Labor shortage major risk for automotive suppliers

Recycling

PricewaterhouseCoopers (PwC) has released its Hungarian Automotive Supplier Survey 2018 report, noting that a quarter of respondents reported double-digit growth in 2017 while capacity utilization exceeded 80%. The picture, however, is somewhat marred by the fact that Austria posted a growth rate twice as high.

The research survey covered Hungary for the first time and was completed by two main groups: top executives of mostly foreign-owned corporations, and the heads of Hungarian-owned SMEs. About 40% of respondents employ more than 500 people, while companies with 100-500 employees account for a similar proportion, so the majority of responses in the survey came from key economic players, the survey shows.

In 2017, the Hungarian automotive industry achieved its highest-ever output, at HUF 8.038 trillion. For this year, PwC’s Hungarian Automotive Supplier Survey forecasts further growth in sales and headcount. Hungary’s automotive sector now employs close to 170,000 people and, with investment appetite set to remain strong, could employ even more, but for a chronic shortage of qualified labor.

The lack of qualified new workers also has a direct impact on companies’ growth prospects, with one quarter of survey participants saying they could not accept certain orders due to staffing problems.

In Hungaryʼs northern neighbor, Slovakia, half of the companies surveyed reported experiencing such issues, and the manpower drain from the Slovakian automotive industry could become an increasing problem in the northwestern Hungarian counties of Komárom-Esztergom and Győr-Moson-Sopron.

Almost half of the respondents employ foreign workers, and for 14% they make up a significant percentage of the total workforce. At the same time, Hungarian workers present an attractive staffing alternative for employers based in neighboring countries, meaning that the workforce drain remains a persistent risk factor. In recent years, the demand for qualified specialists has increased perceptibly.

Continuing expansion

The continuing expansion of the Audi and Mercedes manufacturing plants continues to be highly significant for suppliers in Hungary, as 19% of respondents supply domestic customers only, while 45% mainly target nearby markets, primarily the Czech Republic and Slovakia, the survey says.

The positive trends in Hungary’s auto industry are also reflected in the sales figures and prospects of survey participants. A quarter of respondents reported double-digit growth, while more than one-third reported expansion of between 5% and 10%.

Most companies worked with at least 80% production capacity utilization in 2017. Positive trends were also reflected in headcount figures, as nearly half of respondents saw an increase of more than 5% in their workforce.

How competitive automotive suppliers in Hungary can remain in this environment will largely depend on their ability to innovate and willingness to embrace industrial change, said PwC. In recent years, most automotive investments in Hungary have been implemented in new and developing fields, such as battery and electric motor manufacturing. The most likely scenario will be a potential reshuffle within the sector, with no drop in economic output, while the foundations are gradually rearranged, the report notes.

Risks to growth

The PwC survey identifies the number one risk to growth prospects in 2018 as the lack of qualified labor: 78% of respondents marked this as a threat, with a quarter of the companies surveyed having already been forced to reject orders due to the labor shortage.

The pressure from original equipment manufacturers (OEMs) represents a risk for almost half (48%) of respondents, although few companies are considering cost cuts amidst the current upward trend in the industry.

The survey found that automotive suppliers are mainly concerned about increasing competition for customers and a slowdown in emerging markets. For the time being, however, they view the latter as a global trend that will only impact Hungary with a delay of 1-2 years. The future of Hungary’s automotive industry, they say, lies in innovation and R&D in the fastest developing segments.

For Hungary to remain an investment target, it needs to focus on infrastructure development, creating a strong educational background, and providing a supportive R&D and innovation environment, the survey notes.

The current labor shortage also explains why more than 60% of automotive suppliers surveyed in Hungary expect robotics to become a strategically important technology for them within five years. It can be viewed as a positive sign that 13% of the companies surveyed are considering setting up a local R&D center or providing local support for group R&D activities in the near future, as also reflected in the profile of projects implemented in 2017.

In addition to generational changes, the industry also has to cope with the problems of an educational system that is unable to keep up with the current rate of development, the survey found. These trends result in tremendous pressure on the job market. Survey participants try to respond to the situation mainly by wage increases, hiring foreign employees, in-house training programs, and further simplification of work processes. At the same time, the spread of robotization and digitalization requires workers to learn several new trades and skills, PwC notes.

The full survey is available here.

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