BusinessWeek spills a lot of ink on the rise of the car industry in Central and Eastern Europe. The idea that a lot of manufacturing is headed east is nothing new, but to see the numbers and changes laid out so explicitly gives a much clearer idea of the challenges that Western societies are facing.
Volkswagen [in Germany has] the highest labor costs in the industry — close to $50 an hour for a 28-hour workweek, some 20% over the already high average wage for German auto workers. In contrast, Slovaks [at another VW factory] cost $6 an hour and work a 40-hour week, netting VW annual personnel cost savings of $1.8 billion, according to analysts at Germany’s Bank Sal. Oppenheim. If [Thomas] Schmall [chairman of VW Slovakia] needs to boost production suddenly to meet a surge in demand, the new shifts can be arranged overnight. In Germany, negotiations with unions to alter work-time models can take up to six months and cost more in overtime premiums.
Ouch.
The Czech Republic and Slovakia are the hub of Detroit East. By the end of 2006 the two small countries will be producing some 2 million cars a year, compared with a mere 170,000 in 1990. Slovakia alone, with its tiny population of 5.4 million, will produce nearly half the total, or one for every six residents, the highest car output per capita in the world.
The trends are mutually reinforcing. The wage factor draws more investment, and the new plants are technically more advanced, and thus more efficient, than the older factories in the West. (The article argues unconvincingly that there’s a ‘super-cluster’ from Warsaw to Romania; that’s just too big and diverse an area to have any meaning as a cluster.)
Europe’s $160 billion auto-supply industry has begun to lead the exodus [to the East]. … Pressed relentlessly by carmakers to lower prices by an average 5% a year on everything from airbags to antilock brake systems, most suppliers see little alternative but to go east. Ailing auto makers such as Volkswagen and Opel won’t even accept bids from suppliers if their parts are made in Western Europe, insisting they can buy them cheaper from factories in the East, suppliers say.
Of course looked at from the other side of the Oder, this is a bonanza, what they’ve been working for since the fall of the Berlin Wall, a chance to rejoin Europe, not just in political terms but in standard of living as well.
