Hungary suffers from stagnating German auto industry
BMW & Mercedes
In Hungary, automotive production seems to be under pressure. Around the East-Hungarian town of Debrecen, millions are being invested in roads and railroads to accommodate a new BMW manufacturing plant. The first stone is to be laid this year, but according to the German newspaper Handelsblatt, BMW is hesitating.
Another German brand and BMW competitor, Mercedes-Benz, announced in May of this year that an expansion of its plant in the Hungarian city of Kecskemét is on hold. The one billion euro investment falling through is undermining the Hungarian growth prognosis of 3,6%.
Cars biggest export product
Cars and car parts are Hungary’s biggest export products. In the top year of 2017, Mercedes, Audi, General Motors, Suzuki and their suppliers had a combined total revenue of 25 billion euros. This accounts for a quarter of the Hungarian gross national product. The automotive industry employs 170.000 people in the country.
Remarkable numbers, especially since the country was the only Eastern-European country not to have an automotive industry in the communist era. But in the nineties, that changed thanks to low wages, abundantly available well-educated workers and fiscal advantages. Heavy investments in the dilapidated road network also helped.
Hungarian prime minister, Orban, finds production companies more important than services. While foreign investors in the service industry were taxed more or had to deal with state takeovers, automotive manufacturers were warmly welcomed.
The automotive industry gets preferential financial treatment and support in other areas. Hungarian minister of foreign affairs, Péter Szijártó, said last month that Hungary won’t support any environmental EU laws that could hurt the automotive industry.
When the government approved a law that makes it possible to do 400 hours overtime a year, while only getting paid for it 3 years later, many believed it was at the request of BMW. But BMW denies having anything to do with it. Audi hasn’t adopted the new overtime law in this year’s general works agreement either.
Automakers have to deal with a shortage of workers because of population aging and workers leaving for better-paying jobs in other EU countries. This has caused a major brain drain over the last years. A PWC survey last year showed that 78% of employers in the automotive industry thought worker shortages threatened their growth.
Half the companies get workers in from abroad, mostly from neighboring countries. Car manufacturers also see more use in better working conditions and wage increases to prevent skilled workers from leaving.
Even in a low-wage country like Hungaria, automation is the answer for automotive companies. The new Mercedes plant in Kecskemét was to be the world’s first full-flex plant in which any model could be built in small series. Plants like these need less, but more skilled workers.
Ironically, this could lead to young people staying in Hungary instead of fleeing the country because they can find well-paid jobs at home. On the other hand, if the salary becomes less important, German companies might be inclined to just stay in Germany.