Europe Report

Eight new European Union countries offer lower wages, cheaper land and duty-free domestic production to the world’s OEMs.

Eight new countries are now listed on the monthly sales figures by ACEA, the association of European car makers. From May 1, 2004, those eight countries, all previously in what many thought of as eastern Europe but they like to think of as central Europe, become members of the European Union (as well as the tiny Mediterranean islands of Malta and Cyprus).

So it should hardly have come as a surprise when South Korean car maker Kia announced at the Geneva auto show that it would build a new car factory in Slovakia.

More surprising was that Poland, by far the biggest of the entrants, should have lost out. Why? “The primary factors in our decision were inbound and outbound logistics, supplier proximity, infrastructure, work forces and economic considerations,” said Kim Yong-Hwan, Kia’s senior executive vice president and chief operating officer.

Those “economic considerations” are the well-worn route of lower wage costs and cheaper land. And, of course, cars built in the new member states will be treated as domestic European products and therefore not subject to any extra cross-border taxes or duties. Kia’s factory in Zilina, 200 kms north-east of the Slovak capital Bratislava and close to the border with Poland, is due to open in late 2006. Earlier that year, PSA Peugeot-Citro?n is due to open its new Slovakian plant in Trnava. This will build small B-segment cars on the Citro?n C3/Peugeot 207 platform.

Kia, too, will concentrate on small cars. Annual production is planned to reach 100,000 during 2007 and 200,000 by 2008. Some of those will be carrying the badge of parent company Hyundai as the two companies move towards more common platforms — the plan is eventually to reduce the existing 25 platforms to seven.

But why Kia and not Hyundai? It might have something to do with personalities. Kim Yong-Hwan was president of Hyundai Europe until he returned to Korea and Kia and one of his admirers is Hyundai Chairman Chung Mong-Koo.

It might also have something to do with the fact that Kia was Europe’s fastest growing brand in 2003 with sales of 108,000, an increase of 48.4 percent over 2002. Sales for the first two months of 2004 are also off to a flier, up 24.8 percent at 19,541 units while Hyundai’s sales are up 14.4 percent at 44,289. Hyundai ended 2003 with sales of 247,000, an increase of 9.9 percent.

The company’s medium-term strategy envisages Kia’s European sales to reach 500,000 by 2008 while Hyundai will reach 400,000. Kim says that Kia needs the new factory to reach its sales target.

Poland, though, is smarting from what it sees as something of a snub. It was hoping that Hyundai/Kia would choose to build the new plant in Kobierzyc. Polish politicians blamed the country’s weak infrastructure for the loss, a suggestion its civil servants rejected. It’s a little spat that breaks one of the golden unwritten rules of how to get on in the EU — make sure you’ll politicians and civil servants don’t disagree with each other.

Poland, by far the largest of the new entrants and something of a powerhouse for Central Europe, already has a fairly strong car industry. GM, Fiat and VW have assembly plants while Toyota has a transmission and gasoline engine plant as well as a diesel engine plant and GM has joint venture engine plants with Fiat and Isuzu.

Toyota has also announced a joint venture with PSA to build a new small car factory in Kolin, near the Czech capital of Prague. The planned volume for next year is 300,000 cars, badged Toyota, Peugeot and Citro?n.

What is emerging is a hot spot of automotive activity right in the centre of an expanded EU. Suppliers have been quick to respond with around 40 of the top global 100 currently established in the Czech Republic.

Consulting engineers Ricardo were quick to see the shift and set up shop in Prague in 2002. Flight time from London to Prague is less than two hours.

Predictions are that by 2008, vehicle production in Poland, Hungary, Czech republic, Slovakia and Slovenia will have increased from around 1.2 million last year to almost 2.0 million.

This article was provided exclusively to Automotive Industries by Interchange, a U.K.-based automotive business agency and consultancy servicing media and corporate clients. Anthony Lewis is a partner in Interchange and can be contacted via e-mail at ajlewis@compuserve.com.