Car parts drive new investments in Poland

By bne IntelliNews November 2, 2011

Jaroslaw Adamowski in Warsaw -

With the launch of the construction of two car components plants and a string of new projects in the pipeline, Poland's automotive sector stands out as one of the most heavily invested industries at present. However, the investment story is a tale of two parts, with components doing well, but little in the way of new actual vehicle making.

Presently, the country's car output is growing, but is still far from its peak level at the end of the previous decade. In the banner year of 2008, some 990,982 vehicles were made at Polish factories. After a sluggish first half of the year, the country's passenger and commercial car production reached 49,202 units in August, up 31% over the same month a year earlier, according to data from Poland's automotive market research institute Samar. However, the industry expects full-year production figures to be lower than that in 2010, when a total of 887,241 passenger and commercial vehicles drove out of Polish car plants. "Investments in vehicle and car components production are two different stories," says Wojciech Drzewiecki, head of Samar. "Poland hasn't had a new car plant opening in years, but many companies are willing to launch car components factories here."

Moreover, Drzewiecki says, Poland's car parts industry has managed to benefit from automotive investments launched in neighbouring states. "Production costs are rising in all European countries... but they are rising at a relatively slower pace here," he says. "Also, Poland's location between Germany, Slovakia and the Czech Republic, where new car plants have been launched in the past few years, is a key factor in this trend."

As a result, the Polish car components industry, which is most developed in the country's southern part, has become one of the fastest growing in Europe, Drzewiecki notes.

New investments

The government-run Polish Information and Foreign Investment Agency (PAIiIZ) says it is currently working with 28 automotive manufacturers on projects worth a total of €2.13bn. The investments are expected to create at least 14,721 new jobs, more than any other sector of Poland's economy, as shown by figures from the agency. US companies are leading the way with 39 projects worth €1.14bn, followed by the UK automotive sector with 15 investments worth €323.8m. Chinese manufacturers are third with a further 15 projects worth €251.5m, according to PAIiIZ.

Vehicle parts manufacturers willing to bring their money to Poland include Pilkington Automotive, which has recently started construction of a laminated car window plant in Chmielow. The factory is to cost PLN450m (€103m), and will have a yearly output capacity of 7m windows. Following the launch of its second plant in Poland, the company aims to double its output by 2014 and hire 500 new workers. Company representatives said the plant will supply its products to General Motors, Fiat, Volkswagen and Ford.

South Korea's Mando Corporation is looking at starting a new automotive components project in Poland. In late 2011, the manufacturer will commence construction of a €100m braking systems factory in Walbrzych, in the country's south-west. All construction works are to be completed by 2012, and the facility will supply its products to Volkswagen, General Motors and BMW. The company said it will take on 300 employees at the new plant, which is expected to be completed by the end of 2012.

Some of the major league OEMs (original equipment manufacturers) from the automotive sector are also planning new investments in Poland. Volkswagen has recently secured a PLN70m (€16m) grant from the Polish government to launch production of its latest-generation diesel engines at its Volkswagen Motor Poland plant in Polkowice. Under the scheme, the company will hire 150 new workers at the engine factory.

Senior government officials said Volkswagen's move could be a harbinger of further innovative investments in the Polish automotive industry. "Volkswagen's investment is a project that will bring the latest automotive technologies to Poland," Deputy Minister of Economy Dariusz Bogdan said at the official ceremony. The opening of the company's second production facility in Poland confirms the country's ability to attract hi-tech investments, he said.

However, local analysts say a change in government policy is essential to create a favourable environment for new car production projects. "An increase in the domestic demand for new cars would boost automotive investments in Poland more than anything else," Drzewiecki says.

In the first nine months of the year, passenger and commercial vehicles registrations totalled 200,863 units, down 6.12% over the same period in 2010, according to Samar. "As long as the government policy is to foster imports of used cars, the industry's growth potential will be limited," Drzewiecki argues.

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