Driving more slowly in Poland

By bne IntelliNews September 24, 2012

Jan Cienski in Warsaw -

One of the most visible signs of Poland's economic slowdown comes from two enormous factories in the south of the country - the Fiat plant in Tychy and an Opel factory in nearby Gliwice - where production is falling steeply due to a slump in demand from Western Europe.

In the first eight months of this year, Poland produced 445,700 cars, a 22% fall from the same period compared with last year and much of the blame rests with those Fiat and Opel factories. The country's third large car factory, a Volkswagen plant near Poznan in the centre of Poland, has production at almost the same level as last year, about 85,000 cars in the first half of the year.

The reason for the slump is in large measure due to the reputational and market problems for Fiat and Opel, compared to Volkswagen, Europe's largest car maker which is doing better than most other European carmakers despite the crisis, says Wojciech Drzewiecki, head of Samar, a Polish car industry research firm.

Volkswagen, helped by its Skoda brand produced in the neighbouring Czech Republic and its recent acquisition of Porsche, managed to stay essentially flat in European sales for the first eight months of this year, according to new figures from the European Automobile Manufacturers Association - this at a time when the overall European market declined 7.1%.

However, Fiat saw its European sales tumble by 17%, due in large part to the steep fall in sales in Italy, its primary market, where new car sales fell by 20%. By contract, the German market, where Volkswagen is dominant, shrank by only 0.6% over from January to August. Opel, still burdened by problems resulting from its near bankruptcy during the first wave of the economic crisis in 2008, saw sales fall by 15% in the first eight months of the year.


As demand for their production falls, the Opel and Fiat factories are planning worker furloughs. Opel estimates that its production this year will come to less than 140,000 cars, far below the 174,000 that rolled off the factory floor last year.

Fiat is not releasing any production estimates for 2012 as spokesman Boguslaw Cieslar says that the turbulence in the rest of Europe makes it impossible to predict. Production at the factory was already down last year, when 468,000 cars were made, and this year is almost certain to be worse. Drzewiecki says that the "steepness of the fall in production is a surprise" adding that it does not bode well for the rest of the year.

A further problem is that the carmakers based in Poland have almost no domestic sales to fall back on to buffer the fall in demand in Western Europe, as about 98% of production from the three factories is exported. Although Poland, with 38m people, is the sixth largest nation in the EU, the demand for new cars is negligible. In the first eight months of this year, only 188,000 new cars were registered, about the same level as Sweden, which has under 10m people. "The fall in sales can be seen with the naked eye," writes Michal Hadys, an analyst at Samar. "The market is falling and dealers are wringing their hands as they look to the future."

The reason is that Poles are among the keenest buyers of used cars in the EU thanks to relatively lax safety regulations that makes it easy to import beaters difficult to sell in richer countries. In the first six months of this year, Poland imported 323,000 used cars, significantly more than new car sales over the same period.

Drzewiecki feels that the situation won't change until Poland brings in tougher regulations, although that is likely to prove politically very difficult in a country where many people are still too poor to be able to afford a new car. However, without changes that would significantly increase domestic demand, Poland's car factories are stuck with export sales.

It is also bad luck that two of the largest auto investors in Poland are those with deep problems.

In contrast, the Czech Republic and Slovakia are seeing steep rises in car production because Volkswagen (or its Skoda subsidiary) plays a much more important role in production there. Those two countries also benefit from having factories by Korea's Hyundai (which saw European sales rise by 10% from January to August) and Kia (whose sales soared by 23% over the same period). "Fiat and Opel are in trouble, which is what is hurting Poland's manufacturing numbers," says Drzewiecki. "The Czechs and Slovaks have been luckier in their manufacturers."

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