[Marxism] "Above all, labor here is the cheapest in the region"

Louis Proyect lnp3 at panix.com
Sat Nov 25 08:37:29 MST 2006

NY Times, November 25, 2006
There’s Detroit and There’s Trnava

TRNAVA, Slovakia — For Slovakia, the recent 
inauguration of an $890 million automobile 
factory was a major event. The prime minister and 
other government officials attended. French 
executives from Peugeot Citroën, which built the 
factory, flew into the tiny town of Trnava, where 
the sprawling factory is expected to employ up to 
3,500 people and churn out as many as 300,000 
compact cars a year. After the collapse of 
Communism in 1989, many foreign carmakers rushed 
to acquire local carmakers or build their own 
factories in countries like Slovakia, Poland, 
Hungary, Romania and the Czech Republic.

That relative trickle, though, is now a flood. 
The money has been pouring in, and the pace and 
frenzy is prompting talk of Europe’s auto industry shifting from west to east.

By 2010, the Czech Republic could nearly double 
its production over last year, to more than a 
million cars. Indeed, as a whole, Eastern Europe 
has become Europe’s backyard manufacturing 
center, and it could be producing 3.4 million 
cars annually by 2010, a 33 percent jump over 
2005, according to forecasts by 
PricewaterhouseCoopers. Even Russia’s production 
is expected to rise to 1.6 million cars a year from 1.2 million now.

That kind of growth can only be envied by more 
established carmaking countries: the United 
States could be making some 12.6 million cars, a 
9 percent jump over last year, and Japan about 
10.3 million, a mere 2 percent increase from last year.

By contrast, Britain is expected to drop to 1.5 
million from 1.8 million in 2005. France is 
expected to stagnate at 3.6 million, compared 
with 3.5 million last year. Belgium was struck a 
blow recently when Volkswagen said it was 
stopping production in a plant near Brussels, 
eliminating 4,000 jobs. Even before Peugeot 
opened its Trnava plant, it announced that it was 
cutting 11,000 jobs, mainly in Western Europe. 
The move included closing a plant in Ryton, England.

This year, car production in Central and Eastern 
Europe, excluding Russia, is on track to exceed 
2.4 million vehicles, as carmakers from Europe, 
Asia and the United States pour billions of 
dollars of fresh investment into local factories.

That may be a fraction of the 57.5 million cars 
made last year in the 20 top automobile-producing 
nations in 2005. But the explosive growth 
contrasts starkly to plans by many automakers to 
scale back employment and thus production in 
Western Europe and the United States. Within the 
last year or so, General Motors, Toyota, 
Volkswagen, Peugeot, Fiat, Suzuki, Hyundai and 
Kia have announced plans to build or expand 
assembly plants in the region. “Making a car is 
not like making a plastic bag,” said Sigrid de 
Vries, the spokeswoman for the Association of 
European Automobile Manufacturers in Brussels. 
“You have to be close to the market and flexible, 
you have to be close to the customer, and this 
requires a certain reorganization.”

The reasons for Central Europe’s new wave of 
growth are complex. For one thing, the region, 
together with Russia and China, is one of the 
world’s great untapped auto markets.

Sluggish auto industries under the old Communist 
regimes left many families without cars. Local 
governments championed local automakers, like 
Skoda in the Czech Republic and Dacia in Romania. 
They were driven to near ruin under Communism, 
but some of those automakers were then bought by 
Western carmakers after 1989, when Volkswagen 
acquired Skoda and Renault bought Dacia.

High gas prices in the West have also encouraged 
consumers to start shifting from big cars and 
S.U.V.’s to the kind of compact cars that are a 
specialty in Eastern Europe. Above all, labor 
here is the cheapest in the region.

Engineers in Slovakia earn half of what Western 
engineers make, and assembly line workers 
one-third to one-fifth, according to Alain 
Baldeyrou, Peugeot’s plant manager in Trnava. If 
that does not sweeten the region for foreign 
carmakers, East European governments offer 
incentives, from financing some of the investment 
to offering a low flat-and-simple tax on employee 
wages and corporate profits, as in Slovakia, 
where all taxes are a simple 19 percent. By 2010, 
new investment will lift the region’s production 
to just below that of France, which is expected 
to be making 3.59 million cars that same year, 
and more than twice that of Britain, where 
production will drop to 1.49 million, from 1.77 million in 2005.

“Central Europe is in the European Union, it has 
the advantage of a stable economy, and they want 
the euro,” said Matt Pottle, central European 
automotive director for PricewaterhouseCoopers. 
He added that this was likely to mean far slower 
growth in some Western countries that now 
specialize in small-car production, like France and Spain.

It will also create more manufacturing jobs in 
the four major Central European countries, where 
the number has already risen to 284,507 in 2004, 
the last year for which figures are available, 
from 235,826 five years earlier; during the same 
time, such jobs fell slightly to 1,978,338, from 1,991,848 in Western Europe.

“Their largest challenge may be potential 
shortages of qualified labor,” Mr. Pottle said, 
noting that “prices of labor are rising quite rapidly.”

Within recent months, European carmakers have 
introduced a variety of new models that they will 
assemble in their Eastern European assembly 
plants. At the recent Paris Auto Show, Renault 
featured the Logan, a four-door car assembled in 
Romania, starting at 5,700 euros (about $7,200) in Eastern Europe.

“Today, Europe is a price market,” said Stéphane 
Lemperier, a Renault executive, where consumers 
buy based on low prices. When Ford introduces an 
update of its successful subcompact, the Ka, 
which is now assembled in Valencia, Spain, the 
new model will be built at a factory Ford will 
share with the Italian automaker Fiat in Tichy, 
in southern Poland, where Fiat will assemble a 
new version of its popular Cinquecento.

But Eastern Europe is not making just cheap small 
cars. Volkswagen assembles its Touareg S.U.V. and 
the big Q7 of its Audi affiliate in Slovakia; 
Porsche assembles the body of its expensive 
Cayenne in a factory near Bratislava, and then 
ships them to Germany for finishing.

And the automakers are pulling their suppliers 
into the region as well. Peugeot officials said 
that steel coils for the Trnava plant now come 
from mills in France, Germany and Austria. But 
they plan to begin using Slovak steel next year 
after U.S. Steel brings online a $160 million 
hot-dip galvanizing mill, able to make 385,000 
tons of automobile-grade steel sheet a year, in Kosice, in eastern Slovakia.

Seats for the Trnava plant are manufactured by 
Faurecia, a Peugeot-controlled company, at a 
suppliers’ park near the main factory. Slovakia, 
the Czech Republic and Poland have been vying to 
attract suppliers for the big new assembly plant 
Hyundai is building at Novosice in the eastern 
corner of the Czech Republic, a short drive from Slovakia and Poland.

With many of the countries of Eastern Europe now 
in the European Union, cars from the region enter 
Western Europe without duties, essentially 
erasing the border for the automotive industry. 
Countries not in the union that are 
protectionist, like Russia, are also attracting investment of their own.

G.M. may be losing money elsewhere, but it 
expects to almost double its sales in Central and 
Eastern Europe, including Russia, within the next 
three years, and to expand its dealer network in 
the region by 80, to about 480, according to Automotive News Europe.

This summer, G.M. opened a plant near St. 
Petersburg to assemble the Chevrolet Captiva, a 
midsize S.U.V.; by 2008, G.M. hopes to bring 
online a $127 million plant nearby to assemble about 25,000 vehicles a year.

The decisions to move assembly plants east raise 
awkward questions among workers and their labor 
union representatives in the West. Labor union 
leaders in Germany, with the backing of leaders 
in other countries, have been pressing the 
European Union to limit the kinds of incentives 
that Eastern European countries offer automakers to settle there.

Union leaders are as irate as they are helpless. 
‘ “It’s a deliberate act of vandalism by the 
company,” said James O’Boyle, a union leader at 
the Ryton plant, just north of Coventry, that is 
scheduled to close. Peugeot, he said, would lay 
off about 2,800 workers in Ryton, and though 
unemployment in the region is low, at about 4 
percent, the auto workers would have to settle for inferior jobs.

“No doubt people can find jobs, if they take 
immense cuts in wages and cuts in benefits,” Mr. 
O’Boyle said. “Some people will go on to better 
things, but they are a minority.”

Jean-Martin Folz, Peugeot’s chief executive, 
denied that the closing in Ryton and the 
expansion in Trnava reflected a repositioning of 
the industry eastward. “What you are observing is 
the economic growth of the European Union,” he 
said, “the growth of manufacturing here.” Ryton 
was closed, he said on the edge of the 
inauguration ceremony, “because it was the least profitable of our factories.”

The new plant has been a boon to locals, like 
Stefan Bosnak, Trnava’s mayor, who attended the 
ceremony. He said that unemployment had dropped 
to about 5 percent from 13 percent three years 
ago for the region of 70,000 people, which had a 
reservoir of skilled engineers left over from the Communist arms industry.

Mr. Baldeyrou, the plant manager, said wages were 
not the critical factor. “The share of salaries 
in the price of a car is about 15 percent,” he 
said. “Materials form the greater part, not 
wages.” And in the former Communist countries, 
unions pose few threats for foreign investors. 
Fewer than half a million of Slovakia’s work 
force of 2.3 million are unionized, and the number is falling.

“People are doing a good job; there are good 
social benefits,” said Ivan Stefanec, a member of 
Parliament from the region. “So there is no immediate need for unions.”

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