Auto-mobility investment in low-cost manufacturing countries started at the turn of the millennium and increased significantly following the global financial crisis. As the industry’s supply chains are typically designed to produce cars close to end consumers, OEMs in the USA began looking to invest in Mexico, enabled by the long-standing NAFTA agreement, while automakers in China and Japan spotted many opportunities to cut manufacturing costs by shifting production from their own countries to others in Asia.
In an industry that is increasingly global and fast-changing, this triggered OEMs in Europe to find new ways to remain competitive. An obvious solution presented itself when the European Union (EU) expanded to include new member countries in the center and east of the region such as the Czech Republic, Poland, Hungary, Slovakia, and Romania, providing access to highly skilled workforces with relatively lower costs of employment.
European auto-mobility OEMs established in the west such as Germany, France, Italy, and Spain now had a way to maintain market position while keeping jobs and production within the EU – a solution that proved acceptable both to private and partially state-owned organizations by avoiding the costs and complications of cross-border customs and tariffs. Investor confidence was and continues to be high as the EU’s political and economic stability are shared by all member countries. Another big plus is that auto-mobility companies can rapidly move skilled labor from plant to plant inside the EU without encountering too many administrative roadblocks.
Today auto-mobility production is gaining momentum in Central and Eastern Europe (CEE) and several countries have formed a major production hub for the EU and even the global industry, providing a good trade-off between low-cost manufacturing and proximity to the huge EU market. More people in the EU are employed in auto-mobility than in any other industry. More foreign R&D investment flows into the EU for auto-mobility than for any other industry. And more than 80% of the vehicles produced in CEE are exported from member countries, mainly to other EU countries. Furthermore, auto-mobility is the EU’s largest export category and the industry is a leading contributor to EU GDP.
The Czech Republic now ranks first in vehicles produced per 1,000 inhabitants – 180 compared to Germany’s 70. In the relatively small country of Hungary, there are already more than 700 companies related to the auto-mobility industry and recent KPMG figures indicate a production CAGR (2017-2024) of 8% in Hungary compared to around 3% in China and just 1% in Western Europe.
Looking forward, there is a bright outlook for the region. The auto-mobility industry will increasingly contribute to overall EU prosperity. In particular, CEE countries are poised to build stronger win-win relationships within the industry. Building on their original offering of cheaper manufacturing in return for auto-mobility investments, these countries are now experiencing steady wage increases as production moves up in the world in terms of investment in new high-tech plants and requirements to manufacture higher-margin auto-mobility products. This phenomenon is also driven by the shift to electrified powertrain that triggers the requirement for higher value-added tech contents in the vehicles.