Slovakia and Hungary reportedly set to fight it out for BMW

By bne IntelliNews May 21, 2012

Tim Gosling in Prague -

Speculation that BMW is mulling investment in a new plant in CEE is doing the rounds again, with Slovakia joining Hungary on the list of candidates. The German automaker appears to be pitching the region against the Americas in a straight battle to offer the highest subsidies.

Citing unnamed company sources, German daily Handelsblatt reported on May 18 that BMW is investigating three additional locations for a new plant. The carmaker was due to locate the facility in Brazil, but is now reconsidering as it battles Brasilia over a new tariff on imported cars. That has apparently seen the Germans touring Kosice in the east of Slovakia, Miskolc just across the border in northeast Hungary and Mexico, although BMW declined comment.

Earlier this month, the German company denied reports that it has plans to join the likes of Volkswagen and Kia in Slovakia, Europe's largest car producer per capita. The country has seen extra investment committed by more than one of its current automakers in their local plants this year, powered by growing demand from emerging markets to the east, Asia in particular. That boost has helped the country's economy outperform in first quarter of 2012, with industrial production rising over 12% and GDP growth coming in at 0.8%, despite the marked pullback in the rest of CEE.

At the same time, Hungary's second-quarter GDP growth is expected to do a lot better than the 0.7% contraction it just reported thanks to the opening of a plant by Mercedes in the auto cluster at Kecskemet, which the government has been enthusiastically pushing, despite the less-than-welcoming image Budapest has offered to foreign investors in other sectors recently. However, the plant is unlikely to push the country to positive growth in the quarter, predict analysts.

Just like its peers, BMW sees sales volumes outside Europe providing its greatest growth, and is looking for additional capacity based on lower cost emerging market labour to help it satisfy that demand. According to reports, the company had already agreed to build the plant - designed for production of electric cars - in Brazil, but is now threatening to place it elsewhere due to a 30-percentage-point tax increase on vehicles with less than 65% of their parts produced locally that the government introduced at the start of the year. "When we have all the changes mapped out, we'll decide whether to go on or not with the factory plan," CEO Henning Dornbusch told Bloomberg in an interview in early April. "Our interest in Brazil is really big, but it all depends on the business case. We're not here to lose money."

That has raised speculation that BMW is scouting the subsidies and trade conditions elsewhere. On May 2, the German company denied reports in the Slovak media that it was considering setting up an assembly plant in the east of the country. The reports claimed the plant should drive the creation of up to 30,000 new jobs.

With persistent unemployment of just under 15%, Bratislava is likely to be pitching hard for the right to host the plant. At the same time, it has been fighting threats from current investors - Samsung for instance - that they will jump ship unless the government tops up its original generous incentives to base in the country with further hand outs. Hospodarske Noviny reported in early May that BMW has asked the Slovak government for a €500m subsidy.

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