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Warning light flashes for Slovak car industry



BRATISLAVA / PRAGUE (Reuters) – When David landed a gathering job at Volkswagen's ( VOWG_p.DE ) Bratislava factory, his colleagues congratulated him on securing a well-paid position he could ride to pension.

Employees working with Porsche vehicles on a production line at the Volkswagen factory in Bratislava, Slovakia, July 4, 2019. REUTERS / Radovan Stoklasa

Two years later, he is among the 3,000 workers who are laid off at the plant that produces Volkswagen Touareg and Porsche Cayenne in a round of work reductions that have sent shock waves through Slovakia, the world's largest car manufacturer per capita.

"All my colleagues said there is nothing to worry about, if I get used to workload and labor, wages will gradually increase and I want a stable job for retirement," David said, refusing to give his last name

"And suddenly I get a call from human resources and learn that I'm being deleted."

Factory work losses, Slovakia's largest private sector employer, underline the challenges facing the country to keep the engine reviving in an industry that accounts for about 12% of annual economic output and more than one in ten jobs.

Competition from cheaper south-eastern markets, a shift to electric vehicles and global trade tensions, is among the headwinds buffering the tiny central European nation as car manufacturers must launch future production lines.

Volkswagen itself is looking at building a new plant in Eastern Europe, with trade publications citing Bulgaria, Serbia and Turkey as the most likely places.

While David found a job with another automaker, the layoffs at the Bratislava plant, which also makes the Audi Q7 and Q8 models, have put the government on guard.

"To use a car metaphor, we see a warning light, we do not need to take the car for general repair yet," said Economy Minister Peter Ziga to Reuters.

"We have 300,000 people working in the car sector (directly and indirectly). Should anything happen to them, it will be serious."

The uncertainty has prompted associations, which have previously pushed for large pay increases, to change roofs .

"Currently, we are not focusing on wages, priority is job stability," said Volkswagen Union Officer Zoroslav Smolinsky to Reuters. "We have to wait for the worst times and wait for the better times."

COMPETITIVENESS

To strengthen a car industry that accounts for 44% of industrial production and 40% of exports, the government has approved subsidies to increase sales of electric cars and announced tax breaks of up to 200% of the amount invested in research and development.

But at the same time, moving to increase the minimum wage and increasing the night shift bonuses introduced last year, making Slovakia less competitive, said Jan Pribula, Secretary General of the Slovak Automotive Industry.

"This is the time when companies decide who gets new models in seven years," says Pribula, representing Slovakia's four car manufacturers – Volkswagen, the PSA group ( PEUP.PA ), Kia Motors 000270.KS ) and Jaguar Land Rover [TAMOJL.UL] – together with suppliers, research institutes and importers.

"It is important to send a signal for which we are responsible, as we gradually lose a competitive advantage."

Slovakia is not the only central European country facing such challenges. Fellow European Union members, Czech Republic, home to Volkswagen's Skoda brand, and Hungary, where both BMW ( BMWG.DE ) and Daimler ( DAIGn.DE ) have plants, attaches great importance to investment from foreign car manufacturers.

A brewing global trade war is a particular concern for such countries, considering their high confidence in foreign trade, said European Central Bank President Mario Draghi earlier this month.

Deloitte Chief Economist David Marek has said a 25% tariff on US car imports from Europe would cut revenue from the Czech car industry by $ 12 billion ($ 532 million) a year.

Poland, the region's largest economy, is investing in electric cars, and sets the goal of having 1 million such cars and vans on the road by 2025, highlighting a struggle for investment that the automotive industry encompasses new technology.

At the same time, the dizzying global growth has led some automakers to put expansion plans on hold, for example Daimler's announcement in May to postpone an increase in the capacity of the Kecskem's compact car factory in Hungary.

"It has been taken for granted that plants like Bratislava would only continue to produce the next-generation model," Carol Thomas, an auto-analyst at LMC Automotive, told Reuters.

"But we can't just assume it anymore. Plants will not only have to fight for new models, they will also face greater competition to keep new generations of models they already produce."

Slideshow (19 Pictures)

So far this year, Volkswagen has scaled back production lines in Bratislava and returned workers borrowed from Hungary's Audi factory in 2016.

"This is the key year that will determine the future of the Slovakian factory," said VW Slovak director Oliver Grunberg. end of the year.

"Improvements in the Slovakian business environment will help increase the attractiveness of Bratislava's facilities."

Writing by Michael Kahn; Editing by Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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