In Romania, people are cheaper than robots, which explains why western European carmakers are scrambling to open factories there and in other parts of eastern Europe, away from costly labour and rigid rules at home, Reuters said.
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While most companies insist they are simply chasing new markets rather than shifting production away from existing sites, analysts reportedly say the demise of large-scale car manufacturing in western Europe is inevitable.
“Who on earth would want to manufacture anything in western Europe? Who would want to employ anyone here?” Credit Suisse First Boston autos analyst Harald Hendrikse asked the news agency.
Manufacturers boast about steps to conquer the booming Chinese and Indian markets, but some analysts have told Reuters eastern Europe could pose a bigger threat to western jobs since they could render home-grown factories redundant.
Eager to penetrate eastern European markets ripe for growth, French carmaker Renault bought loss-making Romanian brand Dacia in 1999 and hauled it to the cusp of profit, the report noted.
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By GlobalDataWith rock-bottom labour costs at its factory in Mioveni, southern Romania, where the average worker makes €150 euros ($US181.40) a month, people reportedly are used for tasks that in a western factory would be done by expensive robots.
Low capital expenditure at Mioveni means Renault has been able to price its newest car from €5,000 euros ($6,047), making it a feasible choice for poorer folk in emerging markets, the news agency said.
Reuters noted that Renault’s domestic rival PSA Peugeot Citroen is also moving east, building a plant in Slovakia and a joint factory with Japan’s Toyota in the Czech Republic, while Asian manufacturers are increasingly opting for eastern Europe for their European bases – Slovakia, which also boasts a Volkswagen plant, is set to become the world’s number one car maker per capita when Hyundai opens a plant there in 2006.
“When car makers are adding capacity they are obviously adding it in eastern Europe,” autos analyst Stephen Cheetham at Sandford C Bernstein told Reuters. “I would not expect production growth in western Europe, that wouldn’t be logical.”
For now, Renault executives reportedly insist the Mioveni plant has been revamped to meet extra demand, not to replace more expensive factories or capacity in France or Spain.
But if Renault can really make a profit on the 5,000 euro car it may find it hard to justify making new models in the west, Reuters noted.
Gerard Detourbet, who heads the project, reportedly said the Mioveni plant was in theory equipped to make the more upmarket Megane and Clio cars for export to western Europe, and did not exclude this as a possibility.
He reportedly said “the future will tell us” whether Renault sees a future for plants in the west, where carmakers are struggling to offset high costs as cut-throat competition and flat demand pressure profit margins.
However analysts told the news agency that industrial logic is not the only determinant – politics and brand image come into play too, making a wholesale eastward shift in production more difficult.
Laying off staff is reportedly an arduous process in countries like France and Italy, and governments struggling to cut high unemployment rates would frown on factory closures.
France actively protects its industry, declaring during its bail-out of national industrial champion Alstom [a ship and rail builder] that it had a duty to safeguard jobs, Reuters noted.
The car industry also tends to stir notions of national pride more than other manufacturing industries, making it an even hotter political potato, the report added.
Reuters suggested any shift east would also likely be limited to mass carmakers, since high-end manufacturers like BMW or Porsche depend on the technical expertise of the west, along with the brand value of a “made in Germany” stamp.
“The more upmarket companies need the quality and technical guarantee that only German engineering can provide,” Commerzbank analyst Robert Ashton told the news agency. He reportedly added there was also a quality risk – whether real or perceived – for mass carmakers.
Reuters said analysts mostly stop short of predicting the total disappearance of manufacturing in western Europe, but agree that production – already on the wane – will have to fall further to match slack demand, and that only the fittest will survive.
