NY Times Article about Gyor
09-03-2003, 06:38 AM
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NY Times Article about Gyor
And according to the article the TT is "...a curvy sports car favored by middle-age men..."
<ul><li><a href="http://www.nytimes.com/2003/09/02/business/worldbusiness/02AUDI.html">http://www.nytimes.com/2003/09/02/business/worldbusiness/02AUDI.html</a</li></ul>
<ul><li><a href="http://www.nytimes.com/2003/09/02/business/worldbusiness/02AUDI.html">http://www.nytimes.com/2003/09/02/business/worldbusiness/02AUDI.html</a</li></ul>
09-03-2003, 07:11 AM
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Copy of the page here, but link was working for me...
<center><img src="http://graphics7.nytimes.com/images/2003/09/02/business/02AUDI.xl.jpg"></center><p>Audi of Germany builds sports cars at a plant in Gyor, Hungary. The tax breaks it receives there are vanishing as Hungary prepares to join the European Union next May.
By MARK LANDLER
GYOR, Hungary -- This prosperous river town has been on the doorstep of Western Europe for so long that when Hungary and nine other Central European countries join the European Union next May, it will barely register in the humming factories and bustling shops here.
At first glance, in fact, European integration may hurt Gyor more than help it. The union's rules are forcing Hungary to phase out its generous tax breaks to foreign investors like Audi, the German carmaker, which has operated a sprawling assembly plant here since 1994.
Gyor has embarked on an arduous negotiation with Audi over what taxes it will pay. The mayor, Jozsef Balogh, said he was not taking for granted his city's status as an attractive place to invest.
"Audi has to compete with other car companies," Mr. Balogh said in a recent interview in Gyor's town hall. "If they have to pay high taxes in Hungary, their competitiveness will decline."
For most of the 75 million people in the 10 countries that will join the European Union, the benefits of membership clearly outweigh the costs. But for Gyor and other commercial hubs on the western frontier of the new Europe, integration could prove to be a tricky passage.
While labor costs remain lower here than in Western Europe, the gap is closing. Wages in Hungary rose an average of 18 percent last year, with salaries in some sectors jumping 50 percent. Lower-cost cities in eastern Hungary, not to mention even cheaper ones in Romania and Bulgaria, are beckoning.
"Investors are asking, `Is there enough skilled labor in a place like Gyor, or would I be better off going to Romania or even the Ukraine?' " said Laszlo Czirjak, an American banker who invests in Hungary.
Gyor, which is south of the Danube River 30 miles from the Austrian border, has already felt the fickleness of foreign investors. Danone, the French food group, acquired a 100-year-old biscuit factory here in 2000, only to announce three months later that it would shut it down.
After Mayor Balogh led a boycott of Danone products, the city and the company struck a compromise: Danone agreed to keep the plant open, albeit with fewer workers. "I felt that closing it was an irrational step," said Mr. Balogh, who is himself a onetime factory worker.
Gyor's struggle to attract and retain foreign investment is being replicated across Hungary. While the country was one of the stars of Central Europe through the 1990's, it has lost some of its luster because of its rapidly rising wages, slower growth and a ballooning state budget deficit.
In 1995, $4.4 billion in foreign direct investment poured into Hungary, according to the European Bank for Reconstruction and Development. By last year, it had slowed to $598 million. Slovakia, where hourly wages are 32 percent lower than in Hungary, attracted $3.7 billion in investment in 2002.
Officials in Hungary acknowledge that the steep wage increases are eroding their country's competitiveness. But successive governments have been unable to resist the popular demand for fatter paychecks, which many here seem to regard as a fringe benefit of European integration.
"People have the expectation that when we enter the E.U., the living standard will rise very rapidly, and we will live like people in Austria," Zsigmond Jarai, the president of the Hungarian central bank, said in an interview. "But we cannot compete with lower-cost countries."
Hungarians took it as an omen when the French carmaker PSA Peugeot Citroën announced in January that it would build an assembly plant in western Slovakia. I.B.M. delivered another jolt last year when it announced that it would shut down a factory making disk drives in Hungary.
Audi, which selected Gyor over 180 other sites across Europe, still seems satisfied. The company, which is based in the western German city of Ingolstadt, has invested $1.6 billion in the plant, which was built in the shell of a factory belonging to a Hungarian auto-parts maker, Raba.
Heinrich Franke, the head of finance at Audi Hungary, said the company was attracted to Gyor's location, midway between Vienna and Budapest. The city has good road and rail connections, making it easy to ship components and finished cars the 375 miles to and from Ingolstadt.
Audi builds 1.28 million engines a year in Gyor, nearly all the motors it uses worldwide. Some are shipped to China, where Audi is producing its A4 model in the northeastern city of Changchun.
In 1998, the factory began assembling the Audi TT Coupe, a curvy sports car favored by middle-age men, later adding the TT Roadster. It turns out about 53,000 cars a year. Analysts said Hungary was a logical place to build engines and sports cars because both demand a lot of labor.
"The reason car companies go places like Hungary, Thailand or China is that the models require greater labor content, or because it is politically expedient to build cars there," said Graeme Maxton, an analyst at Autopolis, an industry consulting firm in London. "The Audi TT is made in sufficiently small volume that it makes sense to produce it that way."
On a recent afternoon, a plant foreman showed off a spotless assembly line, on which engine blocks were lined up as far as the eye could see. Asked how this plant, which employs 4,800 workers, compares to Audi's factory in Ingolstadt, Mr. Franke said, "This one is cleaner."
Having sunk $1.6 billion into the plant, Audi is not likely to pull up stakes soon. With an investment of that size, Mr. Maxton figured Audi was committed to Hungary for at least 7 to 10 years.
Audi will not say how much its labor costs have risen. But Mr. Franke insists the increase in wages has been offset by productivity gains -- drawing two diverging lines on a chart to illustrate his point.
"Our labor costs have not developed as quickly as Audi expected," he said.
Still, Mr. Franke said Audi was concerned by developments in Hungary. "We weren't pleased to see a 50 percent increase in salaries," he said, referring to the wage inflation in professions like teaching.
Some of the loss of industry in Gyor, people here recognize, is an unavoidable result of the global economy. Low-end manufacturing jobs flee inevitably to low-cost markets. Already, Macedonia has lured away a textile factory that stitched curtains for the Austrian market.
That is fine and even healthy, Mayor Balogh said, so long as Gyor climbs to the next rung of the economic ladder. "We want to attract advanced companies that need engineers," he said.
First, though, Gyor needs to bolster its labor force. With unemployment hovering between 3 percent and 4 percent, the town has a labor shortage, especially of skilled workers. It is forced to import people from Slovakia, seven miles to the north, which drives up wages.
Mayor Balogh said Gyor recently started a technical university to turn out more skilled workers. He noted that Audi and Phillips of the Netherlands, another major investor here, had opened development centers at their plants -- a vote of confidence in the region's human capital.
For Gyor, a city of BMW's and upscale shops that has been receiving Austrian television signals since the Communist era, the changes wrought by the European Union are likely to be below the surface.
"Decades ago, people here could see what was across the border," said Somodi Geza, an editor at the local newspaper. "For us, E.U. accession is mostly a question of changing our mentality."
By MARK LANDLER
GYOR, Hungary -- This prosperous river town has been on the doorstep of Western Europe for so long that when Hungary and nine other Central European countries join the European Union next May, it will barely register in the humming factories and bustling shops here.
At first glance, in fact, European integration may hurt Gyor more than help it. The union's rules are forcing Hungary to phase out its generous tax breaks to foreign investors like Audi, the German carmaker, which has operated a sprawling assembly plant here since 1994.
Gyor has embarked on an arduous negotiation with Audi over what taxes it will pay. The mayor, Jozsef Balogh, said he was not taking for granted his city's status as an attractive place to invest.
"Audi has to compete with other car companies," Mr. Balogh said in a recent interview in Gyor's town hall. "If they have to pay high taxes in Hungary, their competitiveness will decline."
For most of the 75 million people in the 10 countries that will join the European Union, the benefits of membership clearly outweigh the costs. But for Gyor and other commercial hubs on the western frontier of the new Europe, integration could prove to be a tricky passage.
While labor costs remain lower here than in Western Europe, the gap is closing. Wages in Hungary rose an average of 18 percent last year, with salaries in some sectors jumping 50 percent. Lower-cost cities in eastern Hungary, not to mention even cheaper ones in Romania and Bulgaria, are beckoning.
"Investors are asking, `Is there enough skilled labor in a place like Gyor, or would I be better off going to Romania or even the Ukraine?' " said Laszlo Czirjak, an American banker who invests in Hungary.
Gyor, which is south of the Danube River 30 miles from the Austrian border, has already felt the fickleness of foreign investors. Danone, the French food group, acquired a 100-year-old biscuit factory here in 2000, only to announce three months later that it would shut it down.
After Mayor Balogh led a boycott of Danone products, the city and the company struck a compromise: Danone agreed to keep the plant open, albeit with fewer workers. "I felt that closing it was an irrational step," said Mr. Balogh, who is himself a onetime factory worker.
Gyor's struggle to attract and retain foreign investment is being replicated across Hungary. While the country was one of the stars of Central Europe through the 1990's, it has lost some of its luster because of its rapidly rising wages, slower growth and a ballooning state budget deficit.
In 1995, $4.4 billion in foreign direct investment poured into Hungary, according to the European Bank for Reconstruction and Development. By last year, it had slowed to $598 million. Slovakia, where hourly wages are 32 percent lower than in Hungary, attracted $3.7 billion in investment in 2002.
Officials in Hungary acknowledge that the steep wage increases are eroding their country's competitiveness. But successive governments have been unable to resist the popular demand for fatter paychecks, which many here seem to regard as a fringe benefit of European integration.
"People have the expectation that when we enter the E.U., the living standard will rise very rapidly, and we will live like people in Austria," Zsigmond Jarai, the president of the Hungarian central bank, said in an interview. "But we cannot compete with lower-cost countries."
Hungarians took it as an omen when the French carmaker PSA Peugeot Citroën announced in January that it would build an assembly plant in western Slovakia. I.B.M. delivered another jolt last year when it announced that it would shut down a factory making disk drives in Hungary.
Audi, which selected Gyor over 180 other sites across Europe, still seems satisfied. The company, which is based in the western German city of Ingolstadt, has invested $1.6 billion in the plant, which was built in the shell of a factory belonging to a Hungarian auto-parts maker, Raba.
Heinrich Franke, the head of finance at Audi Hungary, said the company was attracted to Gyor's location, midway between Vienna and Budapest. The city has good road and rail connections, making it easy to ship components and finished cars the 375 miles to and from Ingolstadt.
Audi builds 1.28 million engines a year in Gyor, nearly all the motors it uses worldwide. Some are shipped to China, where Audi is producing its A4 model in the northeastern city of Changchun.
In 1998, the factory began assembling the Audi TT Coupe, a curvy sports car favored by middle-age men, later adding the TT Roadster. It turns out about 53,000 cars a year. Analysts said Hungary was a logical place to build engines and sports cars because both demand a lot of labor.
"The reason car companies go places like Hungary, Thailand or China is that the models require greater labor content, or because it is politically expedient to build cars there," said Graeme Maxton, an analyst at Autopolis, an industry consulting firm in London. "The Audi TT is made in sufficiently small volume that it makes sense to produce it that way."
On a recent afternoon, a plant foreman showed off a spotless assembly line, on which engine blocks were lined up as far as the eye could see. Asked how this plant, which employs 4,800 workers, compares to Audi's factory in Ingolstadt, Mr. Franke said, "This one is cleaner."
Having sunk $1.6 billion into the plant, Audi is not likely to pull up stakes soon. With an investment of that size, Mr. Maxton figured Audi was committed to Hungary for at least 7 to 10 years.
Audi will not say how much its labor costs have risen. But Mr. Franke insists the increase in wages has been offset by productivity gains -- drawing two diverging lines on a chart to illustrate his point.
"Our labor costs have not developed as quickly as Audi expected," he said.
Still, Mr. Franke said Audi was concerned by developments in Hungary. "We weren't pleased to see a 50 percent increase in salaries," he said, referring to the wage inflation in professions like teaching.
Some of the loss of industry in Gyor, people here recognize, is an unavoidable result of the global economy. Low-end manufacturing jobs flee inevitably to low-cost markets. Already, Macedonia has lured away a textile factory that stitched curtains for the Austrian market.
That is fine and even healthy, Mayor Balogh said, so long as Gyor climbs to the next rung of the economic ladder. "We want to attract advanced companies that need engineers," he said.
First, though, Gyor needs to bolster its labor force. With unemployment hovering between 3 percent and 4 percent, the town has a labor shortage, especially of skilled workers. It is forced to import people from Slovakia, seven miles to the north, which drives up wages.
Mayor Balogh said Gyor recently started a technical university to turn out more skilled workers. He noted that Audi and Phillips of the Netherlands, another major investor here, had opened development centers at their plants -- a vote of confidence in the region's human capital.
For Gyor, a city of BMW's and upscale shops that has been receiving Austrian television signals since the Communist era, the changes wrought by the European Union are likely to be below the surface.
"Decades ago, people here could see what was across the border," said Somodi Geza, an editor at the local newspaper. "For us, E.U. accession is mostly a question of changing our mentality."
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