Blog: Europe: look east (and west)
Dave Leggett | 13 June 2006
Is the auto industry in Europe's centre of gravity shifting east? Yes, it is. But does that mean the auto industry in Western Europe will be shifting on a massive scale to Central and Eastern Europe? No, it doesn't. What is happening now reflects a rebalancing of the European auto industry to reflect a change in economic circumstances, certainly. Central European markets offer good growth prospects and EU entry also makes places like the Czech Republic and Poland very attractive as low-cost manufacturing locations to serve Europe as a whole.
Further east, Russia is a big market developing in its own right and manufacturers want to set up operations there to avoid import tariffs on CBU vehicles, at least initially. More localisation of build can be added later (see GM's plans for St Petersburg).
But let's keep things in perspective. Western Europe is still a very, very big market. Vehicle manufacturers don't just decamp to the cheapest place overnight and there's much more to the location decision than wage costs and EU grants/state aid anyway. Vehicle makers have sunk enormous sums into their West European car plants; to simply walk away from that investment would be madness, on commercial and marketing grounds, even if they could. And suppliers like to be close to their customers too.
It's more a question of capacity rebalancing to a changed regional demand pattern. And alongside incremental output growth in the east is some substitution for relatively costly West European capacity, especially where cost-sensitive products or commoditised parts are concerned. But the incremental capacity growth is by far the main driver here.
KPMG estimates that although West European vehicle production is projected to grow at a slower rate than Central/Eastern Europe, Western Europe will still account for 17.5m units of production or 74% of European vehicle production in 2013 (versus 15.9m units or 80% of all Europe in 2005). Central/Eastern European vehicle production grows from 4.1m units last year to 6.3m in 2013, according to KPMG. Forecaster JD Power also has Western European car production growing significantly between now and 2016.
That's not much comfort if you work on the GM assembly line making Opel/Vauxhall Combos at Azambuja in Portugal (likely to close next year with production transferred to Gliwice, Poland) perhaps, but the eastwards shift of auto industry activity in Europe is not quite as dramatic as sometimes portrayed.
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