Share this story
Close X
Switch to Desktop Site

Busmaker Strains To Enter Western Economic System


MOST Americans have never heard of Ikarus, but for most of the world it is more famous than Mercedes or Volvo. In fact, the Hungarian company is the biggest bus manufacturer anywhere. For years, Ikarus has dominated the huge Soviet and East European markets. Its main plant here on the outskirts of Budapest produces up to 15,000 buses a year.But earlier this year, Ikarus declared bankruptcy. The company's fortunes plummeted after trade between Moscow and its former satellites switched to hard currency on Jan. 1. Instead of accepting worthless rubles, the East Europeans now demanded strong dollars. Moscow couldn't pay. The result: More than 800 buses built for the Soviet market are held up. "The Soviets want to pay," says Jeno Madi, Ikarus's vice president. "They simply don't have the means." Since then Ikarus has begun to find new markets and has emerged from bankruptcy, though its finances remain fragile. It isn't alone. For years, the region's industrial dinosaurs banged out obsolete products for undemanding Soviet customers. This year, trade between Eastern Europe and the Soviet Union is down by more than 50 percent. It could fall even more unless the slide of the Soviet economy is stopped. East Europe's youthful democracies are worried. Mass bankruptcies could mean mass unemployment and the danger of social unrest. Imagine Pittsburgh losing its steel industry, Detroit its car industry, even Silicon Valley its computers - all in a matter of months, even days. "A lot of our factories were not built for profit, but for the Eastern market and for military purposes. Market logic says they should go bankrupt," admits Janusz Lewandowski, the Polish privatization minister. "But this of course is a social and political problem: We cannot let ... factories which are employing thousands of people" go bankrupt at a quick rate, he says. Dangerous as the situation is, many state-owned operations are fighting back, showing more resilience than expected. They're shedding workers, cutting costs, and finding new markets in the West. "Many of our big state-run companies are almost bankrupt, partly because they are too large, and partly because of the collapse of the Eastern market. But with restructuring I think the problem is manageable," says Mihaly Kupa, Hungary's finance minister. "We are looking towards the Western markets, while keeping as much as of the Russian market as possible," Mr. Kupa adds. The hope is that Hungarian companies, benefiting from low labor costs, can carve out a significant competitive advantage over their Western competitors. It's not an unrealistic proposition. Ikarus buses may not match Mercedes or Volvo in design or comfort, but they're sturdy, reliable - and as much as 70 percent cheaper. Thanks to this price advantage, Ikarus has won important contracts in recent months with Kuwait, Iran, Turkey, and Taiwan. This year, the company has managed to sell 4,500 buses to new markets, giving its workers new optimism. "A few months ago, I really worried about losing my job," says one worker on the factory line. "But now after seeing all the new contracts, we're all in a better mood." Ikarus also has set up a separate production line specializing in high-quality luxury coaches. The buses are produced mostly by hand and can be sold for higher prices in Western Europe and the United States. Ikarus buses already ply the streets of downtown Houston. "We have an agreement from July to sell six buses weekly to the United States," Mr. Madi says. "According to our talks in Los Angeles, we hope soon to increase that figure." Admittedly, this success is fragile. Ikarus workers themselves concede that quality must be improved to obtain higher prices. "We don't do everything by machines as Mercedes or Volvo," says Laszlo Komlodi, a worker on the special luxury line. "We import all our parts. They don't." Wages are another danger. Line-workers at Ikarus make only about $150 a month; management fears that as soon as workers see the company is healthier, they might demand higher wages, squeezing the price advantage over Western busmakers. "If we get enough work, then our salaries will be better," says one hopeful worker. "That's what we all want." More than quality or wages, however, the biggest risk facing Ikarus and other East European producers is Western protectionism. Even as they crack into tough Western markets, the East Europeans are colliding with import quotas and trade barriers. We don't want aid, they say. We want free markets. But the very industries in which Eastern Europe is most competitive - textiles, steel, and agriculture - are the sectors most protected by the West. In July, the bus company was saved from bankruptcy, ironically by the impoverished Soviet Union. With partners from Taiwan, the Soviets managed to raise $50 million. They are taking a 30 percent stake in Ikarus and guaranteeing orders of 6,000 buses a year over the next four years. The present political unrest in Moscow puts a question mark on that deal. Hungarian officials hope it still will go through, but they admit that the surest road ahead for Ikarus and other big state factories goes straight to the West. Only the West has the technology, the money, and the markets that Ikarus and other East European companies need in order to survive. "Everything we've done so far - sell to Iran; to the republics of the Soviet Union, not the central government is good," concludes Istvan Bethlen, a member of the Hungarian parliamentary economics committee. "But in the long run, Ikarus has to produce for the Western market."

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.