Carmakers develop models tailored for CEE region

By bne IntelliNews December 17, 2007

Matthew Day in Warsaw -

The story goes that when Renault wanted to introduce some not-so-cutting-edge welding techniques at its Dacia car plant in Romania, it had to unearth some former welders in France, who had long since retired or been made redundant by the arrival of robots.

For the French manufacturer, dusting down the old welders made simple sense. They wanted to keep investment costs down while benefiting from cheap Romanian workers, so traditional labour-intensive manufacturing techniques won favour over high-tech, but expensive, robotics. This policy meant that Renault has only invested some $600m in the plant, which it bought in 1998, compared with the $2bn experts give as a rough amount needed to upgrade a plant to Western standards.

Despite the low investment levels and rudimentary manufacturing, the actual product, a bulky-looking saloon car called the Dacia Logan, has become something of a trendsetter in the world of auto-manufacturing. Boasting the virtues of affordability and reliability, it has been tailored specifically for developing markets such as Central and Eastern Europe. Whereas in the past drivers in Bucharest or Kyiv, for example, had to make do with either a crude car from a communist-era and investment-starved factory or a second-hand car of dubious origins from the West, they can now buy a brand new car without breaking the bank.

"The cars have got a basic specification and to some extent rely on more dated Western components and sub-assemblies to reduce tooling costs, but the interesting thing is that they are dedicated and look different to what is available in the West," says Dr. Paul Nieuwenhuis from the Centre for Automotive Industry Research at Cardiff University. "So the markets don't think they are getting a cast-off; they are getting a unique product and that is where the Logan has been particularly successful. You can tell it's a Renault, but it's clearly a different product catered to the needs of different markets."

With Dacia year-on-year-sales leaping worldwide by 42% in November, and by a whopping 102.7% in Europe, speculation has already started that Renault will try to repeat its success with the famed Russian brand Lada. In early December, the French company took a 25% stake in Lada's manufacturer OAO AvtoVaz, Russia's largest car producer. Starved of technology but possessing a brand recognised from the Baltic to the Pacific, Lada, auto industry experts argue, could make an ideal platform for the synthesis of modern design and basic manufacturing pioneered by Renault.

Not alone in CEE

But when it comes to producing cars for the CEE region, Renault is not alone. In November, General Motors began to produce Chevrolets at the FSO factory in Warsaw under an agreement with the plant's owners, the Ukrainian car producer UkrAvto. While the FSO plant differs in that its comparatively young age - it was built in the 1990s - means it comes equipped with a fair amount of high-technology, GM makes no secret it has pitched the Chevrolet brand at the CEE consumer. "It's a reliable and very affordable product, and this makes it appealing," says Marc Kempe, GM's spokesman for the region.

In addition to GM, both Peugeot and Toyota have both spoken about producing cars tailored to developing markets.

But anybody who thinks car producers are on a benign mission to bring affordable wheels to poor drivers is mistaken. The truth is that the CEE markets, in comparison to their torpid Western European counterpart, are on the rise as disposable incomes increase, and producers want a piece of the action.

Figures from the European Automobile Manufacturers' Association for the first 11 months of 2007 reveal that year-on-year car sales for the EU's Central European states rose by 12.4% in comparison to just 1.1% growth in Western Europe.

Impressive as these figures may be, they are nothing when compared to Russia. By 2015, the market is set to become Europe's biggest with unit sales increasing from an estimated 2.3m for this year to 3.5m in 2015, and GM's Kempe says that sales are now growing by "100% a year."

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Carmakers develop  models tailored for CEE region

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