China’s desire for luxury cars keeps eastern Europe producing cars

Alma L. Figueroa

“China, the U.S. and the UK are very big markets for us,” Leslie said in an interview. “We continue to see good trends there.”

VW Group’s latest five-year investment program includes upgrades for Skoda’s factories in the Czech Republic and the group’s multibrand plant in Bratislava. VW will build a new assembly line and a new body shop at Bratislava to build the VW Passat and Skoda Superb midsize cars. Skoda’s plants get more capacity to build SUVs.

VW Group plans to invest more than 1 billion euros in total in Slovakia and the Czech Republic, which succeeded in restarting production quicker than their western neighbors after the virus’s initial blow.

Automotive investment has helped transform the former Eastern Bloc. Lured by a cheap but skilled workforce and proximity to major European markets, large producers that also include Hyundai and Kia have built state-of-the-art assembly lines across the region, which is also home to a web of suppliers.

But it’s Slovakia and the Czech Republic that stand out. The auto sector generates about half of industrial output in the former country and roughly a quarter of output in the latter. That is more than in Germany or France.

Such dependence has raised worries. Critics including politicians and economists argue that the narrow focus leaves the countries vulnerable to swings in global demand, as well as supply-chain disruptions of the kind seen when the pandemic first struck. Another risk is the shift to electric vehicles, which will ultimately eliminate a chunk of Czech and Slovak output tied to internal combustion engines.

But, facing the deepest recessions since communism collapsed three decades ago, the two countries got production back online rapidly after the spring lockdown, and are maintaining it now. Both economies outperformed analyst estimates last quarter.

“The often-criticized manufacturing focus of the Czech economy can be now, like in the first pandemic wave, an advantage,” said Martin Gurtler, an economist at Komercni Banka.

With the combined population of 16 million people, the two countries’ fortunes are fused to customers beyond their borders. Last year, 85 percent of the Czech auto industry’s total 1.1 trillion koruna ($49 billion) of sales came from exports. The share is even bigger in Slovakia, which makes twice as many cars as Italy, whose population is 10 times bigger and which boasts a much longer automotive tradition.

Data released just last week showed car sales in China gained for a fourth month in October, adding to optimism that a slump that lasted two years and deepened amid COVID-19 is over. Retail sales of cars, SUVs and multiple-purpose vehicles increased 8 percent from a year earlier to 2.02 million units, according to the China Passenger Car Association.

Despite the tectonic changes ahead for the industry, the countries can continue to provide a manufacturing base after the pandemic has been tamed, according to JLR’s Leslie.

“It’s a good thing that Slovakia’s able to attract future investment,” he said. “The automotive industry is moving at the fastest pace I’ve seen in 27 years in the business — moving into connectivity, automation, shared mobility, and this brings good opportunity.”

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