Automotive industry: a success story, but growth will require the use of local competitive edge

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The need for a comprehensive industry strategy was a key message at PwC’s 2nd Regional Automotive Summit

Győr, 11 April 2013 – The European automotive industry is undergoing a period of transformation, which will result in a bigger market share for East-Central Europe – according to a study by PwC, the world’s largest professional services network, presented today. A comprehensive industry strategy would greatly improve Hungary’s growth potential, pointed out Armin Krug, PwC Hungary’s Automotive Industry Leader at the Regional Automotive Summit in Győr. In addition to the existing cost advantages – e.g. cheap labour force and favourable tax environment – this strategy should be based on innovation, research and development, and a highly skilled workforce.

“The following figures demonstrate the dynamic nature of the transformation: in 2006, 300,000 vehicles were produced in Hungary and Slovakia; by 2012, this number increased almost fourfold to 1.1 million units. Professional expertise, the potential to innovate, and R&D capabilities are essential in keeping up with this upward trend, both in Hungary and the region. Relying on existing cost advantages alone will hardly result in further growth,” Krug said.

PwC’s study, “With the automotive industry on the motorway of growth – Automotive trends on the Slovak-Hungarian axle” was prepared on the basis of responses to the Hungarian, Slovak and Global CEO Surveys. According to the study, industry experts all agree that the wealth of knowledge accumulated in the automotive industry will play an increasingly important role in the future. A highly qualified workforce is especially important because of the current shortage of skilled labour in major automotive centres, which is a serious impediment to growth.

“Higher education institutions should be actively involved in corporate R&D and in supplying the next generation of professionals. Vocational training institutions are a positive example, along with the  Audi Hungaria Vehicle Engineering Department Group at Széchenyi István University in Győr, and the Faculty of Mechanical Engineering and Automation at the College of Kecskemét, the importance of which is also expected to grow in the future” added Krug.

“Cost advantage is undoubtedly a major factor that makes Slovakia’s automotive industry attractive. However, it is gradually being replaced by innovation, an increase in added value through knowledge, and local R&D activity as part of the value chain. Research institutions and universities also take part in the development process” said Jens Hörning, PwC Slovakia’s Automotive Industry Leader.

According to the PwC study, Hungary and Slovakia are in a fundamentally similar situation regarding their potential to attract foreign car makers. The increase of the knowledge base will be a dominant element of growth strategies in the near future. It is worth emphasizing that, although the CEOs’ short-term forecasts were not too optimistic, there is a chance in the mid-term for growth and the extension of capacities, primarily in Hungary. This is mainly because of the large investments that have already been launched.

As regards Hungary, Armin Krug believes that a comprehensive strategy would help improve the situation of the automotive industry: “Through working together with automotive companies in Győr and other parts of the country, we have seen that industry players have their own ideas about development and innovation but these ideas are not coordinated, and there is no long-term industry-wide strategy. Designing such a strategy would be key to future growth of the industry and of Hungary’s economy as a whole.”

Regarding growth prospects, PwC’s study concludes that the automotive industry was one of the “over-performers” in 2012 in both Hungary and Slovakia, and it is expected to keep its central role, according to the CEOs of major automotive companies. However, it should also be noted that the opinions of global automotive CEOs are more varied each year about economic prospects for the next 12 months, compared to other industries. This also means that the cyclical pattern of development that characterizes the automotive industry will have a profound impact on economic prospects in both Hungary and Slovakia.

The report can be downloaded by clicking here.

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