)
Car assembly
Sales (marketing)
Shifting value
added
Squeezing
to cut costs
Alliances
Joint ventures
M&A
Capital links
OEM
OEM
Rising input in a form of
technological know-how
Tier 1 suppliers
Automotive systems
(e.g. interior, steering)
Shifting value
added
Squeezing
to cut costs
(figure 4)
Consolidation
Tier 1
Consolidation
Tier 1
Tier 1
Bottom-up pressure
resulting from rising
material costs
Tier 2, 3, … suppliers
Individual parts
and modules
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
9
petitive conditions, which means that some of their businesses
facturers will tend to form more and more alliances focused
have already been restructured or are in the latter phases of
on single projects. Automotive suppliers will most likely play
this process. Moreover, the local industry does not experience
an unprecedented role in such partnerships as they take over
legacy problems like U.S. companies do. Finally, Western
much of the production burden and utilise their clear advan-
Europe is not a uniform market but instead consists of several
smaller markets that have different specificities and cycles.
This helps local players to hedge against sudden downturns.
tages of know-how.
• Constant improvements in fuel efficiency are expected to be
a leading trend in coming years. Apart from further expansion
of diesel engines, which is already taking place in Europe, all
As a result of these factors, Japanese OEMs considerably outper-
of the manufacturers will bet on the development of alterna-
form their European and American competitors in terms of sales
tive fuel technologies including hybrid engines. This process
dynamics (figure 5). Increasing economies of scale together with
will be stimulated by the customers’ increasing desire to min-
the organisation of the production process lead to outstanding
imise fuel costs as oil becomes increasingly scarce.
• There will be a growing role for economy-class cars (repre-
business profitability.
sented by e.g. Dacia Logan, Chery, Tata) observed as emerging
The future will bring even more cost
restructuring, including relocation,
which is a great opportunity for some
Central Eastern European countries
I.5
markets gain in power. OEMs are already making huge efforts
to offer cars that are affordable for a wide range of customers.
CEE countries, similar to other emerging economies, seem to be
The trends currently observed in the automotive industry should
one of the main beneficiaries of the industry’s transformation.
continue in the coming years:
Their proximity to the Western European market makes them an
• Existing problems will force OEMs and their suppliers to inten-
attractive investment destination which lures not only traditional
sify their restructuring efforts. The closing of non-efficient
European manufacturers but also Asian companies looking to
facilities and further relocation programmes appear unavoid-
build their production bases for the region.
able. As cost effectiveness is becoming a key issue, car manu-
American, European and Japanese OEMs’ performance
(figure 5)
2000 – 2006
Unit sales
2000 =100
EBIT magin*
150
10%
140
6%
130
2%
0%
–2%
120
110
–6%
100
–10%
90
2000
2001
2002
2003
2004
2005
2006
2000
2001
2002
2003
Top 3 Japanese OEMs (including Toyota, Honda and Nissan)
Top 6 European OEMs (including VW Group, PSA, Renault, Fiat, DaimlerChrysler’s Mercedes and BMW)
Top 3 American OEMs (including General Motors, Ford and Chrysler)
*) Only results of automotive divisions excluding profits from financial activity / Source: annual reports, UniCredit New Europe Research Network
10
2004
2005
2006
II. The automotive industry
in Central and Eastern Europe –
its size, structure and growth
The automotive industry generates an
important part of the manufacturing value
added of Central Eastern Europe economies
II.1
In recent years, CEE’s automotive value added has been growing at a rapid pace (about 20 % annually) and has more than
doubled the figures from 2000 (figure 7). The sector’s growing
In most of the CEE countries the manufacture of motor vehicles,
importance in the region is reflected by its increasing contribu-
trailers and semi-trailers represents a major part of the produc-
tion to total manufacturing value added (from 5.8 % in 2000 to
tion of the wider transportation equipment sector (figure 6). The
7.3 % in 2005 and almost 10 % now). It already represents one
only exception is represented by the countries that have not
of the largest manufacturing sectors in CEE.
developed motor vehicle production (Bulgaria, Croatia) being
concentrated on the manufacturing of other transport equipment
In some CEE countries in particular (especially in small ones like
(e.g. shipbuilding). On the other hand, automotive production
the Czech Republic, Hungary or Slovakia), the auto industry is
plays a crucial role in the states of Central Eastern Europe that
relatively well developed and generates 10 – 12 % of total manu-
have no sea access (Hungary, Czech Rep. and Slovakia).
facturing value added (figure 8).
Structure of transportation equipment
manufacturing in the CEE countries, 2005
(figure 6)
Gross value added (current prices, EUR bn)
100 % = 0.1
84
0.2
73
5.3
3.4
1.6
25
29
23
Development of the Central Eastern European
automotive industry, 2000 – 2005
(figure 7)
Gross value added EUR bn (constant 2005 exchange rates)
0.3
18
3.0
1.9
0.8
8
8
8
13.1
CAGR=19%
11.9
9.7
75
Po
la
nd
77
92
82
92
92
5.6
6.3
Sl
ov
ak
ia
Hu
ng
ar
y
Re
p.
ia
Cz
ec
h
Slo
ve
n
Ro
m
an
ia
27
Cr
oa
tia
Bu
lg
ar
ia
16
71
Tu
rk
ey
7.9
Other transport equipment
Manufacture of motor vehicles, trailers and semi-trailers (automotive)
Source: UniCredit New Europe Research Network analysis based on data from
Eurostat and statistical offices
Share of
automotive in
manufacturing
GVA
2000
2001
2002
2003
2004
2005
5.8 %
5.8 %
6.3 %
6.7 %
7.1 %
7.3 %
Source: UniCredit New Europe Research Network analysis based on data from
Eurostat and statistical offices
11
The automotive industry in Central and Eastern Europe – its size, structure and growth
In larger states like Poland, Turkey or Romania its impact is gen-
A breakdown by country (figure 9) reveals the domination of
erally smaller (with the contribution to manufacturing value
three players (Turkey, Czech Republic and Poland) as the main
added ranging between 6 and 8 %). In Bulgaria4 and Croatia,
local automotive producers. They generate almost 70 % of auto-
where there are actually no car production facilities, it plays only
motive value added among the analysed countries.
a marginal role and is limited to some parts producers.
II.2
The rapid development of the automotive sector observed in some
Central Eastern European countries is proving to be a real flywheel
for their economies. This positive phenomenon is also found in the
Almost 3 million passenger cars
(4 million including Russia) were
produced last year in the region and its
volume is growing fast
industry’s contribution to total value added. It was especially
Both production of passenger cars (+ 17 % on average from 2002
impressive in Slovakia and Romania but also fairly significant in
to 2006) and other vehicles (+ 31 %) is growing fast (figure 10).
some other countries like the Czech Republic and Poland.
4) Bulgaria is also one of the candidate locations for the auto production facilities
planned to be built in the region by GM and other American and Asian car producers
(in addition to the clear advantages of lowest cost and tax treatment factors, the possibilities to conveniently and simultaneously serve neighbouring markets with significant potential for growth like Turkey, Romania and Serbia are considered particularly
favorable). There are also indications of increased interest in building new auto parts
production facilities in Bulgaria. Expected investments of three multinational companies are estimated at around EUR 120 mn, and plans scheduled for the next two to
three years add up to around EUR 210 mn. There may also be additional investments
planned by Turkish suppliers.
Role of automotive industry
in the CEE countries
(figure 8)
The beginning of the century was actually quite a hard time for
local car manufacturers. In the years 2001 – 02 production of passenger cars recorded a slight drop. There was a combination of
various factors that led to this deterioration:
Role of different countries in the
CEE automotive sector
(figure 9)
Gross value added, EUR bn, %
Automotive share in the Gross Value Added of each country, 2005
11.8
10.2
2.2
Slovakia
9.5
1.7
Romania
7.6
Romania 9%
Turkey 28%
Hungary 13%
6.3
1.1
Slovenia
4.3
0.2
Czech Republic 21%
Poland 20%
1.2
0.1
0.4
Manufacturing GVA
*) in 2004 – 2005 period / Source: UniCredit New Europe Research Network analysis
based on data from Eurostat and statistical offices
12
Slovenia 2%
Slovakia 6%
6.5
1.3
Turkey
Total GVA
Other 1% (Croatia, Bulgaria)
1.2
Poland
Bulgaria
100%=EUR 13.1 bn
2.3
Hungary
Croatia
Share in automotive GVA of CEE (2005)
3.1
Czech Rep.
Source: UniCredit New Europe Research Network analysis based on data from Eurostat
and statistical offices
• A general economic downturn in some countries of the region
the enlargement of the European Union in 2004. As already
(Poland, Czech Republic, Turkey) that also entailed shrinking
mentioned in the first chapter, CEE countries are now one of the
local car sales
main beneficiaries of the relocation process observed in the pro-
• Changing strategy of foreign investors – many global auto
duction of vehicles. It is especially prevalent in the production
manufacturers have been present in CEE since as early as the
of small cars, where contribution of labour costs to the total
early 90s, but some of the facilities were not really producing
value of a vehicle is higher. Many of the local facilities only
cars but just assembling them from the imported sets. This
manufacture economy class cars. There are many examples,
production model was introduced mainly in order to avoid tar-
such as the Fiat Panda in Poland, Toyota Aygo, Citroen C1, or
iffs. As tariffs were lowered and finally lifted in trade among
Peugeot 106 in Czech Republic, Renault Twingo in Slovenia,
EU countries, this kind of incentive ceased to play any impor-
Renault Clio in Turkey, the Logan in Romania and several others.
tant role, which caused some disinvestments in the region
This trend is being pushed even further by other producers like
• Financial problems and, finally, the bankruptcy of Daewoo,
General Motors, which is developing a new low-cost model, and
which was an important investor in Poland as well as in
Indian Tata Motors, which is producing the cheapest car in the
Romania.
world by far at EUR 1,850. These developments, together with
the general stagnant European, American and Japanese markets,
Since that time the local automotive industry has been enjoy-
are encouraging carmakers to take advantage of the faster eco-
ing spectacular growth, which was even more intensified by
nomic growth in Central Eastern Europe, producing affordable
Volume of motor vehicle production in CEE-9,
2000 – 2006
Production of passenger cars by country,
2000 – 2006
(figure 10)
Th. of units
Passenger cars
CAGR
=–
8%
1,762
(figure 11)
Th. of units, %
CAGR , %
2000 – 2002 2002 – 2006
Other*
%
17
R=
G
CA
1,965
1,499
CAGR=0%
202
2006
–8
17
8
6
7
7
4
7
2
2
2
33
–2
8
10
11
12
7
23
20
19
– 17
28
23
26
30
2
18
26
23
22
– 25
20
100 % = 1,762 1,518 1,499 1,653 1,965 2,259 2,804
2,804
2000
%
= 31
CAGR
502
Romania
Slovenia
Hungary
4
7
8
Slovakia
10
Turkey
17
4
8
9
9
5
7
7
12
15
17
14
18
29
26
21
20
5
8
12
600
204
Czech Rep. 24
2000
2002
2004
2002
2004
2006
10.1%
8.7%
7.3%
11.6%
15.5%
7.9%
share in Pan-European production
16.7%
18.6 %
Poland
30
29
25
5
6
6
11
2000 2001 2002 2003 2004 2005 2006
*) LCVs, Heavy trucks and buses
Source: UniCredit New Europe Research Network, OICA, local sources
13
cars in transition countries. Carmakers are hoping to draw in
international level. This is a simple consequence of the decreas-
first-time buyers now and keep them as they trade up to more
ing product life cycle which limits the popularity of certain car
expensive cars. The relocation of car facilities helped CEE coun-
models to a fairly short period of time and forces car manufac-
tries to nearly double the 2002 figures for the volume of pas-
turers to exchange them more and more often. It is also due to
senger cars manufactured in the region. At the same time,
the fact that decisions about the type of production carried out
they have succeeded in building up their share in pan-Euro-
at local facilities and the size of local facilities are made centrally
pean production to a solid level of 15.5 % (compared to just
by the owners of global corporations.
8.7 % in 2002). In regard to the production of other motor vehicles, it is already three times as high as it was in 2002. The
II.4
region’s share in European production of LCVs, heavy trucks and
buses now amounts to 18.6 %.
Turkey is responsible for over 70 % of
the regional manufacturing of motor
vehicles other than passenger cars
As mentioned, growth in the production of other vehicles6 was
Vehicle production in Russia, although comparable in size with
even more substantial. It was especially visible in the manu-
about 1.5 million vehicles produced in 2006, was not able to
facturing of light commercial vehicles7 which has increased
achieve the dynamic growth which was observed in the other
320 % since 2000. This was partially a side effect of the growth
analysed CEE countries. Having not yet been penetrated by foreign companies, the industry developed at an average pace of
3 – 4 % annually and was strongly concentrated on the domestic
market.
II.3
Excluding Russia, the Czech Republic is
currently the leader in the manufacturing
of passenger cars, but production in
Slovakia will increase even more rapidly
Production of “other vehicles”*,
2006 versus 2000
(figure 12)
Th. of units, %
The Czech Republic has already become the top of passenger car
producers in CEE (figure 11). In 2006 the plants in the Czech
By country
Republic manufactured around 850,000 cars, which represents
100 % =
202
By type
30 % of CEE’s total production. It has developed especially
Slovenia
Hungary
Romania
0
2
7
intensively in the past two years, when the new facility built by
Poland
12
PSA and Toyota (TPCA5) started to operate on a full basis. Other
Czech Rep.
13
600
6
2
100 % =
1
18
202
600
Buses &
coaches
4
4
7
Heavy trucks
24
1
leaders are Poland with over 600,000 units in 2006 (22 % of
total CEE’s production) and Turkey, which manufactured about
550,000 cars (19 %) last year. From 2002 to 2006, Romania was
89
Turkey
66
72
2000
2006
LCVs
72
the fastest growing car producer (growing over 30 % annually),
although it started at a relatively low level. In the near future,
Slovakia will become a regional tiger as it has recently received
huge foreign investments (PSA, Kia).
2000
2006
Fluctuations in production volume in individual years (which may
be observed in each country apart from the general growth
trend) are a typical feature of the automotive industry at an
*) LCVs, Heavy trucks and buses
5) TPCA is a joint-venture company established by Toyota and PSA. Its plant located in Kolin (Czech Republic) produces around 300,000 small cars annually (models 107, C1 and
Aygo)
6) There is no homogeneous definition for “other vehicles” and its main groups, like LCVs, heavy trucks, buses, etc. The given numbers are based on the classification used by OICA
(International Organisation of Motor Vehicle Manufacturers)
7) up to 3.5 tons
14
in passenger car production as some LCVs are made by the same
by booming local demand as a result of a general economic
producers (e.g. Volkswagen and Fiat in Poland, Hyundai and Fiat
upturn. Production of heavy trucks in Central Eastern Europe is
in Turkey). The manufacture of buses and coaches, which has
going to grow soon because a large investment by the Ger-
almost tripled since the beginning of the decade, is another
man company MAN in its new plant. The plant will have a
rapidly expanding production segment. The CEE region seems
capacity of 15,000 units and will be located near Krakow
to be very attractive for global bus manufacturers, as a relatively
(Poland).
small production scale and the inability to fully automate the
production process make lower labour costs an essential incen-
Production of commercial vehicles is generally dominated by
tive for potential investors. In contrast, the production of heavy
Turkey (figure 12). In 2006, 3 out of 4 commercial vehicles made in
trucks has dropped slightly between 2000 and 2006 resulting
the region came from Turkey. The country produces over 350,000
in the only production area where the relocation process was
LCVs and 30,000 heavy trucks annually. Poland is also quite an
not so relevant. With human factors not being so important in
important player which accounts for almost 20% of the regional
this case, the drop was based more on the attractiveness of the
production. It is already one of the major European bus producers,
local markets, which were quite sluggish. However, there are
with MAN, Volvo and Scania having plants there (figure 13).
some signs of increasing interest in the region, which is driven
Type of automotive production by country
(figure 13)
Russia
Poland
Czech Rep.
Slovakia
Hungary
Romania
Slovenia
Croatia
Passenger cars
LCVs
Bulgaria
Turkey
Heavy trucks
Buses
15
II.5
The manufacturing of automotive parts
is developing dynamically to fulfil local
and global needs
In the current decade the CEE’s automotive parts business has
developed very intensively. In many countries it already represents over 50 % of local automotive industries, especially when
OEMs were historically the first to invest in plants in CEE. How-
we include engines (production of which is still controlled by
ever, automotive suppliers are following their lead on a massive
OEMs, hence classified as the manufacture of vehicles), not to
scale. Practically all of the world’s top Tier 1 suppliers have
mention other products that are actually auto parts but are
localised their production in the region (see table 1). Auto sup-
treated in some cases as products of other industries (e.g. tyres,
pliers are constantly under pressure from OEMs to lower the
batteries, auto glass, wiring harnesses).
prices of their products, and they are always searching for areas
where it would be possible to save costs. In addition, rising efficiency requirements resulting from a just-in-time model of car
production forces them to operate near the OEMs. These factors
explain their growing interest in the CEE region.
World’s top 10 automotive suppliers in Central Eastern Europe
Manufacturer
Local facilities
Production
Bosch
(Germany)
Czech Rep., Hungary,
Poland, Romania,
Turkey, Slovakia
Poland, Turkey
gasoline systems, diesel systems, chassis systems brakes, chassis systems control, electrical drives,
starter motors and generators, car multimedia, automotive electronics, zf steering systems,
automotive aftermarket
automatic air conditioners, cool & hot boxes, air purifiers, gasoline engine management systems,
diesel engine fuel injection systems, engine electrical equipments, engine cooling systems, meters,
windshield wipers, windshield washers, horns, flashers
Delphi designs, engineers and manufactures a wide variety of components, integrated systems
and modules. It is one of the largest and most diversified suppliers of automotive parts.
Denso
(Japan)
Delphi
(USA)
Johnson Controls
(USA)
Magna
(Canada)
Aisin Seiki
(Japan)
Lear
(USA)
Visteon
(USA)
Faurecia
(France)
TRW
(USA)
Poland, Slovakia,
Turkey
Poland, Slovakia,
Slovenia
Czech Rep., Poland,
Slovakia, Turkey
Czech Rep., Turkey
Poland, Romania,
Slovakia, Turkey
Poland, Slovakia,
Turkey
Czech Rep., Poland,
Romania, Slovakia,
Turkey
Czech Rep., Poland,
Romania, Turkey
Source: companies’ web sites
16
(table 1)
seating systems, instrument panels and cockpits, door systems, overhead systems, automotive
electronics and electronic energy-management system.
body systems, chassis systems, plastic body, lighting & exterior trim systems, closure interior mirror
seating and electronic systems, power train & drive train systems, roof systems, complete vehicle
engineering & assembly
automatic transmissions (ATS), manual transmissions (MTS), automated manual transmissions,
continuously variable transmissions (CVTS), hybrid systems, clutch discs, clutch covers.
seating systems, electronic products and electrical distribution systems
interiors, climate and electronics (including lighting), global aftermarket operations, engine induction,
power train controls, chassis and power train
seats, cockpits, door panels, acoustic packages, front ends and exhaust systems
advanced active systems in braking, steering and suspension and sophisticated occupant safety systems
for inflatable restraints, seat belts and steering wheels
III. CEE’s growing integration with the global
automotive industry – role of foreign trade
III.1
Export flows of CEE countries in the
automotive sector has almost tripled
since 2000, from about EUR 20 bn in
2000 to over EUR 60 bn in 2006
has been particularly significant: CEE has managed to double
its export share during the last decade to around 4 % of world
imports (7 % including Russia). Perhaps more interesting is the
fact that CEE countries now deliver about 8 % of EU-15 imports
The export performance of the automotive sector has been
(12 % including Russia), emerging as the main production arm
outstanding in CEE countries, increased by the trend in FDI
for old Europe, and these achievements are even more pro-
flows to the region mentioned earlier, which spurred local pro-
nounced in the case of the automotive sector. Indeed, export
duction and export possibilities. If we consider the whole manu-
flows of automotive products from CEE countries are boom-
facturing sector, the contribution of CEE countries in world trade
ing (figure 14) and they have accelerated even more since
Growth in automotive export of the CEE countries
(figure 14)
in % (current exchange rates in euro terms)
Growth of automotive export (current prices, %)
300%
250%
200%
150%
100%
50%
2001–2003
Re
gi
on
Ro
m
an
ia
Po
la
nd
Tu
rk
ey
Cz
ec
h
Re
p.
Bu
lg
ar
ia
Sl
ov
en
ia
Hu
ng
ar
y
Cr
oa
tia
Sl
ov
ak
ia
0%
2004–2006
Share in CEE’s new export sales
2001–2003
Slovenia 1%
2004–2006
Croatia+Bulgaria 0.2%
Hungary 11%
Turkey 25%
Czech Republic 17%
Poland 20%
Slovenia 3%
Croatia+Bulgaria 0.2%
Romania 5%
Romania 2%
Slovakia 5%
Poland 29%
Hungary 16%
Slovakia 24%
Czech Republic 23%
Turkey 19%
17
CEE’s growing integration with the global automotive industry – role of foreign trade
integration with the EU. New member countries such as
In parallel with the impressive increase in overall export flows
Romania starting from relatively low levels, have been able to
during the last few years, Central Eastern European countries
increase their flows of export in the sector at the highest rate.
are becoming very relevant players in the automotive sector
Even countries that under perform when compared to the rest
at the global level: their share of overall world trade has con-
of the region, like Croatia and Hungary, were able to double
stantly increased since 2000, and it has more than doubled from
their export flows in the current decade. On the other hand,
3.7 % to around 8.7 % of total world import of transport equip-
Turkey, Poland and the Czech Republic were the countries
ment (figure 15).
which, due to the relatively large scale of the business and
The CEE countries are increasingly
specializing on the automotive sector
high growth rates, had the largest increase in foreign sales.
III.2
Three fourths of CEE’s automotive export flows are now gener-
The analysis of Revealed Comparative Advantages (RCA8) give
ated by Central Europe (in 2006: Czech Rep. 22 %, Poland
some interesting insights (figure 16). The trade patterns of
25 %, Hungary 18 % and Slovakia 11 %), while the remaining
many CEE countries show a heavy specialisation in the trans-
exports originate in South Eastern Europe (SEE).
port equipment sector, thanks to the relatively recent FDI
inflows from the big international producers.
The RCA index shows values significantly higher than 1 in Central
Share of CEE export of transport equipment
in world demand
Europe, and the index has been increasing during recent years,
(figure 15)
%
8.7
8
7.3
6.7
6
5.4
4
4.3
4.6
3.7
2
0
2000
2001
2002
2003
2004
2005
2006
Source: UniCredit New Europe Research Network and Global Insight
8) The RCA index is calculated here as the role of Transport Equipment in each country
(in % of total flows) with respect to the role of Transport Equipment at the international level (again in % of total flows). However, there are different methods for calculating “Revealed comparative advantages” (for instance, at the global level, at the
regional level, with bilateral trade between two countries or trading partners, etc.).
Two main trade theories have highlighted the role of “comparative advantages,” one
originally from Ricardo and the other from Heckscher-Ohlin (H-O). The former assumes that comparative advantage arises from differences in technology across countries; instead, the H-O theory attributes comparative advantage to differences in factor
endowments across countries (resulting in differences in costs across countries).
Hence, classical trade theories are based on the principle of comparative advantage
which derives from differences in relative prices across countries. And following the
H-O theory, a country’s comparative advantage is determined by its relative factor
scarcity. The difficulties to calculate these advantages were overcome by Balassa, suggesting that comparative advantage is “revealed” by observed trade patterns. Thus,
inferring comparative advantage from observed data is called “revealed” comparative
advantage (RCA).
Revealed Comparative Advantages (RCA) in transportation equipment sector
Central Europe
South Eastern Europe
2.4
2.4
2.0
2.0
1.6
1.6
1.2
1.2
0.8
0.8
0.4
0.4
0
0
2000
Hungary
2001
2002
Czech Republic
2003
Slovakia
2004
2005
Poland
Source: UniCredit New Europe Research Network and Global Insight
18
(figure 16)
2006
2000
Turkey
2001
Slovenia
2002
2003
Romania
2004
Croatia
2005
2006
Bulgaria
with the exception of Slovakia, for which the index seems more
share (totally from 5.1 % in 2002 to 8.5 % in 2006) of the
volatile depending on the production scale of new plants9. The
world’s exports. This improvement concerns both areas: automo-
picture for South Eastern Europe is different (right side of figure
tive parts (jumped from 4.2 % in 2002 to 7.5 % in 2006) as well
16): the specialisation pattern is evident only in Turkey and it
as car engines and engine parts (where CEE’s share in global
has been achieved just recently. Actually the Romanian index is
export already exceeds 10 %).
around 1 (thanks to the booming exports of Dacia-Renault) and
Bulgaria and Croatia10 will probably remain the only Eastern
Production of automotive parts is especially important for
European countries under analysis with a non-specialisation in
three countries of the region: Hungary, Poland and the Czech
the transport equipment sector (and without producers of whole
Republic. They are all among the top low-cost exporters of
cars located in the country).
parts11 and have developed different specialisation areas (figure
18). Hungary is the regional leader in production of spark-ign
Specialisation takes place not only in car manufacturing but also
engines (thanks to its Audi plant in Gyor) and the fourth largest
in automotive sourcing. The CEE area is starting to specialise in
exporter of these products overall. Poland has the largest num-
the manufacturing of particular car modules, as the local plants
ber of engine plants (owned by Toyota, Volkswagen, Fiat and
serve many OEMs in many countries. This trend can also be
Isuzu) and leads in regional production of diesel engines and is
seen in the quickly growing export sector, which now exceeds
world’s fifth largest exporter. The Czech Republic is the unchal-
EUR 24 bn a year (figure 17). Regional production is rising much
lenged regional leader in the production of typical automotive
faster than in the global industry, and results in an increasing
parts, specializing in many areas like bodies, brake and safety
9) Before 2000, the VW plant was the only producer of cars in Slovakia, reaching a peak in production in 2002 – 03. In 2003 it has started to produce the Seat Ibiza, shifting production from Spain (around 20,000 cars per year). In 2005 the production of Seat was shifted back to Spain. PSA started to produce in Slovakia in June 2006, KIA in December 2006.
10) The specialisation shown by Croatia in transport equipment (figure 16) reflects the role of shipbuilding, and it is also related to the weakness of the manufacturing sector compared with the strength of the service sector, especially tourism (RCA are calculated taking into account the role of transport equipment on total manufacturing). In contrast to all
the other countries, the cars entirely built in Croatia are almost non-existent in Croatia’s total automotive exports (while the same number is almost 80 % in Slovakia, for instance).
11) treated together with engines and engine parts
CEE export of automotive parts
(figure 17)
2002 – 2006
Top emerging auto parts exporters
(figure 18)
2006
Share in the world’s export*
Total CEE’s export*
Main areas of specialisation
EUR bn
6%
CAGR = 1
24.4
21.9
18.7
15.9
13.6
Mexico
4.6 %
China
3.1 %
South Korea
3.0 %
2.7 %
Hungary
2.5 %
Poland
2002
2003
2004
2005
2006
Czech Republic
Brazil
CEE’s share in the world’s export
Thailand
in %
5.1
8.3
2002
7.5
Diesel engines, bodies, shock
absorbers, steering systems,
safety systems, transmission,
electrical equipment, axles
2.0 %
1.7 %
Bodies and their parts, axles,
shock absorbers, brake systems,
lighting equipment, safety
systems, mufflers, radiators
1.1 %
Romania (0.4 %), Slovakia (0.3 %), Turkey (0.2 %),
Slovenia (0.2 %), Croatia (0.1 %), Bulgaria (0.01 %)
8.5
4.2
Diesel and spark-ign engines,
safety systems, stering systems,
transmission, road wheels
10.5
2006
Automotive parts
Engines and their parts
Total share including
both groups
*) Including automotive parts (CN 8708), engines and engine parts (CN 8407 – 09)
Source: UN Comtrade
*) including engines and their parts
Source: UN Comtrade
19
systems, shock absorbers and lighting equipment. In 2006,
The CEE countries are not just
a relevant production base, but they
are increasingly seen as important
destination markets
III.3
Czech export of parts exceeded EUR 5 bn.
Even though other CEE countries do not play such a significant
role in global auto sourcing, they are expanding quickly, espe-
The automotive imports of Central Eastern European countries
cially in Romania and Slovakia.
have already exceeded EUR 50 bn, up from 23 bn in 2000.
Thus, the region is becoming not only an important automotive
The rapid development of the automotive sector is influencing
producer but also a notable importer. As a result, the CEE coun-
the sectoral specialisation of trade flows within each country as
tries have almost doubled their share of global transport equip-
other sectors (i.e. traditional sectors such as textile industries, for
ment imports since the beginning of the decade (figure 20). This
instance) are not able to maintain the high growth pace gener-
role is expected to increase quickly as income levels catch up
ated by the automotive industry. Automotive export now repre-
with the standards in other EU countries.
sents a very relevant portion of total manufacturing exports (figure 19), especially in Central Europe, where it accounts for more
In absolute terms, the big importers are those with large local
than 15 % of total manufacturing exports (and 20 % in Slovakia).
markets (Turkey, Poland) or with relatively large production facilities, as these countries import spare parts and goods to be
In most of the CEE countries, the “dependence” on automotive
assembled in the local plants (Czech Rep., Hungary, Slovakia).
exports has constantly increased in the last few years, with the
notable exception of Slovakia (the peak in 2003 –’04 was due to
Rapid growth of local demand and a “consumption smoothing”
the trend in VW plants mentioned above). Regarding SEE coun-
process12, combined with good prospects regarding households’
tries, the role of automotive exports in the total exports is
disposable income, result in increasing imports in Central Eastern
rapidly increasing in Turkey (which is experiencing a painful
European countries. Automotive imports are no exception (they
restructuring of the traditional sectors in favour of higher value
added activities, which was forced by the real currency apprecia-
exports in Croatia and Bulgaria, on the other hand, is marginal.
12) Individuals seek to avoid abrupt changes in their standard of living during their
lifetime. In CEE they are currently anticipating consumption (in some cases through
borrowing) with the expectation of higher income in the future. Consumption is
indeed smoothed among predictable or expected fluctuations; for this reason, the
basic Life Cycle/Permanent Income Hypothesis also states that predictable changes in
income have no effect on the growth rate of consumption expenditures.
Share of automotive industry
in total export of goods
Share of CEE import of transport equipment
in world demand
tion in recent years), and Romania (influenced by the activity of
Renault-Dacia). The role of automotive exports in the total
(figure 19)
Central Europe
(figure 20)
South East Europe
7
25 %
6.9
6
20 %
5
15 %
4
6.3
2004
2005
4.9
3.9
3
10 %
6.3
3.5
3.9
2
5%
1
0
2000
2001
2002
2003
20
2004
2005
Bu
lg
ar
ia
Cr
oa
tia
Sl
ov
en
ia
Ro
m
an
ia
Tu
rk
ey
Sl
ov
ak
ia
Hu
ng
ar
y
Cz
ec
h
Re
p.
Po
la
nd
0%
2000
2001
2002
2003
2006
2006
have been growing in all the analysed countries – figure 21),
III.4.
with cars considered among the most important durable
goods which improve the standard of living.
The CEE region is becoming a net
exporter of automotive products
The CEE region as a whole has transformed itself from a net
importer in 2000 to an important net exporter (which is shown
In the new EU member states such as Romania and Bulgaria
in figure 23). As early as 2001, the regional automotive trade
imports are growing the most (because starting from low lev-
recorded a high positive balance, which was due to a deep
els), followed by Central European countries. For Turkey, the
slump in the Turkish economy that resulted in a reduction of cars
effects of the economic crisis in 2001 (which came along with
imported to the region. From 2002 to 2004, the CEE trade posi-
the depreciation of the currency) are evident in the growth pat-
tion became more and more balanced. However, the recent FDI
tern of imports. However, despite the crisis, the level of import
influxes (especially to Central Europe), which have led to a sig-
increased by more than 50 % from 2000 to 2006.
nificant capacity improvement, have caused this positive gap to
increase within the last two years.
Individuals and companies in CEE devote a substantial part of
their earnings to buying cars and other transport equipment.
Although the region notes a significant surplus in its automo-
Hence, the contribution of automotive to total imports is con-
tive trade exchange, import still exceeds export in some coun-
siderable – more than 10 % for some of the countries – and in
tries (figure 24). When one looks at the analysis of trade flows,
some cases it is rapidly increasing (figure 22). It is fuelled by
two distinct groups of countries emerge: Central European coun-
improved spending power for households and their growing
tries (Poland, Czech Republic, Slovakia and Hungary) are among
need for mobility, as well as by the buoyant local manufacturing
the biggest producers and net exporters, while the majority of
sector, which requires an increasing number of commercial vehi-
SEE countries (Romania, Bulgaria, Croatia and Turkey) are net
cles. Moreover, international and local car manufacturers import
importers (figure 24). The Czech Republic is the country with the
spare parts and completely-built cars from one country to
highest positive balance between exports and imports. Interest-
another: the disintegration of the production process across
ingly, the SEE countries have a particularly buoyant local demand
countries is therefore inflating trade flows13.
and run relatively large current account deficits, which is a gen-
13) This trend of “integration of trade and disintegration of production”, as indicated by Feenstra (1998), is also visible at the world level in other sectors, with the production of
electronic devices in Asian countries as an example.
Growth in automotive import
of CEE countries*
(figure 21)
Share of automotive industry
in total import of goods
(figure 22)
Growth of automotive import (current prices, %)
Central Europe
290 %
16%
240 %
14%
South East Europe
12%
190 %
10%
140 %
8%
90 %
6%
4%
40 %
*) not including Bulgaria / Source: UniCredit New Europe Research Network
2001
2002
Bu
lg
ar
ia
Cr
oa
tia
2000
Sl
ov
en
ia
Ro
m
an
ia
Tu
rk
ey
2004 – 2006
Re
gi
on
Cr
oa
tia
Re
p.
Hu
ng
ar
y
Sl
ov
ak
ia
Slo
ve
ni
a
Po
la
nd
Cz
ec
h
ia
Tu
rk
ey
ar
lg
an
ia
Bu
Ro
m
2001 – 2003
Sl
ov
ak
ia
Hu
ng
ar
y
Cz
ec
h
Re
p.
Po
la
nd
2%
0%
– 10 %
2003
2005
2004
2006
21
The importance of automotive trade for various Central Eastern
The evolution of the role of CEE countries
in the automotive industry is even more
pronounced if we take into consideration
trade flows with Europe
European countries (measured in relation to GDP, figure 25) is
Indeed, CEE’s export of transport equipment represents 8.2 %
quite different. The Czech Republic, Hungary, and Slovakia are
of EU-15 imports (the rest is mainly intra-trade, about 75 %, or
the countries with the highest ratio of automotive trade com-
imports from U.S. and Japan) and CEE imports represent 8.1 %
pared to GDP. Slovakia has the highest ratio of automotive export
of total EU-15 export in the sector (figure 26). The process of EU
compared to the size of its economy, confirming the prominent
enlargement has significantly contributed to increased trade
role of the automotive industry in this country14. Even though
with other EU countries. Again, considering only the flows with
Poland is among the net exporters considering absolute volumes,
the EU, CEE countries were net importers in 2000 and are now
the role of automotive trade is less important in terms of GDP,
net exporters although the balance with the EU is less pro-
and comparable with other South Eastern European countries.
nounced (less positive) if compared with the position of CEE
eral feature of the local manufacturing sector (and is not only
III.5.
true for the automotive sector).
14) These proportions should increase even more as recent investments in Slovakia
made by Kia and PSA are not yet operating at full capacity
CEE* international trade in automotive industry
(figure 23)
EUR bn (constant, 2005 exchange rates)
countries at the world level.
Share of automotive industry in GDP
in CEE countries (2006)
Trade balance
Export on GDP
10
18%
8
15%
6
12%
4
Net exporters
Slovakia
Slovenia
6%
0
–2
3%
–4
0%
Poland
Turkey
Croatia
2001
2002
2003
2004
2005
2%
2006
*) Countries included in the analysis except Bulgaria
Source: UniCredit New Europe Research
Hungary
Czech Republic
9%
2
2000
(figure 25)
%
4%
Romania
6%
Net importers
Bulgaria*
8%
10%
12%
14%
16 %
18 %
Import on GDP
*) 2005 data / Source: UniCredit New Europe Research Network
Automotive export and import
in the CEE countries (2006)
(figure 24)
Share of the CEE* countries in EU-15 export and import
of transport equipment
(figure 26)
EUR bn
Central Europe
South East Europe
10%
16
14
12
10
8
6
4
2
0
–2
–4
9%
8%
7%
6%
5%
Export
Import
Balance
*) 2005 data / Source: UniCredit New Europe Research Network
22
an
ia
ar
ia
*
Ro
m
lg
Bu
Cr
oa
tia
ia
Tu
rk
ey
Sl
ov
en
Hu
ng
ar
y
Sl
ov
ak
ia
Po
la
nd
Cz
ec
h
Re
p.
4%
2000
2001
2002
2003
2004
2005
2006
CEE share in EU-15 export
CEE share in EU-15 import
*) excl. Croatia and Slovenia / Source: UniCredit New Europe Research Network
IV. FDIs as a key driver of the
automotive industry’s development
in Central Eastern Europe
ously limited and the market under penetrated until then, sucIV.1
Since the early 1990s, the automotive
industry in CEE has attracted over
EUR 20 bn of FDI
cess was mostly assured to any Western European producer,
resulting in a new wave in investment. However, some enterprises were not really car factories but rather simple assembly
The automotive industry in CEE would not have developed to the
plants used to avoid protective duties and quotas. They practi-
extent that it has without huge investment efforts made by
cally disappeared at the beginning of the new century.
Western companies after the break-up of communism (excluding
Turkey, where such a political transition did not take place).
Nevertheless, as barriers to trade with the European Union
Some global automotive players discovered Central Eastern
have fallen, other investment incentives have started to play a
Europe’s potential and started buying existing car plants at the
leading role. Thanks to cheap skilled labour, improving infra-
beginning of the 1990s. Examples of such pioneering brown-
structure, a good macroeconomic environment, a relatively sta-
field investments in the region include: Volkswagen in the
ble political and legal environment as well as its proximity to
Czechoslovakian Skoda, Renault in the Slovenian Revoz as well
Western Europe, the CEE region now seems to be a perfect low-
as Fiat in Poland’s FSM. Skoda was especially valuable as a local
cost production base for global OEMs and still attracts a wide
company maintaining its traditional brand and now producing
audience of other potential investors.
additional car segments.
As a result, total foreign investments in the local automotive
The first foreign investments in the region aimed at the fast
industry have already exceeded EUR 20 bn (figure 27) and
development of local markets formerly dominated by few
intense expansion should continue in the coming years because
domestic car producers. As the models available had been seri-
the relocation process is not yet completed. Moreover, the auto-
Foreign direct investments in the CEE’s transportation equipment sector
(figure 27)
2005
Cumulative FDIs in transportation equipment sector by countries
FDIs in transportation equipment industry as a percentage of total countries’ FDIs
in %
in %
100%=EUR 21.58 bn
Turkes 24%
Poland 23%
Hungary
10,4
Turkey
10.1
Czech Rep.
Croatia <1%
9.2
Poland
Bulgaria <1%
6.5
Romania
Romania 5%
Slovenia 1%
5.8
Slovakia
5.1
Czech Republic 22%
Slovenia
Hungary 22%
Slovakia 3%
Croatia,
Bulgaria
4.3
<0.1
23
FDIs as a key driver of the automotive industry’s development in Central Eastern Europe
motive industry is entering in a new era, fuelled by Asian com-
so-called “Ankara Protocol”) gives it unlimited access to the West-
panies, in which companies see CEE as an ideal place to locate
ern European market, it is the safest production base for the Mid-
their production base for further expansion in the EU market.
dle East, it offers especially easy access to a cheap skilled labour
force, its market of over 70 million people guarantees a high
As of the end of 2005, only four countries (Turkey, Poland, Hun-
local demand and promising prospects for the future.
gary and the Czech Republic) received over 90% of the regional
FDI in the transport equipment sector. In these economies, invest-
IV.2
ments in the automotive sector are the most remarkable. In Turkey,
FDIs favour the emergence of local
automotive clusters
Hungary and the Czech Republic every tenth euro of foreign capital
Factors specific to the industry usually result in one successful
is spent on local automotive plants showing the car industry’s
investment attracting additional ones. And a single investment
importance in their overall economic growth. Contribution to
in a vehicle plant is usually only the tip of the iceberg. It usually
growth and technological spillovers suggest that the benefits of
precedes another wave of capital inflow made by automotive
relocating automotive production to the CEE region may be greater
suppliers hoping to have similar success (see chapter II.5). Pro-
than the benefits in other industries. As already mentioned in the
ducers tend to gather in OEMs’ proximity in order to secure just-in-
previous chapters, things are rapidly evolving and the recent flow
time deliveries. This leads to the creation of typical industrial
of investments in Slovakia is just one of many examples.
clusters like Lower and Upper Silesia in Poland, the Prague
region in the Czech Republic or Bursa in Turkey16. One may also
Many investments in the automotive sector have taken place
notice a cross-border multi-cluster which has sprung up around
recently. All the leading countries like Turkey, Poland, the Czech
the borders of Poland, the Czech Republic and Slovakia, and nearly
Republic or Hungary were able to double or even triple their
extending to Hungary. This area is so given over the motor indus-
automotive FDI stock within the first five years of the decade
try that has been called the “new Detroit” (the hub of world car
(figure 28). This helped local industries to develop at an unusual
production, at least not so long ago). Some producers that spe-
pace.
cialise in specific car systems are also becoming leading exporters.
As a result, in many CEE states, FDIs made by car manufacturers
Turkey, which is not actually a European Union
member15,
bene-
are often overshadowed by those made by their suppliers.
fits from some other factors which make it an excellent location
The CEE region has already attracted a
diverse range of the main global vehicle
manufacturers
for automotive production: free trade with the EU (thanks to the
IV.3
Stock of FDI in transportation equipment sector
(2000 vs. 2005)
Returning to car manufacturers, they are already represented
(figure 28)
EUR bn
in the region in large numbers (figure 29):
• Turkey has attracted the highest number of OEMs’ investments (very often in joint venture with local companies), with a
Turkey
x 2.4
whole range of vehicles being produced. There are five global
Poland
5.1
x 2.1
4.9
2.3
2.1
2000
2005
Renault17, Toyota, Fiat, Hyundai and Honda. Ford is the country’s
2000
2005
x 2.9
4.9
1.7
2000
x 3.1
4.7
2000
German global producers (Mercedes-Benz and MAN).
• Poland is another country that has a broad range of vehicle
1.5
2005
largest manufacturer of LCVs18 followed by Fiat and Hyundai.
Production of buses and heavy trucks is also represented by two
Czech Rep.
Hungary
producers of passenger cars operating in this country including
2005
producers. Local passenger cars are produced by Fiat, Volkswagen and Opel. Warsaw’s plant, formerly owned by FSO-Daewoo,
15) Turkey opened accession negotiations with the EU in 2005. In any case, Turkey will not be able to join the EU in less than a decade.
16) A newly opened Toyota/PSA plant in Czech’s Kolin is also a perfect example, as 80 % of all parts used in production are made domestically.
17) The company recently announced that it will significantly increase its production capacity in Turkey from 280,000 vehicles to 350,000. Renault’s Turklish facilities, situated in the
cluster of Bursa, produce the models Clio (3 and SW), Symbol, Megane Sedan, and a second series of the Megane family will also be produced in the same facilities. The company
is also buying a stake in the Russian Avtovaz (producing Lada) and Russia will replace Renault’s home country as its largest single market.
18) It also produces some heavy trucks and small buses
24
is now owned by AvtoZaz, a Ukrainian company cooperating with
• Hungarian car production is made up by the Volkswagen
GM. Poland’s LCV production is dominated by Volkswagen. Local
Group with its Audi plant in Gyor and by the Japanese
production of buses and coaches is a fast-developing production
Suzuki, which was actually one of the first automotive green-
segment, which makes Poland one of the European leaders. It
field investments made in the post-communist countries.
includes global firms like MAN, Volvo and Scania. Poland will
• In the Balkan region there is one indisputable leader: Renault,
most likely dominate the production of heavy trucks in the region
which owns two operations located in Slovenia and Romania. A
as soon as MAN’s new investment is completed.
state-owned plant in Craiova (Romania), which was formerly
• The Czech Republic, currently a regional leader in the production of passenger cars, is famous for its Skoda brand, which
owned by Daewoo, is currently waiting to be privatised again
(with Ford among the bidders).
now belongs to Volkswagen Group. The local car industry has
also recently benefited from large investments made by
IV.4
Hyundai in addition to Toyota and PSA’s new joint-venture
company TPCA. A local leader in bus production – Karosa – is
now owned by the Italian Iveco.
Automotive producers are constantly
searching for even more potential cost
savings
Global producers, having a strong need for potential cost sav-
• Slovakia is becoming a new regional production centre for
ings, desire to restructure (also by relocating) not only their
passenger cars. Apart from Volkswagen’s plant in Bratislava,
basic activities but also support functions. Apart from invest-
which is the only place in Europe producing the SUVs Touareg
ments in new production capacities, the CEE region is now
and Audi Q7 19, there are brand new investments made by Kia
emerging as a destination for locating such services. The grow-
and PSA which will elevate Slovakia to the pinnacle of regional
ing importance of CEE countries as a desired off-shoring loca-
passenger car producers by the end of the decade.
tion20 results mainly from:
19) VW Slovakia also manufactures the Porsche Cayenne
20) CEE countries like Slovakia, the Czech Republic, Poland or, more recently, Bulgaria and Romania lead in many rankings of European off-shoring locations prepared by top consulting companies
Top global vehicle manufacturers producing in the CEE region
Poland
(figure 29)
Russia
Czech Republic
Romania
Slovakia
Hungary
Turkey
Slovenia
*) including commercial vehicles, buses and coaches / Source: UniCredit New Europe Research Network
25
• labour force – the quality of which does not differ significantly
This phenomenon is also occurring in the automotive industry,
from its Western counterparts. Local graduates constantly
which is marked by an emergence of numerous R&D centres
improve their language skills and become more and more suit-
over the CEE region (see table 2). These centres support the
able for working in a multinational environment
technological side of the car production process and share global
• competitive labour costs, that are significantly lower than in
responsibility for the industry’s innovativeness. As R&D becomes
advanced economies
a crucial area of automotive activity, moving this kind of activity
• both cultural and geographical proximity to Western European
to low-cost countries is often perceived as a very effective
countries
restructuring measure. Automotive producers are searching for
even more potential savings and they are also moving some
other secondary functions like accounting, marketing and
some other professional activities to CEE.
Examples of BPO (Business Process Outsourcing) investments in the CEE’s automotive industry
Country
Poland
Sourcing area
(Table 2)
Investors
R&D
Delphi, Faurecia, TRW Automotive, Volvo, Remy Automotive, Valeo, Volkswagen
Finance/Accounting
Fiat, Volvo, MAN
R&D
Bosch, Mercedes-Benz, TRW Automotive, Valeo, Visteon, Ricardo
Finance/Accounting
Johnson Controls
Hungary
R&D
Audi, Bosch, Denso, Magna-Steyr, Visteon, Knorr-Bremse, Continental, Thyssen-Krupp
Slovakia
R&D
PSA, Volkswagen, Johnson Controls, Visteon
Czech Republic
Competitiveness* of CEE economies according to global surveys (in deciles**)
Global
Competitiveness
Index (Rank)
World Economic Forum
Ease of Doing
Business Rank
Top three
United States
Switzerland
Denmark
Germany
Austria
Czech R.
Slovenia
Slovakia
Italy
Hungary
Poland
Turkey
Croatia
Russia
Romania
Bulgaria
1
2
3
3
4
4
4
4
5
5
5
6
7
Source
(Table 3)
Corruption
Perception
Index (Rank)
Transparency
International
New Zealand*
Finland*
Iceland*
Human
Development
Index (Rank)
Human Development
Report
Norway
Iceland
Australia
Freedom of
the Press
(Rank)
Freedom House
Singapore
New Zealand
United States
Inward FDI
potential
Index (Rank)
World Investment
Report
United States
Singapore
United Kingdom
2
2
4
4
2
3
3
5
4
6
6
3
3
1
2
3
3
4
2
3
4
5
4
2
6
5
1
1
3
2
4
3
3
4
4
5
8
6
4
2
1
2
2
3
1
2
3
6
3
4
4
4
1
2
2
2
2
4
2
3
6
5
9
5
4
World Bank
Finland*
Iceland*
Belgium**
*) Global Competitiveness Index (GCI): weighted average of different sub-indices covering infrastructure, technological readiness, higher education, etc. Ease of Doing Business:
it considers, among many other factors, time and cost of opening a new business, strength of legal rights index, recovery rate in bankruptcy, etc. Inward FDI Potential: simple average of 12 variables including country risk, world share of service exports, R&D spending, etc. Corruption Perception Index: perception of corruption existing among public officials
and politicians. Human Development Index (HDI): measures the well-being and the impact of economic policies on quality of life.
**) the lower the value the more attractive the country (1 for the most attractive, 2 for the second most, etc.)
Source: World Economic Forum, World Bank, UNCTAD, Transparency International, UNDP; UniCredit New Europe Research Network
26
The business environment in CEE countries
is increasingly conducive to manufacturing
activity, as confirmed by the large amount
of FDI received during recent years
Table 4 considers some factors affecting the attractiveness of
To understand why all the major European, US and Japanese car
in terms of labour productivity and R&D expenditure persist.
manufacturers and their suppliers decided to produce in Central
Those gaps are more evident for Romania and Bulgaria, which
Eastern Europe, the balance (or, better yet, the trade-off)
are lagging behind the Central European countries.
IV.5
each country. On the positive side, a cheap and educated workforce, low corporate taxation, and openness to foreign investments should be mentioned. On the negative side, relevant gaps
between significant but decreasing cost advantages and “disadvantages” resulting from a riskier and more complex busi-
Cost advantage is still among the main
causes of the CEE countries’ competitiveness in the automotive sector
IV.6
ness environment (especially if compared with “old” European
countries) has to be considered.
The relative cost advantage compared to the “old” EU partially
The business environment in most of the CEE countries has
explains recent relocations by Western European producers to
improved significantly in the last few years and become very
CEE countries. The transfer of production from “old” to “new”
conducive to doing business. Additionally, local authorities put
Europe is particularly evident in some sectors, including the
large efforts into attracting foreign companies also by special
automotive industry. In particular, this process has been more
economic zones. The most reliable international surveys regard-
extensive in the production of small cars.
ing attractiveness of local business environment rate the CEE
countries quite positively21 (Table 3). There are substantial differ-
Labour costs in CEE are much lower than in Western Europe, and
ences in how the leading countries of the region (Czech Republic,
in most of the CEE countries, the domination in this area is sig-
Slovenia, Hungary, Slovakia, Poland) are perceived compared to
nificant enough to compensate for lower labour productivity. As
the other countries, though the “lower-ranked” countries com-
a result, the wage-adjusted labour productivity in the best-per-
pensate for some of their perceived shortcomings with cost
forming CEE countries even doubles the average for Western
advantages.
Europe (figure 30).
21) The surveys do not take cost advantages into account.
Source of competitiveness* for the CEE economies (2006)
Poland Hungary
Population
Average age, years
Youth education attainment level, %
Science and technology graduates
GDP per capita, €
Gross monthly average
Labour productivity per person
(EU-25=100)
R&D expenditure, % of GDP
Corporate tax (%)
EBRD Infrastructure reform index
FDI (in % of GDP, avg 2004 – 06)
(Table 4)
Czech Slovakia Slovenia
Rep.
CEE-8 Romania Bulgaria
Croatia
Turkey
EU-15
38.2
37
69
9.4
7,110
636
10.1
39
60
5.1
8,848
642
10.3
39
59
7.4
11,011
713
5.4
37
52
9.2
8,151
503
2.0
40
68
9.3
14,807
1,213
73.0
38
65
8.9
8,227
637
21.6
38
47
9.8
4,501
245
7.7
41
49
8.5
3,268
181
4.4
40
55
5.4
7,704
906
73.0
29
27
5.6
4,365
812
384.5
39
59
13.6
27,700
3,513
61
0.6
19
3.3
4.1
75
0.9
16
3.7
5.6
69
1.4
24
3.3
6.1
69
0.5
19
3.0
6.4
82
1.2
25
3.0
1.7
64.5
0.8
20
3.3
5.0
37
0.4
16
3.3
8.1
34
0.5
10
3.0
14.8
62
1.2
20
3.0
5.4
42
0.7
20
n.a.
2.9
106
1.91
29
n.a.
n.a.
*) Source: UniCredit New Europe Research Network, on Eurostat, EBRD; CEE-8 is the weighted average of the countries that have been EU members since 2004; Youth education: percentage of the population aged 20 to 24 having completed at least upper secondary education; Science and technology graduates are per 1000 members of the population aged 20–
29 years (data as of 2004). EBRD infrastructure reform index is lower for the countries that improved their infrastructure to a lesser degree during the transition (it scores from 1 to 4.3).
Source: World Economic Forum, World Bank, Unctad, Transparency International, UNDP; UniCredit New Europe Research Network
27
Labour cost and productivity in the transport equipment sector – Eastern vs. Western Europe
(figure 30)
Labour productivity*
EUR th. per person employed
58.0
37.2
22.8
23.2
23.4
20.3
Wage adjusted labour productivity
%
5.6
7.2
268.5
239.8
Hungary Poland
Czech
Rep.
Slovakia Bulgaria Romania Slovenia
220.1
EU-25
199.7
151.5
148.6
147.9
129
Labour cost
EUR th. per person employed
45.0
Hungary
Poland
Czech
Rep.
EU-25
15.8
13.8
9.5
10.5
10.1
3.7
Hungary Poland
Czech
Rep.
4.8
EU-25
*) Gross value added per person employed; WE – Western Europe (an average for 13 countries for which the data are available)
Source: Eurostat
Although the automotive sector is among the industries that
they seem to have a great deal of potential in this area, which
are automated to the largest degree, relatively low labour
should be a natural consequence of their economic develop-
costs in CEE countries contribute to higher effectiveness in
ment.
comparison to their Western European counterparts (figure 31).
As a result, many local plants outperform those in the EU-15
area, encouraging global companies to increase their activity in
Effectiveness of the CEE transport equipment industry
in comparison to Western Europe
(figure 31)
the region, a process which often takes place at the expense of
Gross operating surplus/turnover* (%)
less-effective plants in the West.
One should remember that the dynamic income convergence
12
10
taking place in all CEE countries will gradually reduce the existing
8
advantages over developed Western economies. Salaries are
6
growing very fast: they are now 2.5 times higher than they
4
were in 2000 (in Euro terms) on average in CEE. For this reason,
2
any improvements in labour productivity will be more than
0
essential to sustain the current competitiveness of the region. If
the CEE countries fail to become more innovative, they may lose
ground to other quickly developing regions. On the other hand,
28
14
Poland Hungary Czech
Rep.
Bulgaria Romania Slovenia Slovakia
*) For each country last available data has been used
Source: Eurostat
EU-25
V. The role of local demand
in the CEE automotive industry
The total number of registered cars and light vehicles in CEE
already reached 45 millions (75 including Russia), and the CEE
countries are increasingly being seen as very important destination markets. This trend has some implications for the decision of foreign companies to locate in a particular region as the
attractiveness of the local market is perceived as one of the
V.1.
The CEE region seems very attractive in
terms of its future size, which should be
guaranteed by a population of more
than 170 mn people (or almost double
including Russia) and low saturation of
the market
main incentives for potential investors. Automotive companies
As a correlation between population size and the number of
prefer to locate their production bases in promising regions not
vehicles in use or sales volume is quite evident, the potential of
only for logistical reasons. Proximity of buyers implicates a bet-
the CEE countries should not be underestimated by global OEMs.
ter knowledge of local market specificities, which always brings
The CEE region (especially including Russia) represents a popula-
a significant advantage against competitors. The improving per-
tion comparable with some developed markets like Western
ception of the region’s attractiveness for new car sales arises
Europe or the United States (figure 32). For this reason, the
mainly from the following important factors:
expected income growth in the analysed countries could make
• large population potential together with a low saturation of
the CEE region one of the main expansion areas for global auto-
the car market
motive companies. Saturation of a given market (measured as
• age structure of local vehicle users
• high economic growth and fast income convergence
the number of registered cars per inhabitants) may determine a
potential demand for new vehicles. In this respect the CEE
region seems very promising as an average number of 20 cars
per 100 inhabitants is rather small when compared to over 50
in Western Europe (especially in the case of Italy and Germany,
which are already oversaturated). The situation in each CEE
Population and new passenger car sales
in given regions
country is rather distinct. Apart from Poland, the largest markets
(figure 32)
(in terms of number of vehicles in use: Russia, Turkey, Romania) are also those with the lowest market saturation per
Population
Million
Domestic sales of new
passenger cars
capita. Therefore, 3.4 mn Romanian registered cars (excluding
Million units
light vehicles), 5.7 mn Turkish cars, and 23 mn Russian cars don’t
seem like so many in comparison with a population of 22, 73
EU-15
and 143 mn respectively, leaving a lot of room for future expan-
United States*
sion. When compared to the average market saturation of cars in
Japan + Korea
Western countries, the existing potential gaps account for about
7, 30 and 48 mn cars respectively. On the other hand, the poten-
CEE-9 + Russia
tial for new car sales in these countries resulting from low mar-
CEE-9
ket saturation will be determined by some additional factors like
0
100
200
300
400
0
3
6
9
12
15
GDP growth, income distribution or local regulations which
always affect the distribution of first-hand and second-hand cars.
These factors will affect the pace of the convergence process.
*) Sales of new passenger cars in the USA are relatively low due to the high popularity
of light trucks (mainly SUVs, vans and pick-ups), that are sold in a number of
ca. 7 million units anually
Source: UniCredit New Europe Research Network, IMF, national automotive associations
To identify market potential from market saturation it is worth
considering the population aged 19 – 65 years, to take into
29
The role of local demand in the CEE automotive industry
account only the group of more relevant potential buyers22 (fig-
that the “active” or “driving” population will decrease for most
ure 33). In Italy, for instance, there are around 58 cars for every
of the CEE countries, and also at the average EU level. But this
100 inhabitants, and 91 cars if considering only the population
demographic trend, negative for car sales, will, of course, be
segment aged 19 – 65, providing a clear example of saturation.
more than offset by the increasing saturation due to increasing
On the contrary, in Turkey and Russia there are 8 and 16 cars
income levels24.
for every 100 inhabitants respectively, (or 15 and 26 if considering the population segment aged 19 – 65). Twenty-two (33
Although the market potential resulting from the low market
for 19 – 65 year-olds) cars in Slovakia and 16 (25) cars in Roma-
saturation for cars in CEE countries is generally visible, it does
nia are also not so many, especially if compared with Poland
not have to affect new car sales so strongly: the gap may be
(32, but almost 50 if considering only 19 – 65 year-olds). Czech
reduced by an increased demand for used cars instead of new
Republic, Slovenia and Bulgaria have the highest car satura-
ones.
tion in Central Eastern Europe. Bulgaria’s figures are especially
high: the high rate of car ownership is mainly due to second-
Old age and the low quality of vehicles
in use in CEE countries may be a strong
determinant of massive car replacement
in the future
V.2.
hand cars23.
The demographic trends point to a reduction of the population
aged between 19 and 65 years in most of CEE countries. If con-
It is worth mentioning that not only the number of vehicles in
sidering the demographic forecasts made by Eurostat, Romania,
use – but also the quality of these vehicles – may be a strong
Poland and Slovakia will be the only countries with more 19 – 65
determinant of the future growth of new car sales in the
year-old people in 2020 than they have now. This trend suggests
region. When looking at the age structure of vehicles in given
22) There are of course drivers older than 65. But the population aged 19 – 65 can give better insights for the future trends in car purchasing.
23) In Bulgaria, the latest data show that during the first half of 2007, the y/y increase in second-hand car sales reached almost 50 %, but for new cars, the increase was significantly smaller, around 25 %. This is not only due to the low levels of spending power for households, but also the abolishment of VAT tax and the simpler import and registration
procedures for vehicles imported within the EU since the beginning of 2007. Currently, the import of second-hand cars is free from any environmental restrictions, while the new
cars must have the Euro-4 certificate before registration. With rising household income levels and the probable introduction of more stringent eco-standards on the import of
second-hand cars, new auto purchases should increase faster during the next several years, while second-hand import rates should decrease.
24) See chapter V.3.
Car saturation and population structure
in CEE and WE countries
(figure 33)
Age structure of vehicle fleet (2005)
(figure 34)
in years, %
100
EU-15
75
Italy
Germany
UK
50
Poland
Czech Rep.
Hungary*
25
0%
Ita
Ge ly
rm
an
y
EU
-1
5
Au
st
ria
Tu
rk
e
Ro y
m
an
ia
Ru
ss
Sl ia
ov
ak
Hu ia
ng
ar
y
Po
la
nd
Cr
oa
Bu tia
lg
Cz aria
ec
h
Re
p
Sl
ov .
en
ia
0
0–2
Registered cars over 100 people
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
3–5
6 –10
10+
Registered cars over 100 19–65 aged people
Source: UniCredit New Europe Research Network, Eurostat
30
*) 2004 data
Source: ACEA, National Statistical Offices, Eurostat
CEE countries (figure 34), the figures are characterised by a high
pared to GDP level, with Bulgaria (higher market saturation com-
number of old cars among the total number of registered cars. In
pared to income level, mainly due to second-hand cars) being
addition to the expected income growth there should also be an
the only exception to this phenomenon (figure 36). The correla-
increasing number of customers willing to upgrade their transport
tion is even clearer when considering both Eastern and Western
means by purchasing a new car instead of a used one. The fig-
countries, where some CEE countries (Turkey, Russia, Slovakia)
ures for the Czech Republic and Poland also show that relatively
are again below the trend, hence having higher potential. Many
high market saturation does not necessarily imply lower attrac-
EU countries, with a market saturation level of more than 50 %,
tiveness of a given market, as much of the local demand for new
are by far more saturated, with Italy as a benchmark (in terms of
cars may be stimulated by this kind of “prosperity effect”.
very high saturation), even taking into account their GDP levels.
Dynamic growth of CEE economies and
expected income convergence, should be
decisive factors in the future development of automotive sales in the region
As the relation between market saturation and GDP (i.e.
The economies of Central Eastern Europe have been able to
potential because a substantial part of local population does not
grow dynamically in recent years and are being targeted by for-
yet own a car. In Central and Eastern Europe only around 50 %
eign companies as important destination markets mainly for this
of the households own a car25.
V.3.
income levels) is quite strong, the expected growth of the latter should result in the future increase in car sales. Due to
lower income levels, the CEE markets appear to have huge
reason. Central Eastern Europe is outperforming most other
An improvement in incomes also contributes to the “prosperity
global regions in terms of GDP growth (figure 35).
effect”, which causes customers to upgrade their cars and to
Economic development of a given region is a sign that will most
change them much more often than they have thus far. In
likely produce more and more car sales in the close future: the
level of market saturation for cars is indeed directly correlated
stages of development in the level of market saturation com-
25) EBRD “Life in Transition Survey”. The survey gives us other insights regarding the
ownership of other consumer goods in CEE: almost 80 % of households own a mobile
phone, more than 40 % a computer, around 30 % have Internet access at home, and
around 10 % have a secondary residence.
Average real GDP growth by regions
(2002 – 2006)
GDP per capita vs. passenger car saturation
with per capita GDP. The CEE countries are currently at different
(figure 35)
%
2006
10
Car penetration
Units per 100 inhabitants
CEE
60
8
50
6
BG
30
20
2
RO
10
0
ES
SI
40
4
IT
CZ
PL
HR
HU
SK
PT
GR
DE
ATUK
FR
FI SE
BE
NL
(figure 36)
IE
DK
RU
TR
0
Euro area
Latin
Newly
and
industrialized
Southern
Asian
America economies
Africa
Eastern
Europe
Developing
Asia
0
5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
GDP per capita
Euro
Source: ACEA, UniCredit New Europe Research Network, Eurostat
31
effect, the correlation between GDP level and annual sales of
their spending power remains very low (figure 38). In some
new cars (adjusted for population size) is even more significant
cases (e.g. Bulgaria) spending power is even 10 times lower
than in the case of market saturation (figure 37), where Bulgaria
than in the advanced economies of Western Europe. Car price
is not anymore an outlier.
differentials between CEE and Western countries are small (it’s
difficult to discriminate among different markets) and are not
On the other hand, in the short term the low incomes of Cen-
adjusted for the strong disparity in income levels. Moreover, in
tral and Eastern European households are still a serious obsta-
some CEE markets (e.g. Slovakia), local car prices are not differ-
cle for a more rapid improvement in the sales of new cars as
ent from, or even exceed, those in EU-15 countries, which represents an additional barrier for the development of new car sales.
However, the higher growth of CEE economies will increase their
GDP per capita vs. new passenger car sales
purchasing power for new cars in the coming years (figure 39).
Per capita GDPs are expected to increase by 30 % on average
(figure 37)
between 2006 and 2009 in Central and Eastern Europe. Central
2006
European countries such as Slovakia, the Czech Republic, and
Sales of new passenger cars
units per 1000 inhabitants
Hungary will have a GDP per capita between EUR 10,000 and
BE
50
40
ES
IT
SI
30
20
RO
10
BG
HR
RU
TR
HU
CZ
SK
PT
DE
AT UK
FR NL SE
FI
GR
14,000 in 2009. Per capita GDP growth forecasts highlight a big
IE
leap for Russian incomes, most likely approaching EUR 10,000
before the end of the decade. Romania and Turkey will have a
DK
GDP per capita around EUR 6,000 in 2009; at the moment, they
are among the countries with lower GDP per capita (together
PL
with Bulgaria). The speed of growth of the different economies
0
0
5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
will shape the convergence (in terms of market saturation) of
GDP per capita
Euro
the different local automotive markets26.
Source: ACEA, UniCredit New Europe Research Network
26) The relation between GDP per capita and market saturation can be thought of as a logistic “S” shaped function, which can take into account the different stages of the relation
between GDP per capita and market saturation in a non-linear way: at the beginning of the “convergence process”, after having passed a “take-off” zone (around EUR 5,000), even
a little differential of per capita GDP growth will increase the market saturation substantially. When GDP per capita is rising above EUR 20,000 – 25,000 per year, the market is normally much more saturated. Looking at the income levels of CEE countries, they can mainly be seen as high growth countries in terms of car sales and far from saturated.
Car affordability: car price in relation to monthly GDP per capita* in CEE and WE countries (2006)
Renault Clio (B segment)
Opel Astra (C segment)
5.0
6.3
Germany
5.2
6.3
8.2
France
5.2
6.6
7.2
Italy
5.2
6.9
8.7
Spain
6.3
Slovenia
Hungary
6.6
7.9
8.3
9.3
11.0
11.7
14.1
18.1
13.1
20.6
18.4
23.9
Slovakia
16.8
25.4
Poland
17.6
25.3
Romania
Bulgaria
28.1
27.4
29.8
29.9
38.0
*) Lower numbers indicate higher affordability / Source: European Commission, Eurostat
32
VW Passat (D segment)
United Kingdom
Czech Republic
(figure 38)
42.8
51.8
65.9
All things considered, the CEE countries are very attractive for car
side CEE) could be the winning strategy to capitalise on the
producers in terms of potential demand because of the increas-
potential of local demand in emerging economies.
ing number of people who will be able to afford to purchase a
new car. It could also have some implications for the strategy of
Moreover, one should not forget about some secondary factors
car producers: the mature European markets, mainly based on
which may also affect the demand for new cars including
car substitution or upgrade, need innovation from the supply side
population density and alternative transport infrastructure.
(safety systems, electronic devices, design, etc.); on the other
Population density and the prevalence of railway networks vary
hand, the focus on low-budget cars (both produced in CEE or out-
significantly among the CEE countries (figure 40) and may also
influence the potential of a given car market.
Expected GDP per capita in CEE countries
(figure 39)
EUR
Countries with very low population density probably tend more
towards private means of transportation; countries with higher
population density will probably count more on public transporta-
20,000
tion (subways, buses, trams, especially in big cities) rather than
16,000
private cars27.
12,000
Regarding local railway systems, they can be a source of compe-
Slovakia, which will also be more involved in infrastructure proar
lg
Bu
2005
Ru
ss
ia
Hu
ng
ar
y
Slo
va
ki
a
Cz
ec
h
Re
p.
Sl
ov
en
ia
0
Cr
oa
tia
European countries (particularly the Czech Republic, Hungary,
ia
tition for cars and buses only in some countries. Some Central
4,000
Tu
rk
ey
Ro
m
an
ia
Po
la
nd
8,000
2009
jects at the EU level) have a railway density which is comparable
with Western Europe, though its quality is still relatively low.
Others CEE states, like Turkey, must rely much more on private
transportation means, which might be an additional source of
future demand for cars.
27) Population density could give useful information for understanding car density, but the empirical relation is not evident without controlling for other variables (higher population density is often associated with higher GDP levels).
Population and railway density in CEE and WE countries
250
125
200
100
150
75
100
50
50
25
0
0
Bu
Tu
rk
ey
Bu
lg
ar
ia
Ro
m
an
ia
Cr
oa
tia
Railway density
Meters per km2
Ru
ss
ia
lg
ar
ia
Cr
oa
Ro tia
m
an
ia
Tu
rk
ey
Au
st
ria
Sl
ov
en
Hu ia
ng
ar
Slo y
va
ki
a
Po
la
Cz nd
ec
h
Re
p.
Ita
l
y
Ge
rm
an
y
Population density
Persons per 1 km2
Ita
ly
Sl
ov
en
ia
Po
la
nd
Au
st
ria
Sl
ov
ak
ia
Hu
ng
ar
Ge y
rm
a
Cz ny
ec
h
Re
p.
(figure 40)
Source: UniCredit New Europe Research Network, Eurostat
33
Regional demand for cars should be also boosted by the growing
Slovakia has a good structural outlook, with a high number of
availability of loans for cars. While this process is to some extent
people aged 19 – 65 expected, high GDP growth and low market
enabled by falling interest rates, it is also the simple result of
saturation. Slovakia is also considered one of the best locations
the dynamic development of local banking sectors.
to produce cars internationally, while the weakness of the
Slovakian market is mainly related to its limited size. Poland and
V.4
Turkey, Romania and Russia emerge
as the most attractive CEE automotive
markets
Bulgaria are in the intermediate positions of our rankings. The
Polish market is supported by its population (size and structure)
and by the weak railway system, although the local market can
To sum up the main results of the above analysis, we consider
be considered more saturated than others. The Bulgarian market
the most promising CEE markets in terms of the possible devel-
is also relatively saturated, but high economic growth in the
opment of new car sales. To create such a benchmark, some of
economy will maintain buoyant the local demand for passenger
the indicators mentioned above were used (table 5), with a mix
cars. On the one hand, the second-hand car market has been
of backward looking and forward looking indicators.
among the main threats for new car sales in the past, much
more so in Bulgaria and Poland than in other CEE countries. On
Russia seems to be one of the best markets in terms of poten-
the other hand, the vast number of imported used vehicles
tial car sales thanks to its large population and the high level of
make these markets very promising because the likely necessity
growth expected for GDP per capita (even with a high income
to replace old cars with new ones (even holding the level of sat-
disparity). The ranking of Turkey is mainly due to the country
uration constant). Hungary and the Czech Republic are not as
having the lowest level of market saturation, combined with
attractive destination markets as other CEE markets, because
the fact that there is very little competition from public trans-
they are more saturated, although more stringent emission stan-
port. The strength of the economy should also ensure high
dards (the introduction of Euro3) will keep the demand for
growth rates for car sales. Romania is one of the most attrac-
newly produced vehicles high. But these relatively richer coun-
tive countries: it shows good performances in each indicator
tries will have more room to upgrade the quality of vehicles in
used in our analysis. Proximity to Europe and the recent EU
use in favour of more expensive models.
accession represent important advantages.
Attractiveness of the different CEE countries as markets of destination (rank, deciles)*
Russia
Turkey
Romania
Slovakia
Bulgaria
Poland
Croatia
Czech Rep.
Hungary
Slovenia
Robustness
of car sale
Population
potential
for
registered
cars
Population
size
2
7
1
3
4
9
8
6
5
1
2
3
4
8
10
5
9
7
6
1
2
4
8
7
3
9
5
6
10
Future
population
structure
2
1
4
3
6
7
5
(Table 5)
Population
density
Railway
density
Market
saturation
Per capita
GDP
evolution
1
5
4
8
2
9
3
10
7
6
1
3
7
2
6
4
9
8
5
3
1
2
4
8
7
6
8
5
10
1
5
3
2
4
6
8
7
10
9
Cycle
2
6
3
1
5
7
4
Weighted
rank
1.7
2.6
2.7
3.9
5.6
6.0
6.2
7.2
7.2
7.3
*) For each indicator we ranked the 10 countries under analysis (1 very attractive, 10 less attractive). Robustness of car sales is obtained by looking at the sales of new passenger
cars from 2000 to 2006. Population potential describes the gap between population and registered cars. Population size takes into consideration only the current population, while
future population structure looks at the number of people aged 19 – 65 in 2009. Population density and railway density (1 stands for low density) are also considered. Market saturation and the evolution of GDP per capita are taken into account also. The cycle addresses the growth of car registration between 2006 and 2007. To obtain the overall rank,
points 9 and 5 are weighted at 2 % each, 1 at 3 %, 6 at 6 %, the sum of 2, 3 and 4 at around 37 %, 7 at 23 % and 8 at 27 %.
34
V.5.
In some CEE countries, the import of
second-hand cars has recently distorted
the structure of car sales. New car sales
in CEE are stagnating
7.5 %. The economic slowdown in 2001 was also one of the
causes for a serious drop in new car sales on the Polish market
(the second largest one). The crisis was deepened by increasing
competition from second-hand car imports from Western Europe,
Already knowing some crucial factors that may determine sales
which rocketed after the EU accession. In contrast, the robust-
of new cars in the region, one should look more closely at
ness of Romanian growth is impressive, with an average com-
recent trends in the CEE automotive market. In 2006, over
pounded growth rate of 19 % from 2000 – 06 (but even so, it still
1.3 mn new passenger cars were sold in the CEE area. If we
represents just 6 % of the regional market).
include the Russian market, this number increases significantly,
exceeding 3.0 mn units: the Russian market almost doubled
Poland’s situation (figure 43) reveals a wider problem that con-
between 2000 and 2006 (figure 41).
cerns all of the new EU members and may disturb the development of their car markets for several years. The EU expansion
Although the CEE market is already relatively important in
activated a large wave of second-hand car imports from
terms of size and new car sales have increased in many coun-
Western Europe and the existing gap in the number of vehi-
tries since 2000, its overall growth dynamics are rather unsta-
cles in use has been quickly filled with used vehicles. The
ble (figure 42). General stagnation of new car sales in the
increased supply of used cars is one of the main causes of the
analysed region is especially visible when comparing it to the
rapid fall of new car values within the first two years of use,
Russian market, which has been booming since 2002 (with aver-
which additionally discourages the purchase of brand new mod-
age annual growth of 16.6 %). In 2005, it outperformed the
els. A considerable part of the local middle class now faces a
whole CEE region in terms of sales volume.
dilemma: to purchase a smaller new car (that they can already
afford) or to choose a used but bigger and more comfortable
The trend in the analysed area is determined mainly by its
one (importing it).
largest markets. Turkey (the largest market among the analysed
countries) has not been able to fully recover from the crisis of
Before the EU enlargement such imports were blocked by tax
2001, when the currency depreciated and GDP dropped by
obstacles (excise duties), that made a purchase of imported cars
Structure of regional sales of new passenger cars
(2006)
New passenger car sales in CEE and Russia
(2000 – 2006)
(figure 41)
(figure 42)
Th. units
Th. units, %
100% =3,138
Turkey
12%
Poland
8%
Romania
6%
Russia 56%
CEE-9* 44%
*) countries included in the analysis
Hungary
6%
Czech Republic
Croatia
Slovenia
Slovakia
Bulgaria
4%
3%
2%
2%
1%
CEE-8*
Russia
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
00
01
02
03
TK
HR
BG
SK
CZ
PL
04
RO
05
06
00
01
02
03
04
05
06
HU
35
Prospects for the Central and Eastern European automotive industry
unattractive. After these taxes were abolished as a result of
for used vehicles becomes more saturated and the prosperity
accession, the market for new vehicles in some CEE countries
effect gains strength, the local society will probably appreciate
suffered a deep crash (or at least stagnation) instead of the
the safety and reliability of a new car more than the price com-
expected growth related to economic development. Even more
petitiveness of imported second-hand cars. Thus, some CEE mar-
importantly, any attempts by local governments to protect their
kets will start to benefit from citizens upgrading their cars, as
domestic car market usually meet with strong resistance from
one also observes on the developed markets of Western Europe.
EU bodies, which can make this problem even more persistent.
This notion seems to be confirmed by recent trends. Within the
first months of 2007, the majority of car markets in new mem-
On the other hand, the negative impact of second-hand car
ber states enjoyed high growth dynamics, which were backed
imports seems to be a short-term phenomenon. As the market
by strong improvement in the GDP level (figure 44).
New car sales vs. second-hand car imports
(Poland’s case)
Recent trends in new car sales (I – IX 2007 vs. I – IX 2006)
on the CEE markets
(figure 44)
(figure 43)
Percentage change
Thousand units
30%
1,200
25%
1,000
20%
800
15%
600
10%
5%
400
0%
200
–5%
0
2006
EU accession
Import of used cars
EU
-1
5
2005
CE
E7
2004
Re C
pu zec
bl h
ic
Sl
ov
ak
ia
Hu
ng
ar
y
2003
Bu
lg
ar
ia
Po
la
nd
Ro
m
an
ia
Sl
ov
en
ia
–10%
2002
Domestic sales of new cars
VI. Prospects for the Central and
Eastern European automotive industry
36
So far, the CEE region is a success story in terms of international
ducing in CEE. Given these trends, and considering that profit
competitiveness, with its specialization model increasingly shift-
margins will continue to be under pressure, it’s relevant to
ing from a lower cost into more capital and technology-driven
understand if the main automotive producers will move further
advantages, and the increasing role of the automotive sectors is
East in the future, defining the CEE region as a mere step
one of the main examples. The FDIs received from abroad, espe-
towards relocation to cheaper areas, or if CEE will become and
cially from Western Europe, represent the key driver of this struc-
stay as the manufacturing arm of Western Europe for a long
tural change: all the main international OEMs are currently pro-
period.
First, we should consider that cost advantages within the EU
• the fast improvement of the quality of labour force, together
area will remain the CEE’s main strength for some years. The
with improving education standards and learning-by-doing
existing gap in wages is gradually narrowing in result of income
convergence, the CEE area shows a great potential of productivity improvement.
processes, that can improve productivity
• the openness to foreign investments and commitment to
maintain or improve an already favourable business environment
The economies of the CEE countries (especially those that joined
the European Union) are becoming more stable and predictable,
The local auto supply industry has promising prospects as well.
which makes local investments not only cost attractive but also
As investments in the production of automotive parts are much
more and more secure. Their possible eurozone accession in the
less capital-intensive than car facilities, companies are more
future will eliminate an additional risk that is caused by the
flexible to relocate to CEE. This segment of the automotive chain
volatility of their currencies.
is also less automated, which makes potential savings in labour
costs especially significant.
Moreover, competitive pressures (and consequently the need of
cost savings) will continue to speed up other relocation decisions.
Generally we expect that within the next years the performance
of the transport equipment sector will be much better than
All in all, we think the Central European cluster (the new
GDP growth in most of the CEE countries (see Table 6, that
Detroit, well connected with some “old” EU countries such as
reports the forecasts made by the UniCredit New Europe
Germany) will remain, or even expand, as one of the most
Research Network for the Sectoral Analysis 2008 – 2009; the
important centres of automotive production in the future. Prob-
“Transport Equipment” sector is of course broader than the
ably CEE countries will receive additional investments from West-
automotive, and includes also the manufacturing of trains,
ern Europe, especially from OEMs, while some lower value-
planes, ships, etc). The highest growth ratio is expected to be
added activities will be moved towards other destinations, in
recorded in Slovakia (that will benefit the most from recent
Eastern Europe (Moldova, Ukraine, Belarus in the future) or Asia.
investments from KIA and Toyota-PSA, which are going to spur
local car production in the coming years) as well as in Romania
What is very clear in a mid-term perspective is that the competi-
and Bulgaria, that became an especially attractive relocation tar-
tive position of the CEE automotive industry will have to be
get after their EU accession. If we exclude Croatia (where the
based on factors other than mere cost advantages, which are
automotive sector is not relevant and the shipbuilding segment
expected to be gradually eroded (as already happened in the
is suffering because of a deep restructuring), in all the CEE coun-
last years). Among these factors one should distinguish:
tries the Transport Equipment sector is expected to grow much
• the large potential of the local markets, which is due to fast
faster than in Western Europe.
increasing incomes and the continued gap in vehicles in use.
Examples of previous investments show that local manufactur-
Transport equipment and economic growth
(Table 6)
ers usually win a strong position on a particular market, which
Avg. growth
2007 –'09
Transport Equip.
Industrial production
GDP
growth
21.3
14.7
13.9
13.4
11.1
10.7
6.3
6.2
1.8
2.6
7.4
5.4
6.1
3.1
5.1
6.7
5.4
5.8
4.9
2.3
may be an additional incentive to relocate the production in
the country (local demand is driving supply)
• the proximity of Western European markets as well as
improving infrastructure, which are important to serve them in
a timely and cost-effective manner. It also enables OEMs to
take advantage of the positive spill-overs from affiliates, customers and suppliers, especially in some clusters
• the growing possibilities of building pan-European production
centres, with cross-border joint ventures and agreements
among producers; most of the industrial activity in the sector
is located in Central Europe, with Poland, Czech Republic,
Slovakia
Romania
Bulgaria
Hungary
Czech Rep.
Russia
Poland
Turkey
Croatia
EU-15
(Sectoral Analysis, Outlook 2008 – 2009)
Slovakia and Hungary holding the lion’s share
37
Country profiles
VII. Country profiles
Poland*
Gross Output and Gross Value Added
Foreign Trade
EUR mn
EUR mn
20,000
20,000
16,000
16,000
12,000
12,000
8,000
8,000
4,000
4,000
0
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Strengths and Weaknesses
Thousands of units
• Strong presence of automotive suppliers
• Solid GDP growth leading to a recovery in new car sales
• Existence of automotive clusters and a system of special
700
600
500
incentives for investors in the form of special economic zones
400
300
200
100
0
2000
Car production
2001
2002
2003
2004
2005
2006
• Emerging wage pressure
• Considerable import of second-hand vehicles
• Low quality of road infrastructure
• Relatively high market saturation
New car sales
*) Gross Output, Gross Value Added, Import and Export are in millions of euros for the transport equipment sector (NACE DM). Production and Sale (new) is related only to passenger cars (thousands of units).
38
Slovakia*
Foreign Trade
EUR mn
EUR mn
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
350
• Strongly developed supply cluster
• Relatively high diversification of production – from lower class
300
to luxury off-road vehicles
250
• Tradition of engineering and relatively high quality of
200
production
150
100
• Lack of qualified labour force after the opening of two new car
50
plants in Zilina and Trnava, with potential wage pressure
0
2000
2001
Car production
2002
2003
New car sales
2004
2005
2006
• Higher export dependency – almost all production is exported,
while domestic demand is covered by imports
39
Country profiles
Hungary*
Foreign Trade
EUR mn
EUR mn
14,000
14,000
12,000
12,000
10,000
10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
0
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
Gross Value Added
2000
Export
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Proximity to European markets and to the plants of the main
250
producers
• Audi and Suzuki plan to carry out huge capacity enlargements
200
in the near future; moreover, they are less exposed to
150
economic downturn than the other countries
100
• Presence of large, prospering multinational spare-part
50
manufacturers
0
• High productivity
2000
2001
Car production
2002
2003
New car sales
2004
2005
2006
• Inflexible labour market, with a shortage of skilled manual
labour. Employment of Hungarian speaking foreign workers
from Slovakia provides only a temporary solution. Education
system cannot yet cope with challenges that the car industry
presents
40
Czech Republic*
Foreign Trade
EUR mn
EUR mn
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Geographical proximity to all major European markets
• Part of the production cluster (West Slovakia, Silesia, north
900
800
700
600
500
400
300
200
100
0
Moravia)
• Diversification, e.g. the strong position of accessories
production within the Czech automotive industry
2000
2001
Car production
2002
2003
2004
2005
2006
• Strong and uncontrolled influx of imports of second-hand cars
• Gradually diminishing pool of skilled labour
New car sales
41
Country profiles
Romania*
Foreign Trade
EUR mn
EUR mn
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
6,000
5,000
4,000
3,000
2,000
1,000
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Low cost labour force
• Proximity to Western countries as most of the manufacturing
250
units are located in Transylvania region
200
• Re-privatisation of Daewoo Craiova (Ford is among the bidders)
150
will boost the market suppliers
100
• Internal market is expanding fast
• bigger potential in the future.
50
0
2000
2001
Car production
2002
2003
New car sales
2004
2005
2006
• Shortage of qualified labour force, as workers are already
employed in other economic sectors
• Lack of significant automotive spare-parts retail dealers and
lack of R&D centres
• Quality and environmental protection management need to
be further developed and implemented.
42
Bulgaria*
Foreign Trade
EUR mn
EUR mn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
300
250
200
150
100
50
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Close proximity to countries where auto production is
50
45
40
35
30
25
20
15
10
5
0
expanding
• Low labour costs (the lowest in the EU), with a skilled and
inexpensive engineering pool available
• Consumers with increasing purchasing power
• Flexible financing options (including leasing): around one-third
of new cars are bought on credit
2000
Car production
2001
2002
2003
New car sales
2004
2005
2006
• No indigenous vehicle production industry (the local market
relies on imports)
• Abolishment of tariffs for import of cars from the EU benefiting
second-hand imports
• Low labour productivity
43
Country profiles
Slovenia*
Foreign Trade
EUR mn
EUR mn
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• High level of income
• Proximity to European markets and to the plants of the main
160
140
producers
120
• Only Renault has production facilities in the country
100
80
60
• High level of market saturation
• Shortage of skilled manual labour
40
20
0
2000
2001
Car production
2002
2003
2004
2005
2006
New car sales
44
Croatia*
Foreign Trade
EUR mn
EUR mn
2,500
500
450
400
350
300
250
200
150
100
50
0
2,000
1,500
1,000
500
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Improving road conditions (new highways)
• Growth in tourist arrivals will boost the car rental sector
• Relatively high income levels and prospects of joining the EU
90
80
70
60
50
40
30
20
10
0
in the near future
• High dependence on imports
• High restrictions on consumer credit and a recent hike in car
excise tax
2000
2001
Car production
2002
2003
2004
2005
2006
New car sales
45
Country profiles
Turkey*
Foreign Trade
EUR mn
EUR mn
6,000
12,000
5,000
10,000
4,000
8,000
3,000
6,000
2,000
4,000
1,000
2,000
0
0
2000
2001
Gross Output
2002
2003
2004
2005
2006
2000
Export
Gross Value Added
2001
2002
2003
2004
2005
2006
Import
Production and Sale
Thousands of units
• Large population and low level of market saturation
• High growth potential in the economy
• Geographic proximity to both Europe and Asia
• Trade agreement with the EU
• Relatively well-trained workforce
• Bad railway system
600
500
400
300
200
100
0
2000
2001
Car production
2002
2003
2004
2005
2006
• Labour costs higher than in other countries in the region
• Difficulty of establishing new businesses
New car sales
46
Russia*
Structure of local vehicle fleet
EUR mn
in %
900
800
700
600
500
400
300
200
100
0
Reg. Others 19%
Reg. Cars 81%
2000
2001
Gross Output
2002
2003
2004
2005
2006
Gross Value Added
Production and Sale
Thousands of units
• One of the best markets in terms of future potential
• Presence of a national manufacturer (in 2005 they represented
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
around 45 % of the internal market)
• Increase in import tariffs on completely built units would
encourage foreign manufacturers to set up shop in the country
2000
Car production
2001
2002
2003
2004
2005
2006
• Potential competition from Asian locations
• The market relies heavily on a niche segment of society which
benefits from oil income
New car sales
47
Annex
VIII. Annex
Top25 Mergers & Aquisitions in CEE in the last 10 years (auto, auto parts and auto equipments manufacturer sector)
Deal Type
Announce Date
Target Name
Acquirer Name
Acquisition
5/22/00
SKODA AUTO AS
VOLKSWAGEN
Divestiture
7/14/07
JC AUTO SA
INTER CARS
Acquisition
12/17/98
AUTOMOBILE DACIA PITESTI
RENAULT
Divestiture
4/8/03
STOMIL OLSZTYN S.A.
MICHELIN (CGDE)-B
Acquisition
2/9/07
HEADQUARTER BUILDING/ISTANBUL
LANDMARKK INSAAT & TURIZM
Acquisition
8/30/06
TOYOTA & LEXUS RETAIL BUSINESS
INCHCAPE
Joint Venture
1/23/06
EXBUS ASSET MANAGEMENT PLC
HOMERICA INVESTMENTS
Divestiture
10/25/02
ISUZU MOTORS GERMANY
GENERAL MOTORS
Acquisition
10/25/02
ISUZU MOTORS POLSKA
GENERAL MOTORS
Joint Venture
7/14/00
AUTOMOBILE DACIA PITESTI
RENAULT
Acquisition
4/7/04
SAVA TIRES DOO
GOODYEAR TIRE & RUBBER
Acquisition
4/7/04
AUDI & PEUGEOT RETAIL BUSINESS
INCHCAPE
Acquisition
10/28/04
AVTOFRAMOS OAO
RENAULT
Divestiture
8/24/04
WESLIN INDUSTRIES INC
WESCAST INDUSTRIES INC-CL A
Joint Venture
3/26/07
RUSSIAN ACCUMULATORS
POWER INTERNATIONAL
Acquisition
5/6/02
SAVA TIRES DOO
GOODYEAR TIRE & RUBBER
Acquisition
7/19/06
CZECH LCV
ASHOK LEYLAND
Divestiture
4/24/06
SAVA TRADE
MERKUR
Divestiture
2/12/01
THOMAS WALTER LTD
DDI CORP
Acquisition
6/29/01
TATRA AS
SDC INTERNATIONAL
Divestiture
7/28/06
TATRA AS
KBC GROEP
Divestiture
1/10/07
PEKM KABELTECHNIK SRO
COMMERCIAL VEHICLE GROUP
Divestiture
8/3/07
ZMZ-BEARINGS OOO
DAIDO METAL CO
Divestiture
3/15/01
GLIWICE MFG FACILITY
TENNECO
Divestiture
3/28/01
WSK GORZYCE SA
FEDERAL-MOGUL
Source: Bloomberg
48
Seller Name
Announced Total Value (mln US $)
CZECH REPUBLIC
RENAULT SA
OLIMP GROUP
Deal Status
Country
300,5
Complete
Czech Rep.
127,8
Pending
Poland
82,74
Complete
Romania
82,68
Complete
Poland
73,1
Complete
Turkey
72,29
Pending
Russia
67,46
Pending
Hungary
ISUZU MOTORS LTD
60,6
Complete
Poland
ISUZU MOTORS LTD
60,6
Complete
Poland
56,99
Complete
Romania
52,32
Complete
Slovenia
43
Complete
Russia
Pending
Russia
OLIMP GROUP
42,24
LINAMAR CORP
METROPOL GROUP OF COS
SAVA
AVIA AS
41,16
Pending
Hungary
40
Pending
Russia
38,72
Complete
Slovenia
35
Complete
Czech Rep.
SAVA
34,66
Complete
Slovenia
GARDNER (L) GROUP PLC
29,75
Complete
Poland
28,81
Complete
Czech Rep.
TEREX CORP
26,2
Complete
Czech Rep.
PRETTL INDUSTRIE BETEILIGUNG
21,1
SEVERSTAL-AVTO
Complete
Czech Rep.
20
Pending
Russia
20
Complete
Poland
18
Complete
Poland
49
UniCredit Group CEE banking network
UniCredit Group CEE banking network
The Baltics
Hungary
UniCredit Bank Estonia Branch
Liivalaia Street 13/15, EST-10118 Tallinn
Phone: +372 668 8300
www.unicreditbank.ee
UniCredit Bank
Szabadság place 5 – 6,
H-1054 Budapest,
Phone: +36 1 269 0812
E-Mail: info@unicreditbank.hu
www.unicreditbank.hu
UniCredit Bank Lithuania Branch
Vilniaus Gatve 35/3, LT-01119 Vilnius
Phone: +370 5 2745 300
www.unicreditbank.lt
UniCredit Bank (Latvia)
Elizabetes Iela 63, LV-1050 Riga
Phone: +371 708 5500
www.unicreditbank.lv
Bosnia and Herzegovina
UniCredit Zagrebacka banka
Kardinala Stepinca b.b.,
BH-88000 Mostar
Phone: +387 36 312112
E-Mail: unizaba@unizaba.ba
www.zaba.ba
HVB Central Profit Banka
Zelenih Beretki 24, BH-71000 Sarajevo
Phone: +387 33 533 688
E-Mail: info@hvb-cpb.ba
www.hvb-cpb.ba
Nova Banjalucka Banka
Marije Bursac 7, BH-78000 Banja Luka
Phone: +387 51 243344
E-Mail: info@novablbanka.com
www.novablbanka.com
Bulgaria
UniCredit Bulbank
Sveta Nedelya Sq. 7, BG-1000 Sofia
Phone: +359 2 923 2111
www.unicreditbulbank.bg
Croatia
Zagrebacka banka
Paromlinska 2, HR-10000 Zagreb
Phone: +385 1 6305 250
www.zaba.hr
Czech Republic
UniCredit Bank
Na Príkope 858/20
113 80 Praha 1
Phone: +420 221 112 111
E-Mail: info@unicreditgroup.cz
www.unicreditbank.cz
50
Kazakhstan
ATFBank
100, Furmanov Str.
050000 Almaty
E-Mail: info@atfbank.kz
Phone: +7 (727) 2 583 111
www.atfbank.kz
Kyrgyzstan
ATFBank Kyrgyzstan
493, Zhibek Zholu Ave.
Bishkek
Phone: +7 312 67-00-47
E-Mail: bank@atfbank.kg
www.atfbank.kg
Russia
Bank Siberia
11, Pevtsov Str.
644099 Omsk
Phone: +7 3812 24-49-19, 28-98-80
E-Mail: gu@omsk.cbr.ru
International Moscow Bank
Prechistenskaya emb. 9,
RF-19034 Moscow
Phone: +7 095 258 7200
E-Mail: imbank@imbank.ru
www.imb.ru
Yapi Kredi Moscow
Goncharnaya emb. 2,
RF-115172 Moscow
Phone: +7 495 234 9889
E-Mail: yap@online.ru
www.ykb.ru
Serbia
UniCredit Bank
Rajiceva 27 – 29, 11000 Belgrade
Phone: +381 11 3204 500
E-Mail: office@unicreditbank.co.yu
www.unicreditbank.co.yu
Macedonia
Slovakia
BA-CA Representative Office
Dimitrie Cupovski 4 – 2/6,
MK-1000 Skopje
Phone: +389 2 3215 130
E-Mail: office@ba-ca.com.mk
Slovenia
Montenegro
BA-CA Representative Office
Hercegovacka 13,
81000 Podgovica
Phone: +382 81 66 7740
E-Mail: ba-ca@cg.yu
Poland
Bank Pekao
ul. Grzybowska 53/57,
PL-00-950 Warsaw
Phone: +48 42 6838 232
www.pekao.com.pl
Romania
UniCredit Tiriac Bank
Ghetarilor Street 23 – 25,
RO-014106 Bucharest 1,
Phone: +40 21 200 2000
E-Mail: office@unicredittiriac.ro
www.unicredit-tiriac.ro
UniCredit Bank
Šancova 1/A, SK-813 33 Bratislava,
Phone: +42 1 44 547 6870
www.unicreditbank.sk
UniCredit Bank
Šmartinska cesta 140, SI-1000 Ljubljana,
Phone: +386 1 5876 600
E-Mail: info@unicreditbank.si
www.unicreditbank.si
Turkey
Yapi Kredi
Yapi Kredi Plaza D Blok, Levent,
TR-80620 Istanbul,
Phone: +90 212 339 70 00
www.yapikredi.com.tr
Tajikistan
Sohibkorbank
165, Kamoli Hudzhandi Str.
735700 Hudzhand, Sogdian region
Phone: +8 10 99 23 4 22 6 30 65
www.sohibkorbank.com
Ukraine
UniCredit Bank
14, D. Galitskogo St., UA-43016 Lutsk,
Phone: +380 332 776210
www.unicredit.com.ua
This is a product of the New Europe Research Network. The New Europe Research Network involves
all the research offices of the Group dealing with the CEE region, with the aim of providing a shared view in terms of
economic developments at the single country and at the regional level
Debora Revoltella
UniCredit Group, CEE Chief Economist
Network Coordinator
Neweuroperesearch@unicreditgroup.eu
UniCredit Group, CEE Economic Research
UniCredit Tiriac Bank – Economic Research
Carmelina Carluzzo (CZ, PL, SK) – Matteo Ferrazzi (HR, LT, TR)
– Hans Holzhacker (EST, RUS, UA) – Fabio Mucci (BG, LV, RO)
– Lisa Perrin – Bernhard Sinhuber – Gerd Stiglitz
Rozalia Pal, Senior Economist
Anca Mihaela Stoica
UniCredit Bulbank – Planning and Control Division,
Economic Research Unit
Kristofor Pavlov, Chief Economist
Elena Georgieva – Milen Kasabov – Katerina Topalova
UniCredit Bank Slovakia –
Macroeconomics & Market Analyses
Viliam Patoprsty, Chief Analyst
Lubomir Korsnak
Yapi Kredi Bankası
Zagrebacka Banka – Macroeconomic Research
Goran Saravanja, Chief Economist
Nenad Golac
Cevdet Akcay, Chief Economist
Ahmet Cimenoglu, Head, Strategic Planning and Research
Yelda Yucel – Murat Can Aslak – Eren Ocakverdi –
Cenk Tarhan – Muhammet Mercan
UniCredit Bank Czech Republic – Economic Research
Pavel Sobisek, Chief Economist
Patrik Rozumbersky – Vaclav Verner
International Moscow Bank – Treasury
Sergei Kondrashov – Valery Inyushin –
Dmitriy Marushkevich
Bank Pekao – Macroeconomic Research Office
Andrzej Bratkowski, Chief Economist
UniCredit Bank Hungary
Márta Szegö Biróné, Chief Economist
Tibor Nagy, Tamás Nagy
51

The Automotive sector in CEE: What`s next?

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