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Car Industry Remains Vital to Hungary: Is Hungary Vital to Car Makers?

The importance of the automotive industry for Hungary’s economic well-being and political stability is plain for all to see. Car manufacturing accounts for just over 30% of the country’s total industrial output, and 20% of exports.

In a country of fewer than 10 million people, the car industry provides jobs for more than 1.5% of the population (154,000 employees at the end of 2016), making its workers a vital source of tax revenue — and, one could argue, support— for the sitting Hungarian government.

And while several foreign-owned car making giants have enjoyed long, and sometimes unprecedented, runs of success in Hungary, does the country continue to hold sufficient levels of promise for industry players as they plan for the future?

Some of the keys to maintaining a good business relationship between Hungary and its car industry, according to people who spoke recently with the Budapest Business Journal, are: an ability to meet market expectations, a well-trained workforce, automatization potential, and the adaptability to manufacture and develop new technologies. Government-led incentives are another attraction, and Hungary’s corporate tax rate of 9%, introduced in 2016, is the lowest in the EU (the rates for regional competitors Poland and Slovakia are 19% and 22%, respectively).

Róbert Krisztián

Magyar Suzuki, manufacturer of the Vitara, one of Hungary’s top-selling cars, attributes its current success in part to successfully matching new brands with customer expectations.

“We also have the strongest extended dealer network in Hungary,” Róbert Krisztián, executive general manager at Magyar Suzuki, told the BBJ. “[Furthermore], our well-trained workforce can produce cars in Hungary at a competitive price level, and due to Hungary’s geographical position, we can easily and effectively reach our main markets, which are located in Western Europe.”

According to Krisztián, the main challenge nowadays is workforce availability. 

“Up to now we have managed to secure the necessary manpower, but we are also looking into further automatization possibilities,” he said.

Supportive Government

Regarding the efforts of Hungarian governments, both past and present, to support the automotive industry, Opel Szentgotthárd’s plant manager, Grzegorz Buchal, gives high marks.

Grzegorz Buchal

“In our 27 years in Hungary, we’ve received continuous support from Hungarian governments,” Buchal told the BBJ. “This is the case as well after the ownership change. Minister [of Foreign Affairs and Trade Péter] Szijjártó visited our plant just a few weeks after the Opel/PSA deal was announced in March 2017 and met top Opel executives. He was very clear that Opel can count on the strong support of the Hungarian government.”

Buchal referred to the importance of open dialogue between his company, the Hungarian government and the Hungarian Investment Promotion Agency, adding that Opel is keen to explore R&D opportunities and bring value-added activities to the Szentgotthárd plant.   

“From my experience in working at several Opel manufacturing locations around Europe, I can confidently say that the Hungarian business environment is supportive for automotive operations — both OEMs and suppliers,” Buchal added. “Hungary has done a lot to create a legislative and human infrastructural framework to enhance competitiveness. This extends to such crucial measures as improving workforce flexibility and labor mobility, as well as to efforts to establish a dual educational system.”

Audi Hungaria Zrt. head of external communications Mónika Czechmeister, noting that “transformation” is ever a watchword in the automotive industry, told the BBJ that the parent company is nonetheless “satisfied with the conditions of doing business in Hungary”.

Mónika Czechmeister

“Hungary provides favorable circumstances, an investor-friendly environment and a skilled workforce. These factors are very important for successful, long-term development,” Czechmeister said. “Audi Hungaria is ready for the future and well prepared for the new era with its innovative projects. The company will produce the first e-engine of the Audi Group, while the other main project of Audi Hungaria is the start of production of the Audi Q3. The SUV segment is booming, and this model ensures the long-term competitiveness of the company.”

View From Outside

So, a major car manufacturer plans to invest in developing electric-engine technology while at the same time heeding the call to manufacture more SUVs for the European market. What gives?

“It’s always difficult to predict the future in this industry,” Dávid Szultanov, managing director of FleetConcept Hungary Zrt., a Budapest-based car leasing and rental company, told the BBJ. “Nobody knows what the effect of PSA’s purchase of Opel will be. Nobody knows exactly what types of cars will be built anywhere. Petrol engines, plug-ins, hybrids, diesel, all-electric, fuel-cell technology — the big companies are developing in every direction.”

Dávid Szultanov

As for Hungary holding its position as a regional manufacturing powerhouse, Szultanov is cautiously optimistic.

“The big brands have been here for 25 years now, and the reputation of Hungarian manufacturers is good, as we can see with Audi, Bentley and Volkswagen engines made in Hungary ending up in high-end models, and the quality level is quite high,” Szultanov explained. “The question right now is not whether any of these big companies are going to pick up and leave, but rather where they will be looking to expand investment.”

Finally, Szultanov pointed to the relationship between manufacturers and dealers, which, he believes, hinges on prevailing engine technologies.

“There’s a lack of investment in dealerships, but not from negligence or incompetence,” said Szultanov. “It’s from uncertainty about the future of engine technology. Western European and American auto shows are saying that everything will be electric, but no one is really sure.”