Jaguar Land Rover’s selection of Nitra, Slovakia, for its next assembly plant dashed hopes in the U.S., Mexico and Poland.
in Automotive News Europe, by Jesse Snyder (Opinion Page Editor), 17-08-2015
Was Slovakia’s pick just another low-wage choice?
Sure, Slovak wages are lower than those in the U.S. or Mexico, maybe even Poland. But focusing on that misses a bigger point.
The auto industry is on the cusp of global manufacturing parity. If you invest a billion-plus in a manufacturing facility, you care about far more than today’s labor rates. Assembly plants are amortized over decades and last for generations.
Lifetime efficiencies outweigh today’s wage rates. In 20 years, Slovak wage rates will simply be European pay scales.
What else does a site have? Skilled and productive workers? An established supplier base? What about logistics costs, inbound and outbound? Access to primary markets without heavy tariffs? Technology support? A stable-currency environment?
A decade ago, Slovakia couldn’t have landed a plant where Jaguar Land Rover intends to build alloy-bodied luxury crossovers.
In 2004 I was in Slovakia the week it and nine other countries joined the European Union. Volkswagen’s Bratislava factory was the country’s only assembly plant. But 30 miles up the E58 motorway in Trnava, I watched a construction crew erecting the third wall of a PSA/Peugeot-Citroen plant.
I avoided visiting Zilina at the time because the road through the Carpathian Mountains to get there was narrow and twisting.
Two years later, Kia built its plant in Zilina after a minister busted the national development budget to build a motorway. Slovakia sacked the minister but honored his deal with Kia.
Now Eastern Europe is an established auto center. Slovakia isn’t a frontier; it’s smack-dab in the middle of Detroit East, along with Poland, Hungary and the Czech Republic.
Most Americans think of Detroit as auto central. Well, last year the U.S. — population 330 million — built 11.5 million light vehicles. Slovakia’s 5.4 million citizens built a million, the world’s highest per-capita rate. To match Slovakian productivity, Americans would need to build 60 million.
Detroit East now houses 14 assembly plants — up from nine a decade ago — all within a 250-mile radius. JLR’s will make 15. Most have annual capacity to build 250,000 vehicles or more. That excludes other assembly plants in bordering Romania, Ukraine, Slovenia, Austria and Germany.
Since the turn of the century, Czechs, Slovaks, Poles and Hungarians have built roads and utilities, beefed up education and paid big incentives to become Detroit East.
Now JLR can pick Slovakia not just for low wages but also for its tariff-free EU location, strong supply base, skilled and productive workers, low-cost logistics, solid infrastructure and lower currency risk from manufacturing inside the eurozone.
That’s the new parity in auto manufacturing.