Ford spends more in emerging Europe

By bne IntelliNews April 15, 2008

Matthew Day in Warsaw -

More production is set for the booming car markets of Central and Eastern Europe after US car giant Ford completed the acquisition of a plant in Romania and committed to invest another €94m in Poland.

Just why Ford has decided to put money into Poland and spend €57m on purchasing a 72.4% stake in Romania's Automobile Craiova factory – plus committing an estimated €675m to revamp the facility – has much to do with strengthening its position in a region that now boasts a flourishing auto market.

In Romania alone, according to Automotive News Europe, new car sales surged by 26.3% to 312,532 units in the first 12 months of EU membership. And figures for 2007 from the European Automobile Manufacturers' Association reveal that while vehicle registrations in Western Europe dropped by 0.2%, in the EU's new members they grew by 14.5%.

Ford's own figures show that sales in Poland rose by a whopping 34% in February, by 35% in the Czech Republic and in the vast Russian market by 11%. The company said on April 14 that China came in top during the quarter with an increase of 47% from a year earlier. Admittedly, in unit terms these markets are still dwarfed by those in the West, but auto-manufacturing experts point out that while it has become increasingly difficult to boost sales in established markets, those in emerging markets like CEE, characterised by rising incomes and a thirst for modern transport, offer vast potential.

On top of this, emerging Europe's location, with markets both east and west, and relatively low labour costs mean that manufacturers view any chance of putting production into the region as a gilt-edged opportunity: especially if, as in the case of Ford's, the purchase does not involve the expensive and time-consuming process of building a factory from scratch.

"The Automobile Craiova plant was for sale, so Ford bought it in order to be able to set up quickly with an existing workforce," says Dr Paul Nieuwenhuis, a car industry expert at Cardiff University's Centre for Automotive Industry Research. The factory, which was finally acquired on March 21, should start production of the Transit Connect van either by the end of 2008 or early 2009, and at some point, according to Ford, a new "small car." Come 2011, the Craiova plant could be producing some 300,000 units a year.

The advantage of getting cars rolling of the production line in a short space of time also characterised Ford's Poland investment. Under a co-operation agreement with Fiat, Ford's €94m investment will go into expanding production at the Italian company's plant at Tychy in the south of Poland to produce the next generation of the Ka, the company's small city car, and the first units are due to roll off the production line by the end of the year.

At full capacity, Ford estimates the plant should produce 120,000 units a year, and also create 1,000 new jobs. The company adds that the contract with Fiat is for a full production cycle of 10-12 years and that would, according to Wolfgang Schneider, vice-president of Ford Europe, "most likely be extended."

Ford's tie-up with Fiat also has a natural synergy as the new Ka and the Italian company's recently launched, and Polish made, revamp of its iconic Fiat 500 both share the same platform. "From a production/logistics perspective it is much easier to consolidate production in this way as a combined Fiat-Ford system," says Nieuwenhuis. The reasonable price tag that the Ka comes with also makes it suitable for CEE markets, which have a long tradition of small, cheap run-arounds.

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Ford spends more in emerging Europe

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