Narodwagen?

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.

6 thoughts on “Narodwagen?

  1. “Volkswagen and Opel won?t even accept bids from suppliers if their parts are made in Western Europe”

    Goodby Spanish boom. Spain has specialised in car components.

    “The wage factor draws more investment, and the new plants are technically more advanced, and thus more efficient,”

    And don’t forget the skills accumulation in the clusters for components manufacture. But the point is this evolution will only take them to the Spaaanish level, they still have to go some for the information society. Czech Republic looks the best bet.

  2. John Stilgoe (Professor in the History of Landscape at Harvard) likes to walk the streets of Boston and recount the history of the steel industry by following the manufacturers of manhole covers from New England and Pennsylvania to the American South and finally to Korea and the Far East. After the war many northern industries moved to the un-unionized low wage and low tax South. NAFTA made it possible for these industries to move to Mexico but this was only a stopover for the cheaper and less regulated labor market of China. Social prosperity may happen in Eastern Europe but it did not happen in Mexico after NAFTA and it was only partial in the American South. Today in South Carolina less than 50% of children entering high school graduate. Infant morality rate is 9 per 1,000 lives births(down from 13 in 1990) and 18% of children live in poverty. The statistics are similar for much of the old South.

  3. On the other hand, social prosperity has not exactly abandoned New England and Pennsylvania. Those are some of the richer states in the US, which means they’re some of the richest places in the advanced world.

    Doug M.

  4. The education stats bellumregio avered are completely bogus. I’m not sure about the others but I know for a fact that WAY more that 50% of S.C. teenagers graduate fro H.S.

  5. Jason, I thought so too, but then I had a look here:

    http://www.unitedhealthfoundation.org/shr2004/components/hsgrad.html

    On that list, SC ranks dead last with 49.2 percent of all ninth graders graduating within four years. Obviously some gaps in the definition there: doesn’t include GEDs, doesn’t include people who take an extra year. There may also be subtle artifacts at work; I didn’t spend a lot of quality time with the statistics. The site itself looks reasonably reliable. He’s also right about the region that the lowest rates are found in: the South.

    But geography is not destiny: There’s Arkansas, definitely Southern, definitely on the poor side, ranked 17th, with a four-year graduation rate of 74.2 percent. Virginia is not far behind at 73.7 percent, and even much-maligned West Virginia has a rate of 71.2 percent.

    There’s nothing automatic about rates, and ties to unionization, attitudes toward government, and tax rates (N. Dakota and Utah?) don’t correlate either.

  6. We (Czechs) used to a major industrial power and exporters of capital before the WWII. Now, we have to kowtow before car makers offering them the highest investment incentives and the lowest wages as possible. Ouch. What a fall.

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