Chery picking a Polish car plant

By bne IntelliNews October 15, 2010

Jaroslaw Adamowski in Warsaw -

Faced with falling output from the global economic crisis and calls for returning production to Western Europe, Poland's troubled automotive industry has been given a boost by reported plans that a flourishing Chinese manufacturer is set to fill the void and acquire one of the country's car plants.

In mid-September, Fabryka Samochodow Osobowych (FSO) confirmed reports that it was in talks with several non-European companies after the announcement that the Warsaw-based automotive plant would terminate production of the Chevrolet Aveo next year when its works agreement with GM Daewoo expires in February. The Chinese state-owned Chery already cooperates with UkrAVTO, the Ukrainian owner of FSO since 2005. UkrAVTO subsidiary Zaporizhzhia Automobile Plant owns a 19.9% stake in the Polish plant, which gives it the right to 84.3% of votes at a general meeting.

FSO refused to confirm that Chery is one of those firms in talks to purchase the Warsaw-based car factory, but it was widely reported over the summer that the Chinese company wants to add the 150,000-unit-per-year plant to its portfolio of eight factories spread all over the world and has chosen Poland as its vehicle for European expansion. On October 11, Mermerler Otomotiv, a Turkish automobile manufacturer located in Istanbul of Turkey, confirmed to local media that it intends to produce cars for Chery in Marmara Province of Sakarya.

Lukasz Szarama, an engineer and industry expert from the Polish Chamber of Automotive Industry (PIM), believes that FSO's location could be a considerable advantage to its new owner. "Poland would make for an ideal foothold for developing a Europe-wide sales network, including Eastern European countries," he says.

Wojciech Drzewiecki, head of Samar, an automotive market research firm based in Warsaw, agrees: "The plant's production lines are compliant with European standards, and the quality of its output is sufficiently high."

Moving to a higher gear

FSO's purchase would also be beneficial for the Polish automotive industry. In the first eight months of 2010, a total of 551,400 passenger vehicles left the production lines of the country's four cars plants, according to figures posted by Samar. Even though these figures were an improvement of 2.7% from last year's 536,807 cars, growth prospects for the next year are bleak, analysts say.

As Western governments are increasingly pressuring car manufacturers to shift production from emerging Europe back west, investments in Poland's automotive industry have been shrinking fast. In June, Fiat decided to shift production of the Panda model from the Polish factory in Tychy to its Pomigliano d'Arco plant in Italy. The decision was a major blow to the Polish industry, as Fiat's output of 166,781 Panda units accounts for 30% of Poland's total car output so far this year. Fiat's move was followed by Opel's recent decision to end production of the Zafira model at the Polish Gliwice plant in order to boost car output at its German factory in Bochum.

FSO is no exception to the general dwindling of car production in Poland. The plant's output slumped in 2009, when only 59,695 vehicles left its production lines, a fall of 251% from 149,973 cars a year earlier. In 2010, the prospects seem equally gloomy; in the first eight months of this year, only 27,100 vehicles have rolled of the factory, and total yearly output is projected to stay below 55,000 units. Throughout the year, FSO was forced to halt production several times due to a fall in domestic and foreign demand, and several hundred employees were laid off.

Production of the Chevrolet Aveo at the Polish plant, launched with hype exactly three years ago, was once viewed as a golden opportunity for FSO, but has failed to permanently improve its financial situation. In 2009, the plant's Ukrainian owner was left with a net loss of PLN190m (€48.3m). "The drastic fall in FSO's output was caused by several factors: the global downturn, which has hampered the automotive industry... and the plant owner's drive towards eastern markets, chiefly Ukraine and Russia, proved to be an uncompetitive combination," says Szarama. "By focusing too much on the east, FSO was in no position to capitalise on the recent small cars boom in Western Europe."

However, launching a new Chinese car model at the factory, along with a re-orientation of its production to Western markets, could provide the much-needed jolt to FSO. "Japanese car manufacturers used to be at the same point of development as Chinese companies are now," points out Szarama.

Chery picking a Polish car plant

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