Eastern Europe, with Its Cheap Labor and High Skills, Is Becoming the World's Newest Car Capital

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“DETROIT EAST” : Business Week, 25th July /2005.
Eastern Europe, with its cheap labor and high skills, is becoming the world's newest car capital In the Verdant Hills north of Bratislava, the capital of Slovakia, workers at the sprawling Volkswagen plant turn out efficiency-boosting ideas as steadily as the Polo compacts and Touareg sport-utility vehicles gliding off the production line. One recent suggestion was to bring emergency repair teams inside the factory instead of housing them outside in a separate building. Body-shop manager Holger Nestler quickly gave the idea a green light, setting up eight glass offices near the robots that each SWAT team tends. With the repair staff a mere shout away from the site of breakdowns, downtime has been slashed. Back at VW headquarters in Wolfsburg, Germany, union bosses rejected the same idea. All the better for Bratislava. The Slovaks recently won the bid to produce Audi's new Q7 SUV, beating out VW's Western European plants for the job. The Bratislava factory, which now churns out 250,000 cars a year, is the most profitable of 42 VW plants worldwide, thanks to low labor costs, flexible manufacturing, and motivated workers. "The secret is the mindset of the 10,000 employees. It's a culture of fighting to win," says Thomas Schmall, the 40-year-old German chairman of Volkswagen Slovakia. "The unions ask us how we can increase business and how they can help create jobs." That's not the attitude of VW's truculent German unions, which have saddled it with the highest labor costs in the industry -- close to $50 an hour for a 28-hour workweek, some 20% over the already high average wage for German auto workers. In contrast, Slovaks cost $6 per hour and work 40 hours a week, netting VW annual personnel cost savings of $1.8 billion, according to analysts at Germany's Bank Sal. Oppenheim. If Schmall needs to boost production suddenly to meet a surge in demand, the new shifts can be arranged overnight. In Germany, negotiations with unions to alter work-time models can take up to six months and cost more in overtime premiums. For Europe's auto industry, the old Iron Curtain countries are turning into an investment paradise. Skilled labor is cheap and flexible. Factories can run 24 hours a day, seven days a week without paying expensive overtime, and government officials vie to offer investors the most alluring conditions. One telling statistic: The French and Germans work 1,440 hours a year, compared with nearly 2,000 hours in Slovakia, the Czech Republic, and Poland. The East's first new auto plants, like VW Bratislava or General Motors Corp.'s Opel factory in Gliwice, Poland, were built or retooled in the 1990s and have since become performance benchmarks for those manufacturers. Now a second wave of car factories is coming on line, adding almost 1 million vehicles in new capacity in the next 12 months. On May 30, Toyota Motor Corp. and PSA Peugeot Citroen inaugurated a $1.8 billion joint factory to produce 300,000 cars a year in Kolin, a city of almost 30,000 about an hour's drive east of Prague in the Czech Republic. The plant will employ 3,000 workers. "When it reaches [full capacity], Kolin will be Toyota's most efficient factory in the world," says Shinichi Sasaki, president and CEO of Toyota Motor Europe. Toyota is in good company. Its partner PSA will open another $1.3 billion small-car plant in Trnava, Slovakia, next year with annual output of 300,000, creating 3,000 jobs. Hyundai Motor Co. is investing $1.3 billion in a similar-size plant in Zilina, Slovakia, for its Kid brand, which will open in 2006 and employ 2,400 workers. Suppliers investing near Kid are expected to employ 4,000 more. Some are calling this super-concentration of carmaking Detroit East. The low-cost corridor from Warsaw to Bucharest is one of the world's fastest growing centers of auto manufacturing, second only to China. Since 1995 auto makers and suppliers have pumped more than $24 billion into plants in...
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