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Declines in Polish automotive industry in 2012


2012-12-03



The situation in the Polish automotive sector in 2012 is getting worse with each passing month. As recently as 2008, the industry was one of the pillars of the country’s economy and Poland was a leader in Central and Eastern Europe in this field. Currently, both sales and production of cars are decreasing. In January-October 2012 car factories in Poland produced less than 550,000 cars, which means a slump of over a fifth compared to the same period of 2011. Meanwhile, declines in imports of used cars and in new car sales point to a weakening in the production and distribution of automotive parts and services as well.

The collapse in the Polish automotive sector is the result of the economic crisis engulfing Europe. As Jakub Farys, CEO of the Polish Automotive Industry Association (PZPM), said, 2012 will be the worst time for the European automotive industry in several years. By the end of 2012, the number of new car registrations in the European Union will fall by more than 3 million to about 12 million units from 15.5 million in 2007. Weakening demand in the European automotive market has a direct impact on Polish car exports and, consequently, on production results (more than 98% of Poland’s car production is sold abroad, mainly in the crisis-stricken eurozone). According to analysis by AutomotiveSuppliers.pl, an automotive research firm, the value of Polish car exports has been consistently decreasing since the beginning of the year and will probably fall to the level of €17-17.5bn, compared with €19.1bn in 2011.

During the first eight months of 2012, exports from the Polish automotive industry reached a total of approximately €11.9bn, which is around 8.2% less than in the same period a year earlier. The largest decreases were recorded in exports of passenger cars and light commercial vehicles. Their foreign sales in the examined period amounted to €3.1bn. This is 24.5% less than in the period January-August 2011. The best export results were recorded by the Polish auto parts and accessories sector. Its exports reached €4.5bn, which means an increase of 5.6% compared to the first eight months of 2011.

Sharp decline of output

Poland is one of the best locations in the world for automotive production, thanks among other things to relatively inexpensive but highly-qualified human resources and a long-standing tradition in the industry. There are three key players on the Polish automotive market, which are present and have factories in Poland: Fiat in Tychy (Slaskie voivodship), Opel in Gliwice (Slaskie), and Volkswagen in Poznan (Wielkopolskie). All these companies have had to cut production as a result of the crisis on the European automotive market. According to a PZPM report entitled Automotive Industry – Yearbook 2012, last year their output amounted to 820,426 passenger cars and commercial vehicles, i.e. 7.6% less in comparison to 2010, when 887,301 passenger cars and LCVs were assembled.

Car production in Poland, 2005-2011

Samar, another automotive research firm, estimates that in January-October 2012 car factories in Poland produced 549,515 cars, which means a decline by 22.3%, compared to the same period of 2011. The majority of these cars (55%) were manufactured by the Fiat Auto Poland plant, followed by Opel and Volkswagen.

Car production in Poland, January-October 2012

It is expected that in 2012 as a whole production will amount to 650,000 cars, which is about one-fourth less than last year and a third less than in 2008. It shows how difficult the situation on the Polish automotive market is. The forecasts for 2013 are even worse. This is a result, among other things, of Fiat's decision to move the production of a new version of the city car Panda from Tychy to Italy. This decision was taken despite the fact that the Polish plant is much more efficient than the Italian factories belonging to the Fiat Group. It is connected with the difficult situation on the Italian automotive market and Fiat (which is an Italian company) is attempting to protect it.

Weakening new car sales

The substantial deceleration of economic activity and deteriorating income situation observed in Poland since several quarters have dented domestic demand for new cars as well, especially among private buyers. In the first 10 months of 2012 a total of 226,714 new passenger cars were registered in Poland. Although this still represents an increase of 1.6% compared with the same period of 2011, since June the annual growth rate of car registrations has fallen well into negative territory. And while in October the decline was relatively small, by just 2.2% over a year ago, the number of new car registrations, at 21,961, was the lowest since 2006 for this particular month. The most negative aspect of these results is that the share of private buyers has consistently decreased, to the level of only 38.1% of total sales in October 2012. This means that the decline in new car sales could deepen further in the coming months.

Number of new cars registered in Poland, January-October 2012

Opel in plans to make Astra 5 in Gliwice

Although sales of new cars in Poland have dropped significantly, the country remains an attractive place for automotive investments. This is determined by the following factors: access to skilled labour in many areas; easy access to major vehicle manufacturers and automotive suppliers in Central and Eastern Europe and Western Europe; dozens of potential locations offering the best conditions in Central and Eastern Europe for production and R&D centres; and until recently a large potential for growth in new car sales in Poland; as well as attractive investment incentives, including cash grants and tax exemptions.

So despite the observed downturn in the automotive industry in Poland in 2012 and efforts by car manufacturers to protect their home markets (the case of Fiat), the country continues to attract investments in automotive production, though in most cases these new projects are planned for the coming years. A good evidence of this are Opel’s plans to produce the Astra 5 car in Gliwice from 2015. The investment is worth over PLN 300m (€72m). In a statement, the group said the decision was motivated by the Polish plant’s flexibility and competitiveness, noting that the factory has built “outstanding quality at very competitive cost levels for Opel/Vauxhall” since its foundation in 1998.

Continued investment activity in the Polish auto parts sector

It should be noted, however, that most of the new projects being announced are in the auto parts sector, which is doing relatively well, even taking into account its declines. Most are scheduled to be completed in 2013 or in 2014, though some have been completed already this year.

A good example is an investment by TRW, a global maker of automotive safety systems, which in September 2012 inaugurated a new factory of power steering systems in Bielsko-Biala (Slaskie), in the Katowice Special Economic Zone (KSSE). The plant, TRW’s sixth in Poland, will make electronic steering systems for Fiat, Volkswagen, Renault and Opel cars. The total cost of the project reaches PLN 140m (€33.4m).

Another important planned investment in the Polish auto parts sector is by Ferrostaal Automotive, a global provider of assembly solutions for the car industry and other sectors, which wants to expand its plant in Gliwice. The first phase of the project involves the addition of 8,000 m2 of industrial and office space. The target completion date is Q2 2013.

In another major project, SRG Global, a worldwide maker of automotive components, will build a new factory of plastic parts for car interiors in Boleslawiec (Dolnoslaskie voivodship), in the Walbrzych Special Economic Zone. The value of the investment is PLN 160m (€39m). It will create 250 jobs.

In recent weeks also Flexider, an Italian maker of expansion joints and flexible decouplers for the industrial, aerospace and automotive sectors, has received permission for a new manufacturing investment in the KSSE. The Turin-based group is considering plans to invest PLN 24m (€5.9m) in new capacity at its facility in Bierun near Tychy. Flexider has production facilities in Italy, Poland and South Africa. Its customers include such important car brands as Audi, Faurecia, Ferrari, Fiat, Seat, or Volkswagen.

And a new factory of automotive parts is under construction in Mirkow, Wroclaw. The investor is Chassis Brakes International, one of the world’s largest manufacturers of automotive foundation brakes and brake components. Construction work started on 2 October 2012 and the plant is expected to start operations in August 2013. The value of the project is €13.5m.

Auto parts makers from Asia are also willing to invest in Poland, as illustrated by Japan’s Tokai Rubber Industries, a manufacturer of anti-vibration and other parts for the automotive industry, as well as Korea’s SL, a globally active manufacturer of automotive components. The former company has plans to invest €10.8m to build a factory of rubber and plastic automobile parts in Zagorz (Podkarpackie), which is expected to bring about 200 jobs by 2015. The plant is scheduled to start operations in 2013. The latter firm plans to build a factory of plastic car parts in Zory (Slaskie). The plant will reportedly employ more than 500 workers. It will make components such as plastic transmission gear or lamp system parts, and its main customers will be the auto factories of Ford, Hyundai or Kia in the Czech Republic and Slovakia. The facility could start operations within two years.

Other interesting and important investments in the Polish automotive sector in H2 2012 include e.g. a project by Hearing, a German manufacturer of precision components and sub-assemblies for the automotive industry, which is in the process of significantly expanding its production facility in Piotrkow Trybunalski (Lodzkie). The investment is worth over PLN 100m (€24.4m) and is expected to be completed in H2 2013. The investor plans to create up to 600 new jobs.

Also noteworthy is a project by Valeo, a global maker of automotive components and systems, which plans to invest nearly PLN 130m (€31.7m) in new capacity at its factories in Skawina and Chrzanow (both in Malopolskie) over the next two years. In April 2012 Valeo also announced plans to invest PLN 115m (€28m) in new production and R&D capacity at its factory of starters, alternators, AC compressors, and sub-assemblies in Czechowice-Dziedzice (Slaskie), which will result in the creation of 400 new jobs.

Weak prospects for the sector in 2013

We forecast that the Polish automotive market will decline also in 2013. The main reasons for this will be a further deceleration of economic activity in the country (its low point should come sometime at the turn of Q1 and Q2), as well as the recession in the eurozone, which strongly affects the results of the automotive sector in Europe.

With economic recovery in the eurozone bound to be very sluggish, the situation on the European and Polish automotive markets will remain difficult also in the next few years, even despite the anticipated improvement. Unless, that is, governments decide to implement some stimulus programmes, which may not be easy in the context of tight fiscal conditions in most EU countries.

Ewelina Atlasik

ewelina.atlasik@pmrpublications.com



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