Assembling a future - report


Slovakia's low wages, tax breaks are likely to bring yet more companies to join VW and others amid a bustling economy - Houston Chronicle reports. 

When the president of Bosnia and Herzogovina toured the Volkswagen Slovakia plant in late May, it was hard to tell who had the most power — the visiting head of state or the plant directors who greeted him. Yes, President Nebojsa Radmanovic got VIP treatment and traveled in a luxury car with security guards. But his visit to the car factory sent a clear message that car production is playing a vital role in reviving Eastern Europe, and it is car company executives who will decide which countries get these plants and which do not. With automakers headquartered in the US and Western Europe struggling to control labor costs close to home, car production is surging in Slovakia, the Czech Republic, Poland and other former mainstays of the Soviet bloc.

Automakers are searching for countries with lower costs, tax breaks and political stability, which also offer a chance to develop new consumer markets, said Robert Baker, chief economist for the London-based Society of Motor Manufacturers. Volkswagen was ahead of the curve. It moved into Slovakia 15 years ago, shortly after the Russians moved out, and auto giants like France's Peugeot Citroen and South Korea's Kia were hot on their heels. Some say Slovakia has become “the new Detroit.” VW alone has spent more than $1.6 billion on its sprawling plant thus far. The tens of thousands of jobs created by the industry's growth have helped ease the rocky transition from state-run socialism to free-market capitalism. “We came first, then others followed, and soon we will have one of the largest car production rates per capita of any country in the world,” said Bohdan Wojnar, a VW finance director. “Our problem will be finding workers. Unemployment is very low, and there are not enough workers for all of us.”

Automakers have moved into Eastern Europe for a variety of reasons. Most important, perhaps, are the low wages when compared to countries like France and Germany, where unionized assembly line workers typically enjoy generous salaries and ample health and vacation benefits. In addition, the leaders of the new pro-Western governments in the region have courted foreign investment by offering substantial tax incentives and by making land available at bargain prices. In some cases profits are not taxed for the first five years, making startup investments easier, Baker said.
Baker said the factors that make Eastern Europe attractive to VW and other automakers were similar to the conditions that led VW to build in Puebla, Mexico, a major plant that has been a cornerstone of the expanding Mexican car-production industry. “VW found Mexico amenable because you had stability there and a government that was trying to develop and enhance a car production-and-supply chain in one specific part of the country,” he said. Just as the market is growing in Mexico, there is also a growing car demand from consumers in Eastern European countries, where car ownership rates were low during the communist era. And the entry of Eastern European countries like Slovakia into the European Union means they can export cars to Western Europe with a minimum of red tape and without paying duties.

All these factors are gradually shifting European car production from west to east, with countries like Britain losing out. In Slovakia, the presence of major automakers has had a positive ripple effect, drawing in car suppliers and others who depend on the auto industry, VW spokeswoman Zuzana Polakova said. “We have about 10,000 workers at the plant, but we also have about 300 parts suppliers in Slovakia, and that's about 10,000 more jobs, just supplying us,” she said. “It's a lot more when you include Peugeot and Kia. This has become the leading industry in Slovakia, and VW has been the country's biggest exporter since 2003.” Unemployment in Bratislava is so low that plant managers bring in a substantial number of workers from other parts of Slovakia and house them in old Soviet-style dormitories next to the plant for the five-day workweek.

VW is working with Slovak universities and high schools to try to increase the level of technical and engineering training in an effort to find enough workers to meet growing production goals. VW just announced a goal of producing 250,000 vehicles per year. Already, the gigantic plant on the outskirts of Bratislava produces pricey SUVs for the lucrative markets in Western Europe and the United States. The high end VW Touareg and Audi Q7 SUVs are made here, and much of the work on the Porsche Cayenne is completed here as well, although final assembly takes place in Germany. In addition, the small VW Polo rolls off the assembly line each day, and millions of gearboxes are produced as well. The production facility is large enough to contain 21 football fields, but it is unusually quiet and highly automated. Dozens of small, yellow computer-controlled carts silently deliver parts to workers. They glide along a track grooved into the floor and stop wherever they are needed. (

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