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					Automotive
                                                                LABOUR MARKET
REPORT ON AUTOMOTIVE INDUSTRY IN THE SLOVAK REPUBLIC

Slovakia is already one of the leading carmakers in central Europe, after the Czech Republic and Poland, mainly
owing to the presence of Volkswagen (Germany). Volkswagen started producing cars in Slovakia in the early
1990s, and has become the country’s largest industrial concern and its leading exporter (accounting for about
19% of total export revenue in 2004). Volkswagen’s entry into the Slovak market attracted other companies,
and has contributed to strong growth in the components industry, which increased the value of its output from
Sk17.2m in 1997 to Sk104.8m (US$2.8m) in 2003. Further impetus for growth in both carmaking and car
component industries will be added by PSA Peugeot-Citroën (France) and Kia Motors (South Korea), which
decided to locate their new plants in Trnava and Zilina, respectively. PSA Peugeot-Citroën plans to produce
450,000 cars, with Kia Motors adding another 300,000 annually from 2006, increasing Slovakia’s car production
to 1m units in 2007, more than triple the volume in 2003. This will make Slovakia the top per-capita car
producer in the world (180 cars per 1,000 inhabitants in 2007, compared with some 90 cars in the current
global leader, Belgium, in 2002). More car component makers will shift their operations to Slovakia, to several
industrial parks set up near Bratislava, Trnava, Zilina and Martin. Exports of Slovakia’s automotive industry
reached Sk276bn in 2004, or 30.7% of total Slovak exports. The sector’s 2004 turnover was Sk310bn and
constituted 26.5% of the nation’s total turnover in industry (compared with 14.3% in 1998). At the end of
2004, 55,000 people worked in the automotive sector (compared with 22,000 in 1993). Another 40,000-50,000
jobs should be created in this sector in the next four or five years. The industry invested Sk21.1bn in 2003 and
Sk28bn in 2004. In 2003 the car components industry again built up capacities, mainly for supplying
Volkswagen and Skoda. There are five employees in car component production per single employee in car
production in Slovakia, with the car components industry concentrated in the industrial parks of Lozorno and
Küster. Another boom in car parts production is expected related to the new PSA Peugeot-Citroën and Kia
Motors plants. After 2006 the excessive dependence of Slovak industry on carmaking may pose a problem.
Nonetheless, Slovakia’s automotive industry will be well diversified. Whereas Volkswagen will assemble top-end
cars, PSA Peugeot-Citroën will produce middle-class cars and Kia Motors lower-class models. Moreover, car
component producers (with the exception of those just-in-time ones located in parks next to the car plants)
often supply their products to several carmakers abroad and often sell to other industries as well. A slump in
demand for cars should not therefore have dire consequences for the Slovak economy.

Industrial sector restructuring and development of Slovakia’s infrastructure are also expected to foster growth
in the automotive sector. Construction of the motorway network is being viewed as a priority by the current
government, which is hoping to attract foreign strategic investors to bring much-needed capital into the
country’s infrastructure, including the transport network. The government aims to increase the motorway
network to 834 km by 2010.

Slovakia is the third-largest vehicle-maker in central Europe behind the Czech Republic and Poland. The
automotive industry has had an enormous impact on the development of the Slovakian economy. The industry
has a significant growth potential, given its high manufacturing standards and access to both the East and
West European markets. There were 281,100 automobiles manufactured in 2003, 24% more than 2002.
Passenger cars accounted for about 99.8% of the entire automotive production in 2003. The increase in
production is a reflection of increased demand in the domestic market and in key export markets such as the
Germany. Slovakia is a net exporter of automobiles, with the automotive sector being a large contributor to its
foreign-exchange earnings. In 2003 Slovakia had a foreign trade surplus of Sk108bn for the automotive sector.
The Czech Republic and EU countries are the major export destinations.




                                                         2                            Last Update 8th February 2006
                                                                                                              LABOUR MARKET
PRODUCTION OF PASSENGER CARS IN YEAR 2008

                                          200



                                          180



                                          160



                                          140
  Production [units / 1000 inhabitants]




                                          120


                                          100



                                           80



                                           60



                                           40



                                           20



                                            0
                                                SK   BEL   CZ   JAP   SPA   GER   SLO   KOR   FRA       CND   SWE   UK   NL   ITA     POR   USA    WOR




Source: ECENTER, Automotive Association of the Slovak Republic

PSA PEUGEOT CITROEN
Start up of the production: year 2006
Amount of Investment: 739 + 350 Million EUR
Workforce: 3 500 + 1 800 people
Planned production: 450 000 cars/year


KIA MOTORS CORPORATION
Amount of Investment 2004 – 2006: 1 100 +150 Million EUR
Planned production: 300 000 cars/year
2+1 automobile models
Workforce: 2 500 +750 people

VOLSKSWAGEN SLOVAKIA
Amount of Investment 1991 – 2006: more than 1 300 Million EUR
Planned production: 300 000 cars/year
Workforce: 6 000 people in Bratislava

AUTOMOTIVE SUB-SUPPLIERS

The automotive parts industry in the country has flourished with the increase in automotive production.
Automotive parts production reached Sk53.3bn in 2002, with the bulk of output headed for Volkswagen
manufacturing plants. Major automotive parts manufacturers include Delphi (US), Dura (US), Johnson Controls
(US), Faurecia (FRA) and Visteon (US).




                                                                                                    3                               Last Update 8th February 2006
                                                                 LABOUR MARKET
Component suppliers for automotive industry 1997-2004


  4000
  3500

  3000
  2500                                                Other producers
  2000                                                VW, a.s.
  1500                                                ŠKODA AUTO, a.s.

  1000
   500
     0
         1   2     3    4     5    6      7      8

Source: ZAP SR

                         1997     1998        1999        2000     2001    2002         2003         2004
Millions EUR
Component supplies -
total                    409,5    621,4       742,8       854,0    992,8   1239,4       2556,1       3500,0
For single producer:
ŠKODA AUTO, a.s.         104,7    119,0       92,8        75,2     69,0    59,5         58,5         57,5
VW, a.s.                 173,8    269,0       345,2       415,9    473,8   666,7        1378,1       2245,5
 Other producers         131,0    233,4       304,8       362,9    450,0   513,2        919,5        1197,0
Source: ZAP SR

Automotive Sub-Suppliers in Slovakia a Steady Growing Base

Delphi (USA)
Yazaki (Japan)
Magna (Canada)
Plastic Omnium (France)
Inalfa Metal (Netherlands)
Johnson Controls (U.S.A.)
Tower (USA)
Brose (Germany)
Punch (U.S.A.)
Inergy (Belgium/France)
Cemm Thome (France)
Teleflex Automotive (Japan)
Lear (U.S.A.)
Leoni Drahtwerke (Germany)
Siemens (Germany)
Saint Gobain (France)
Faurecia (France)
SAS Automotive (Germany)
Schneider Electric (France)
Hella (Germany)
Sachs (Germany)
Etc.



                                                      4                            Last Update 8th February 2006
                                                                    LABOUR MARKET
 AUTOMOTIVE INVESTORS IN SLOVAKIA

 Investor                      Amount of               Num. of        Location       Intention
                               investment in Euro      employees
 Kia, South Korea              1250 mil.               3250           Žilina         car production
 PSA Peugeot Citroen,          1089 mil.               4800           Trnava         car production
 France
 Getrag Ford                   300 mil.                750            Kechnec        Production of gearboxes
 Transmissions, Germany
 Continental Teves,            60 mil.                 500            Zvolen         Production of brakes
 Germany                                                                             components
 Visteon, USA                      40 mil.             400            Nitra          Production of interior parts for
                                                                                     KIA and PSA Peugeot Citroën
 Johnson Controls, USA         20 mil.                 550            Trenčín        R&D
 Johnson Controls, USA         20 mil.                 350            Lučenec        Production of seatings
                                                                                     components
 Miba, Austria                 16-20 mil.              150            Vráble         Production of steel parts
 Valeo Security Systems,       16,4 mil.               727            Košice         Production of mechanical parts
 France
 Key Plastics, USA             12 mil.                 400            D. Kubín       Production of plastic
                                                                                     components


 Comparison of industrial production and car production in Slovakia


      35

      30

      25

      20
                                                                               Ind.-SR
      15                                                                       Autoind.

      10

       5

       0
             1998    1999   2000     2001    2002    2003    2004

 in bn EUR


                     1998     1999           2000       2001         2002           2003         2004

Industry.-SR         14,5     16,72          19,15      21,67        23,1           26,72        30,6
Autoindustry         2,08     2,57           3,18       3,67         4,51           6,8          7,78

 Source: ZAP SR



                                                            5                               Last Update 8th February 2006
                                                                LABOUR MARKET
Investment to automotive industry



Index in mil.    1998        1999        2000           2001         2002         2003           2004
EUR
Total
investment       109,4       227,9       248,3          672,5        527,3        514,5          750,0
Source: ZAP SR


Workers in automotive industry


                                     workers


  60000

  50000

  40000

  30000                                                                      workers

  20000

  10000

       0
           1996 1997 1998 1999 2000 2001 2002 2003 2004

                 1996     1997       1998        1999        2000      2001        2002          2003        2004
workers          27746    29152      34640       35615       35931     44367       50214         54700       55000

Average salary in automotive industry in 2004 was 18 089 SKK. (Exchange rate 37,561 SKK as of10.2.2006)




                                                         6                                Last Update 8th February 2006
                                                                    LABOUR MARKET

Cooperation with Universities

Slovak secondary specialized schools & universities have started a vast cooperation with automotives
companies. This cooperation is mainly made through the pilot centers which are made to simulate a real
production to enable students to learn in real conditions and hence to be practically prepared for real life in
companies.


Specialized Centers at Universities

    •   Slovak Academy of Sciences
    •   Slovak University of Technology in Bratislava (2 specialized centers)
    •   Comenius University in Bratislava
    •   Technical University Kosice (4 specialized centers)
    •   University of Zilina (5 specialized centers)
    •   University of Trencin (5 specialized centers)


14 Pilot Centers
    •   More than 20.000 people are being currently prepared for automotive labor market
    •   Establishment of modern labs
    •   Procurement of apparatus and technical equipment (e.g. VW supplies VW Polo engines with all
        electronics and Skoda Fabia Automobiles for each Pilot Center)
    •   Cooperation with Self-governing regions as they are responsible for primary and secondary schools
        (ZAP specified conditions, e.g. 1.000+ pupils, dormitory, workshops)
    •   Establishment of specialized workstations in labs (workstations for measurement, laser welding,
        mechanical working, injection molding etc.)
    •   To allow partners the supervision of quality of education and of the use of provided apparatus and
        technical equipment
    •   Government participation in financial support of science and research
    •   Next Step – Development of science and research centers
    •   Estimated 1 billion SKK burden on budgets of Self-governing regions & Central Government


Teachers centre
    •   The aim is to prepare a qualified staff for Pilot Centers




                                                          7                             Last Update 8th February 2006
                                                                LABOUR MARKET

Sector SWOT analysis

Strengths                                                       Weaknesses
- Manufacturing production structure close to the EU average    - Educational system suffering from
-Traditionally quality technical education                      insufficient financing, insufficient
- Presence of world-class automotive companies                  involvement of private financing (this is not
- Excellent language skills, especially English and German      true for pilot centers as they get support
language                                                        from AIA SR, regional governments & EU
- Easily accessible location: within 30 min. travel Vienna      financing as well)
International Airport (the biggest in CEE) and Bratislava,      - Too much reliance on cost-based
Poprad & Kosice International Airports                          industrial competitiveness factors of some
- Stable macroeconomic environment                              local companies not utilizing the R&D&I
- Favourable labour costs & high labor productivity             potential of local people
- Automotive Industry Association of the Slovak Republic (AIA
SR) is a very strong & respected professional association
acting also as a Slovak automotive cluster
Opportunities                                                   Threats
- New supplier opportunities due to relocation of global        - Unbalanced external dependency of
automotive and electronics industries towards CEECs             the automotive sector
- Emerging automotive and machinery/electronics (North-         - Tight labor market in Bratislava & Trnava
East Slovakia) clusters with strong domestic supplier base      regions
- Taking advantage of research networks under the EU
framework programmes




                                                       8                             Last Update 8th February 2006

				
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