[Marxism] "Above all, labor here is the cheapest in the region"
lnp3 at panix.com
Sat Nov 25 08:37:29 MST 2006
NY Times, November 25, 2006
Theres Detroit and Theres Trnava
By JOHN TAGLIABUE
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 Europes 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 Europes 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 Russias 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 Europes new wave of
growth are complex. For one thing, the region,
together with Russia and China, is one of the
worlds 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, Peugeots 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 regions 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.
Its a deliberate act of vandalism by the
company, said James OBoyle, 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.
OBoyle said. Some people will go on to better
things, but they are a minority.
Jean-Martin Folz, Peugeots 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, Trnavas 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 Slovakias 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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