The start point for an automotive company planning a successful exit from the west

The start point for an automotive company planning a successful exit from the west is the end point according to the latest part of Eastern Influx, a series of reports by PricewaterhouseCoopers. The series looks at setting up automotive production facilities in the Central and Eastern European member states of the European Union, and the third part focuses on the challenges associated with disposing of an existing factory in one country while making the move to another.

An increasing number of automotive manufacturers and suppliers are flocking to Central and Eastern Europe, drawn by the prospect of cost savings and new markets. But a common stumbling block is that companies do not begin by defining the ‘end state’ they want to achieve. Is it disposing of the entire business and investing in a totally new plant or simply installing existing machinery in another location? Is it continuing to manufacture the same products in a more cost-effective location or diversifying into new products and expanding its customer base?

Matt Pottle, Central and Eastern Europe automotive leader, PricewaterhouseCoopers, said:

“Managing an exit programme requires discipline, organisation, continuity and precision but crucially it needs a deadline. Once that deadline has passed it is important to draw a line under any problems that remain so management can focus on going forward rather than driving with one eye constantly fixed on the rear view mirror. In addition, it is vital to get impartial input.”

PricewaterhouseCoopers has found that more than two thirds of chief executives who have closed a business without external assistance are unhappy with the outcome. They say the biggest problems are finding a buyer (62%), legal complications (48%), cultural differences (31%), regulatory issues (28%) and internal communications with employees. The challenge is that central and local management, employees, customers and suppliers often all have conflicting agendas. It is important to understand these obstacles and to ensure that the vested interests of respective parties do not unnecessarily prolong or even derail the divestment programme.

Getting the support of shareholders is also critical. One of the biggest difficulties associated with closing down an existing plant and relocating to another factory is that most of the costs occur in the early stages of the process, whereas most of the income generated from the disposal of the site can only be realised towards the end.

Cleaning up the land is an example of just one of these costs. Any automotive manufacturer that is not selling its factory as an ongoing business concern, will simultaneously have to deal with the numerous environmental issues involved in dismantling existing infrastructure and decontaminating the soil and groundwater. This is particularly burdensome if a site is more than 30 years old, when construction standards tended to be lower and many industrial processes and practices were less stringent of possible causes of pollution.

Decontamination is a major concern, especially when the company wants to sell a redundant site for non-industrial use. An additional complication to this is that the rules vary from one country to another, although the European Commission is in the process of harmonising those that apply within member states.

This is not the only set of rules that varies from one country to another. There are material national differences in employment protection legislation. Most countries use a mixture of legislation, collective bargaining agreements, contractual provisions and judicial practices to govern employment issues but it is not a level playing field. For example, it is very much easier to implement a redundancy programme in the US or UK than it is in Germany, France or Spain.

Matt Pottle, Central and Eastern Europe automotive leader, PricewaterhouseCoopers, added:

“The goodwill of the workforce needs to be maintained to ensure it continues to be productive during the transition. Expectations need to be managed through a first rate communications programme but the challenge is that human beings are both the most critical and most unpredictable part of the equation.”

The fourth in this series of reports will look at the issues associated with building or buying a new plant, finding and acquiring the right target and managing the first hundred days of the move.