In Ex-Communist Bloc, World's Big Automakers See New Plants, Markets
Wages are far below those paid in the US and West Europe. Yet in East European nations, such as Czechoslovakia and eastern Germany, workers are well-educated.
WITH the opening of the Berlin Wall and the collapse of communist control of Eastern Europe, people have flooded West looking for new opportunities. Western carmakers, however, are making a dash in the other direction. Within the last year, General Motors, Fiat, Volkswagen, and Ford, among others, have committed to investments that could eventually reach $10 billion, or more, behind the once-impenetrable Iron Curtain.
It's a long-term strategy that could, in the short-term, drain their bottom lines, but the payoff could prove tremendous, especially if Eastern European demand for new cars ever approaches the size of the Western European market.
The latest deal was signed by General Motors Corporation earlier this month, a tentative joint venture with Czechoslovakia's Bratislavske Automobilove Zavody. If the deal goes through, the partners will produce 250,000 transmissions a year for export to Western Europe, and 15,000 Opel Kadetts for sale in Czechoslovakia.
General Motors also has ties to Wartburg, one of the biggest carmakers in what had been East Germany, the land some observers believe to be the prize of Eastern Europe - both as a market and as a venue for manufacturing partnerships.
It is ``the center of Europe,'' according to Volkswagen Chairman Dr. Carl Hahn. Mr. Hahn has spearheaded a 5 billion-deutsche-mark (US$3.3 billion) joint venture with IFA, the company that built the smoke-belching Trabant. IFA used to employ 11,800 workers to make only 200 cars a day.
But VW, like other Western carmakers, is looking for other opportunities. It is in a bidding war with French automaker Renault, for example, to land a deal with Czechoslovakia's other auto company, Skoda.
And the list continues. Ford plans to invest $80 million in a Hungarian plant that will produce auto ignition systems. And Italy's Fiat S.p.A. is talking deals with just about any Eastern European carmaker it can find. It has taken a role in Polish and Soviet projects scheduled to build more than 1.2 million cars a year. Japan's Suzuki Motor Company has bought a 30 percent stake in a Hungarian company, with the goal of building as many as 100,000 subcompacts a year.
Why all the excitement?
Wages, for one thing, are far below those paid workers in the United States and West European car plants, and even rival the modest labor costs in South Korea. Yet in many of East European countries, particularly Czechoslovakia and eastern Germany, workers are well-educated and well-trained.
The wage gap isn't likely to remain so wide forever, for the goal of the newly-freed nations is to rapidly raise their living standards.
For that reason, much of the initial investment, such as GM's deal with Bratislavske Automobilove Zavody, is aimed at obtaining components imported from East European plants in exchange for much-needed hard currency.
Eventually, however, that should help expand the new car market in these emerging nations. More cars would give East Europeans more mobility, something of a symbol of their new political freedom.
The promise for enlarged demand was clearly demonstrated in the first year after the opening of the Berlin Wall, when a million automobiles were registered by East German drivers, four times as many as normal. Most were used cars imported from the West, but the implications were clear.
Currently, there are 11 cars per 100 citizens in Eastern Europe, about a third as many as in the European Community, and a fifth the number of cars per capita in the US.
If the car population were just to double, says David Nash, analyst with Autofacts Inc., that would create a potential market for 28 million new vehicles in the East - not including the vast Soviet market.
That isn't going to happen overnight, however, and indeed, some observers are recommending caution. Some plants are unusable. There is an inadequate network of parts suppliers. East European managers and workers have a lot to learn about quality production. It will take years, they warn, to rewrite communist-inspired laws restricting private ownership and the expatriation of profits. And many early ventures have been snagged in a mire of red tape. Ford, for example, had been hoping to launch a massive manufacturing venture with the Soviet Union early in 1989, but the deal was fouled by problems such as Soviet reluctance to allow Ford to expatriate profits.
Still, virtually everyone agrees, there is a need to stake out a presence - if for no other reason than to ensure future market share if and when the Eastern market really does take off.