Global car industry's roadmap leads to Trnava

By Andrew McCathie Oct 2, 2006, 7:31 GMT

Trnava, Slovakia - The medieval Slovakian town of Trnava would seem to be an unlikely backdrop for a key hub of the global car business.

But, Trnava, which lies a short half-hour drive north from the capital Bratislava, is rapidly emerging as a new key part of the nation's burgeoning auto industry following the opening by French carmaker PSA Peugeot Citroen of a new 920 million dollars state-of- the-art plant in the town.

'Trnava has a 100-year machinery tradition,' town mayor Stefan Bosnak told the Deutsche Presse-Agentur (dpa). 'Every new factory means the creation of new chances for economic growth and gain, tax income and new jobs,' he said.

With the lowest labour costs in the European Union, a flat tax, a skilled workforce and perched between western and eastern Europe's auto markets, Slovakia has recently years become a major new destination for investment from the world's leading car makers.

Indeed, when Peugeot began producing cars in Trnava in June this year it joined leading auto groups such as Germany's Volkswagen AG and America's Ford Motor Company, which have already set up shop in Slovakia with the dramatic expansion of the nation's car industry helping to underpin its post-communist economic transformation.

KIA Motors, an offshoot of South Korea's largest carmaker, Hyundai Motor, is also gearing up to open up a new 870 million dollars factory in the northern Slovakian town of Zilina in December producing cars designed specifically for the European auto market

The plant, which is KIA's first in Europe and is one of the largest in Central Europe this year, is expected to produce 300,000 vehicles a year by 2009 and employ about 3,000 people.

Another 10,000 associated jobs are expected to be created in the region near the KIA factory.

There is also potential for growth in Slovakia's domestic car market. At about 250 cars per 1,000 inhabitants, Slovakia has one of the lowest auto ownerships in the European Union. Slovakia was one of ten largely Central European states that joined the EU in May 2004.

The emergence of a car industry in Slovakia reflects developments in other parts of Central and Eastern Europe with key auto makers piling into Hungary, Poland, Romania, Russia and the Czech Republic and as a consequence helping to power economic growth across the region.

But the recent rapid growth of Slovakia's new auto sector means that the country is set to become the world's largest car producer per capita in the next two years, rolling out about one million autos a year after it beat off rivals from bigger Central European states in a bidding war for the KIA and Peugeot car investments.

Once home to Slovakia's communist-era utility vehicle maker TAZ, Trnava, like the rest of the nation's economy, slipped into the Central Europe's economic slow lane in the years following independence in 1993 after the break-up of Czechoslovakia and the arrival of an authoritarian government in Bratislava.

But now Trnava's 72,000 residents enjoy one of the lowest unemployment rates in Slovakia with people heading for the town in search of work and a raft of new shops and car component businesses springing up around the historic town.

The new Peugeot factory which is expected to produce about 500,000 vehicles by the end of the decade, should employ about 3,500 people generating another 2,000 subcontracting jobs in the Trnava region.

Moreover, unemployment in Slovakia, a nation of 5.4 million, has been falling on the back of the nation's booming economy. The country's jobless rate dropped from about 20 per cent six years ago to 9.85 per cent in August, its lowest level since independence.

According to the Slovakian central bank the opening of both the KIA and Peugeot factories will result in the nation's economic growth soaring to seven per cent next year after six per cent plus in 2006.

But as a sign of the intense competition that has hit the global car industry, Peugeot announced this month that it was scrapping a 350 million euro (444 million dollars) plan to build a second plant at its Trnava sire as part of a new cost-cutting drive.

In the meantime, as a sign of the growing strength of the Slovakian car sector, component suppliers are also moving into the country with the US car industry supplier TRW beginning the construction of a new 27 to 30 million dollars factory in Bytca in the nation's north west.

To be completed in 2008, the TRW factory will produce plastic components for KIA Motors Slovakia, PSA Peugeot Citroen and the German BMW and employ up to 700 people.

Meanwhile, a Ford-Getrag joint venture in Slovakia is producing all-wheel-drive systems for Ford Europe.