FT: Low-Cost East European Car Production is Doomed

Robert Farago
by Robert Farago
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ft low cost east european car production is doomed

Well, it only makes sense. You build cars in former communist countries a stone's throw away from the world's most militant (and deeply entrenched) labor unions and it's only a matter of time before the union boys show up and the term "low cost" no longer applies to your Eastern European factories. After reporting the end of the 19-day strike crippling Renault's Romanian Dacia plant, the Financial Times says Eastern Europe's wage inflation mirrors the majors' Spanish/Portuguese experience. "In the mid-1970s… Ford, General Motors, Renault, Peugeot-Citroën, Volkswagen and Fiat all established operations or joint ventures in the Iberian peninsula. But by the late 1990s, Spain had priced itself out of the market as a result of demands for higher wages and improved benefits from car workers and labour unions. A similar pattern seems to be spreading in eastern Europe – with one worrying difference. If it took roughly 20 years for the low-cost cycle to run its course in Spain; the current one looks like it will last only 10 years in eastern Europe." [thanks to starlightmica for the link]

Robert Farago
Robert Farago

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  • Ralph SS Ralph SS on Apr 15, 2008

    Patience, my friends. I know we all look at things on a pretty short term perspective but I think if we are all patient enough, evidence indicates that eventually, the USA will be the low cost producer of goods. Or we'll all be one big happy family.

  • Dimwit Dimwit on Apr 15, 2008

    Does anyone care what the wages are in Stuttgart? No. It all depends on what they build, not on what the workers make. Trying to make Ladas or Trabants in a reasonable cost structured plant isn't going to work, but having educated, hard working employees in a modern, well equipped plant isn't a hardship with the right vehicles. The traditional cheapass Eastern European/Russian models will disappear and really, do you think anyone will miss them?

  • Jthorner Jthorner on Apr 16, 2008

    Imagine that, factory workers everywhere want to have a decent quality of life once they get a shot at it. Boy they have nerve!

  • Ricky Spanish Ricky Spanish on Apr 16, 2008

    This is what you get with a common currency - complete price and wage transparency - prices align, wages align - you have a big United States of Europe. I think Ireland is still pretty cheap compared to some of the others - or you could just bite the bullet and go back to Germany where you get what you pay for (theoretically, the productivity of labor is directly proportional to wage).