Slovakia loses out on bid to build new Bentley

By bne IntelliNews July 25, 2013

bne -

Slovakia has lost out in a bid to attract fresh investment from German carmaking giant Volkswagen, with the company announcing on July 23 that it will produce the new luxury Bentley EXF9 SUV in the UK, rather than at its Bratislava plant. The news is another blow to the Central European country, whose slowing economy is overwhelmingly reliant on the auto sector.

Informally branded Falcon, the new high-end SUV will keep manufacturing of the Bentley marque in the UK - at the traditional factory in Crewe - despite VW saying in March that it could hand the job to its highly efficient modern plant in the Slovak capital. "When we put together all factors, the result was Crewe," said Bentley CEO Wolfgang Schreiber, according to Sme.

Volkswagen will invest €800m in the UK production line, and plans to launch the upper crust four-wheel drive on world markets in 2016. While the executive offered little of the detail behind the decision, reports in March said it would be based on an extensive cost-benefit analysis that would need to satisfy members of VW Group's board.

Bratislava will now turn its attention to another high-end German manufacturer, with reports in March saying that Slovakia is competing to host a new Central European plant for BMW. BMW board member Ian Robertson told local press that Slovakia is a potential location, while Hungary, the Czech Republic, Slovenia and Croatia are all also in the running. Last year, BMW denied reports that it could join compatriot Volkswagen by opening a factory in Slovakia. However, the idea has since become viable, Robertson said, without expanding.

Slovakia's Economy Ministry confirmed it is aware of BMW's interest. Should Slovakia get the nod, the factory will probably be built in the east of the country, which would be an additional boon for the government, which faces huge issues in developing that region and reducing an unemployment rate that sits at over 20% in many spots.

Slovak carmakers said in April that they anticipate another year of record output in 2013 and expect to add new jobs. However, the Slovak automotive industry association (ZAP) added that growth will remain modest through the year.

Therefore, new production capacity would help sooth the worries of both the government and investors, who watched as better-than-expected economic growth in the first three quarters of 2012 slowed dramatically in the final three months of the year. That prompted sharp drops in growth forecasts. Earlier this year the International Monetary Fund (IMF) halved its prediction from autumn 2012 of 2.8% GDP expansion. The National Bank of Slovakia has slashed its outlook to just 0.7%.

Unemployment has remained an issue over the past few years despite rapid economic development, and has been accelerating in recent months to close in on 15%. That has only further flattened domestic demand already in the doldrums, leaving the export sector the only meaningful driver of the economy. However, the concentration goes even deeper. Around 80% of exports head to the crisis-ridden Eurozone, leaving Slovakia hugely exposed to shocks and slowing demand.

Accounting for a whopping 41% of overall industrial output, the car sector - led by the factories of Volkswagen, Kia Motors and PSA Peugeot Citroen - drove the vast bulk of last year's 2% full-year economic growth. While the wider European car industry is struggling through the crisis, the modern high-tech Slovak plants are more efficient than most, and tend to turn out smaller economy models, which are better sellers in tightened times.

Added to that, the Slovak plants and the models they turn out have also found significant demand from economically fitter emerging markets such as China and Russia. That helped the sector to output growth of 45% in 2012, with both Volkswagen and Kia expanding their plants as they saw record production.

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