Delphi US still rebuilding their business model

Romania, is proving to be a magnet for automotive companies. Renault, was one of the first to enter the East European country in the late 60’s with a plant in Pitesi, that assembled Dacia passenger. By 1999, Renault had bought the ailing Dacia for US$ 592-million. Today, companies like Schlemmer, Continental, Aker-Kvaerner, Landini, Johnson Controls, Delphi, Manufactura Moderna de Metales, Pirelli, and Yazaki have a presence in the country. Chinese manufacturer Chery Vehicles is said to be scouting around for manufacturing locations.

Automotive Industries spoke to Matt Carnogursky, General Manager, IPEC Management Eastern SRL, which helps companies set up base in Romania and asked what the country has to offer.

Carnogursky: Purely by observing some of our customers settling and expanding in the country I see the rather obvious success story of labor-intensive manufacturers such as Delphi and Yazaki. While Delphi’s US parent is making Chapter 11 headlines its Romanian subsidiary is looking very strong and growing. Delphi, as far as I can see, is a stereotypical pioneer who is able to successfully stake out “virgin” areas with ample supply of inexpensive labor and set up shop at these locations.

The second category of manufacturers bets not only on inexpensive labor but also on lower-cost high-tech production and even R&D. I believe that Hella Electronics SRL, a relatively new operation in Romania, as well as Siemens VDO are examples of such strategy.

AI: What sectors are investing in Romania?

Carnogursky: The vast majority, perhaps 8 out of 10 of our customers in Romania are automotive suppliers. Intense price pressures in the global automotive market leaves many of these firms with little choice but to come to Romania.

AI: What incentives does Romania offer?

The government offers certain tax breaks across the board for investments exceeding a modest 1M EUR. Specific additional tax breaks can be negotiated on a case-by-case basis. Some of the city administrations I have talked to are either setting up industrial parks or zones for new industrial plants or helping cut through some of the inevitable red tape associated with setting up an operation.

AI: What kind of infrastructure does Romania have?

Carnogursky: If you look at the right places land for green field projects can still be found at very attractive prices, with nearby utilities, often left unused by collapsing state factories. The approaching highway network from the Hungarian side, and to certain extent from Bulgaria, makes certain border areas attractive for exporters. However, Romania is gradually building up its internal road network as well. To choose a location near a future through-fare can add significant value to the investment. The factor to consider in such cases is perhaps more the availability of labor than of the land.

AI: What are some of the challenges that automotive companies will face in Romania?

Carnogursky: The motions to set up a new operation in a new east-European country, including Romania, can be daunting. To stay on top of these matters is much easier, or in some cases the only option, with the help of a reputable local partner who offers the necessary professional services in a transparent manner and, importantly, “speaks your language”.

AI: How does IPEC help these companies?

Carnogursky: Our core competences include land search, negotiations with city administrations, providing full design or bringing customers’ existing designs into compliance with Romanian regulations, finding the best contractors for the construction work, supervising the entire project up to and including the commissioning, and, importantly, enforcing the highest standards of ethics and financial transparency of the entire process. Our two basic operating modes are project management and leasing of built-to-suit production plants.