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Capacity to Develop Engine Technology Drives Continued Confidence, Investment in Hungarian Production Units

Ever since car manufacturers Opel and Suzuki each took a decisive step to set up shop in Hungary in 1991 (in Szentgotthárd and Esztergom, respectively), the automotive industry in Hungary has grown by leaps and bounds to become a staple component of the Hungarian economy. Registering record-high production worth EUR 25.5 billion in 2017, Hungary’s automotive industry now accounts for more than 30% of the country’s total industrial manufacturing output, and roughly one-fifth of its total exports.

The added presence in Hungary of two other leading OEM firms — Audi Hungaria Zrt., established in 1993 in Győr; and Mercedes-Benz Manufacturing Hungary Ltd., established in 2012 in Kecskemét — has helped to grow and burnish Hungary’s reputation over the years as a regional, if not European, leader in automotive manufacturing.  

Even after the pivotal 1990s, the Hungary-based auto industry grew by 15% between 2000 and 2016, while the wider industry has kept pace locally through a steadily maturing network of suppliers, as well as investments from companies such as Bosch, Continental, NNG and Thyssenkrupp into an expanding constellation of automotive R&D centers throughout the country.     

While major players remain optimistic about Hungary’s strong regional position and good reputation, they are also well aware of the automotive industry’s potential for volatility.

The biggest recent shakeup with potentially far-reaching consequences for a Hungary-based manufacturer, for example, was PSA Group’s 2017 purchase of Opel and Vauxhall from General Motors. As the new owner followed with a pledge to become a “CO2 leader” in the production of all-electric vehicles (EVs) and plug-in hybrids (PHEVs) by 2024, many immediately wondered if Opel’s Szentgotthárd facility will be able to respond effectively to such radical changes in engine design requirements.   

“Definitely!” Grzegorz Buchal, plant manager at Opel Szentgotthárd, told the Budapest Business Journal. “[We] have proven expertise in building high-quality internal combustion engines [ICEs] and components. Efficient ICEs are here to stay and are also the backbone of the hybrid propulsion system, a system that is an integral part of the Opel strategy to meet the strict emission norms of the European Union in the very short-term.”

Proven Competitiveness

Buchal added that Opel Szentgotthárd will be manufacturing the “highly efficient 3-cylinder turbo gasoline PSA engine from the beginning of 2020.

We have won this project because of our proven competitiveness and knowledge, and we are and will continue doing our best to win further projects in the future.”

Also looking to accelerate the development of environment-friendly technology, Japanese car maker Suzuki continues to invest in its Hungarian arm, Magyar Suzuki Corp. With the parent company in the midst of a campaign to introduce 20 new models worldwide between 2015 and 2020, Magyar Suzuki announced in March of this year the launch of a HUF 5.3 bln R&D project to produce vehicle prototypes and more efficient engine technologies. As part of a four-year project that started in 2016, the European Union and Hungarian state will contribute funding worth up to HUF 2.6 bln, the BBJ reported following the announcement.

“Our Hungarian workforce is producing cars of the same quality that Suzuki is producing in Japan,” Magyar Suzuki Corp. executive general manager Róbert Krisztián told the BBJ. “Our Hungarian plant is concentrating currently on production of mid-size SUV and C-segment models, namely the Vitara and S-Cross. The parent company considers Magyar Suzuki as one of its main global manufacturing sites for these models and a key factory for supplying cars for the European market. Besides that, the parent company is securing more opportunities for Magyar Suzuki to export cars produced in Hungary out of Europe. At present, we export cars produced in Hungary to 128 countries across five continents.”

As for investment and confidence in its Hungarian operations, Audi Hungaria Zrt. has a standout résumé. Győr-based Audi Hungaria, which began producing engines for the Audi and Volkswagen group in 1994, has since grown to be one of the world’s largest engine plants. In 2017 alone, the company produced nearly two million engines. Already the largest investor in Hungary from the automotive sector (EUR 8.753 bln since its establishment), the company plans to expand engine production even further later this year to include a series of electric motors: “Preparations for the start of series production are in full swing,” according to the company’s press information.

“Audi Hungary has an important role in the Audi Group, and holds a central position in the Group’s production network,” Mónika Czechmeister, head of external communications at Audi Hungaria Zrt., told the BBJ. “With the production of e-engines, the company will be central to that process for the Audi Group, as well.”

Beyond Capacity and Innovation

Audi’s positive outlook regarding its Hungarian operations extends, however, beyond manufacturing capacity and innovation.

“The development of the Hungarian automotive sector is remarkable,” Czechmeister noted. “Not only are the big production sites broadening their capacities, but the Hungarian supplier industry is also developing very fast. Audi Hungaria has more than 100 production suppliers, and the number increases year by year.”

With Daimler pledging to spend up to EUR 1 bln through 2020 to expand its Mercedes-Benz Manufacturing Company Kft. site at Kecskemét, the “big four” foreign-owned OEM companies with a firmly established presence in Hungary continue to express confidence in their Hungarian units, both rhetorically and investment-wise. Still, no one is resting on their laurels.

“The fact that Opel Szentgotthárd has won a new project with the wider PSA manufacturing world shows that we are being recognized by the new management as a highly efficient facility with a knowledgeable and dedicated workforce, where it makes sense to further invest,” Opel’s Buchal explained. “At the same time, we must be aware that there is no such thing as a lifelong guarantee for success. We need to fight our daily fights in each and every detail to make our processes and daily routines more efficient and more streamlined. The automotive business is part of an ever-evolving mobility economy on the brink of historical changes.”