The impact of the crisis on the Hungarian automotive industry

Katalin Antalóczy, MÜTFMagdolna Sass, IE HAS

EACES 2010 bi-annual conference, Tartu, 26-28 August 2010

Financially supported by the Hungarian Competition Office

Background 1• The Hungarian automotive industry:• Actors 1. Foreign owned OEMs: Suzuki, GM/Opel, Audi, according

to Pavlinek (2002) Suzuki: greenfield, embedded; GM/Opel and Audi: greenfield, not-embedded, changing over time (Mercedes: greenfield, ?, starting production from 2012)

2. Foreign owned suppliers: e.g. Robert Bosch, Luk, Zollner, ZF, Knorr Bremse; Hungary: more specialised on suppliers than on OEMs in CEE comparison

3. Hungarian owned suppliers: some large (e.g. Videoton, Karsai, Hajdú), mainly SMEs; supplying local OEMs/suppliers or foreign firms (according to exports data, supplies to firms abroad is more important) – special emphasis on these during the research

Background 2

• Crisis

1. Hit hard, because mainly suppliers are present

2. Economic policy: • Overall environment less favourable compared

to other EU• Specific supportive measures to the industry

negligible compared to other EU

3. Competitivenesss based on low costs eroding in certain segments (India, China)

Aims of research

• Who are the automotive suppliers?

• Impact of the crisis on them

• Their reactions to the crisis, mainly domestically owned suppliers

Method

Questionnaire based interviews with leading managers of 13 companies in Hungary

Interview with the president of the Association of Hungarian Automotive Suppliers

Interview with the expert of ITDH dealing with automotive suppliers

Statistical data used only to a limited extent (problems of sector definition and lack of fresh data)

Sample of companies distorted: those were welcoming which felt they handled the crisis successfully

SampleHungarian or foreign owned Size Tier

(both at home and through exports)

1 Foreign Large 2-42 Foreign Large 1-23 Foreign Large 14 Hungarian Medium1-2-35 Hungarian Small 1 (unique products)6 Hungarian Small 1-2-37 Hungarian Medium 1-28 Hungarian Large 1-2-39 Hungarian Medium 1-210 Hungarian Medium 1-211 Foreign Medium 1-212 Hungarian Medium 1-213 Hungarian Medium 1-2-3-4

Automotive suppliers• Automotive suppliers in Hungary form a very heterogeneous

group. • They differ not only in size or ownership. 1. Sectors2. Position in the automotive value chain3. Diversification: A. For affiliates of multinationals, because economies of scale

played an important role, this usually meant that they were suppliers to multiple companies.

B. For Hungarian owned suppliers, diversification could manifest itself through different forms.

B1. They can be suppliers to more than one company, B2. They can carry out production in more than one sector, B3. They can produce parts and components which can be used

in many sectors. 1. Complexity of the product2. R&D and innovation activity – not a differing factor any more

among „survivors”

Impact of the crisis

• Crisis coinciding with other problems of the Hungarian economy (restrictive fiscal policy, loosing out in competitiveness compared to the main competitor countries etc.) – larger impact

• No major firm went bankrupt, a few very small ones had problems: Hungarian less diversified SMEs with low VA and supplying one buyer (Suzuki) hardest hit

• On average around a 30 % fall in orders

Reaction to the crisis – How to weather successfully the crisis?

Difference between foreign owned and Hungarian ownedForeign owned: decisions taken at the headquarter, less

maneouvring room for local affiliates, response to the crisis usually: cutting costs by either laying off workers and/or cutting wages

Domestic owned: different responses, but the main direction seems to be the same, however, the process has been initiated even before the crisis by some companies (others joined in during the crisis)

Handling the crisis in Hungarian owned automotive suppliers

(Selection bias)The most important characteristics of successful companies were the following:• Common response: Laying off people (esp. less skilled) and/or decrease in

wages and/or decrease in working hours.• More successful approach with longer lasting results: Increasing the ability

to offer high value added additional services or more complex products for buyers, for example through innovative capacity, registered or unregistered R&D activity, sometimes with separate R&D unit, or at least employing a development engineer, establishing an own tool shop, design unit etc.

Other techniques: • (Further) Diversification – in many possible senses, e.g. supplying numerous

firms (aim: the share of the most important buyer should not exceed 25-30%), or supplying many products, or operating in more than one sector;

• introduction and/or improvement of modern company and production organization techniques,

• flexibility, quick reactions to changes in the environment,• In a few cases: increased cooperation with other companies (2 Hungarian

SMEs)

Summary

„Next generation” of Hungarian local automotive suppliers with increased cooperation with the buyer company, with offering additional services and higher value added, with more (registered or unregistered) R&D and innovation activities

Even before the crisis (increased int’l competition) but for some companies the change was initiated as a response to the crisis, thus the crisis quickened up the process

We could not make an estimation of the share of this kind of companies in total local automotive suppliers

We could only indicate that there is a profound change going on among domestically owned automotive suppliers

Thank you for your attention!