Local assembly in Bulgaria was preceded by imports of initial stock fully built from China

Local assembly in Bulgaria was preceded by imports of initial stock fully built from China

Great Wall's decision to establish an assembly plant in Bulgaria is a sound move, which could result in vehicles exported to the rest of Europe duty-free, but there are some long-term concerns, according to Frost & Sullivan analyst Vitaly Belsky.

“Setting up production in Bulgaria is clearly a long-term strategic move for [Great Wall] which will open a door for locally manufactured cars to be exported to the rest of Europe tax-free," Belsky wrote in a research note.

"And there is little doubt it will find its customers, if safety and quality standards continue to improve, even though other car manufacturers like Mitsubishi stop car production in Europe due to tough auto market conditions.

"The bigger question is: what are the benefits for Bulgaria? Short-term benefits are quite obvious and quantifiable, such as new jobs and tax revenues. However, long term benefits are less clear."

Belsky expects assembly initially using using semi-knocked down (SKD) [currently also SAIC's approach to MG 'assembly' here in the UK; it is essentially attaching basic mechanical components to body shells imported from China already welded, painted and trimmed - ed] so "relatively low value will be created in Bulgaria".

"However, a future possible extension towards complete knock down (CKD) production [requiring welding and paint shops and a more complex trim line - ed] and the localisation of certain component production (and therefore, securing higher value production in Bulgaria) might face several challenges, as Bulgaria does not have an extensive automotive supplier base (only 18 ISO16949 certified suppliers compared with 436 in Poland by the end of 2008)," Belsky noted.

He said the development of a supplier base usually is triggered by increasing vehicle production. Generally, a business case for suppliers is created when a profitability threshold is reached which is directly linked to vehicle production volumes. When 100,000 cars are produced annually, a business case for low-value added suppliers (of items such as gaskets, bearings, simple plastic components) is created.

"However, higher value-added suppliers business (seat, exhaust systems) becomes profitable when vehicle production hits the 200,000 mark while high-value added suppliers (powertrain and chassis components) require production of 500,000 vehicles."

Belsky suggested Bulgaria would face challenges developing its supplier industry given Great Wall's current plans to produce a maximum of 70,000 cars a year there.

"Yet, focusing on [manufacturing of] alternative mobility solutions (such as electric vehicles from the Chinese automaker which can be produced in small volumes in 2012 already) and electrical/electronic components (batteries, motors and control electronics)... could help Bulgaria to become a new country on the automotive manufacturing map of Europe.”

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