Local carmakers Dacia and Ford look to West to fuel stalled market

With local sales running out of gas, local carmakers have been thrown a lifeline in the form of higher demand from EU countries. And while Ford has announced plans to develop a low-cost model at Craiova by the end of next year, Dacia officials are complaining about the increasing cost of local labor.

Dana Verdes

“The automotive industry has already gone through two years of crisis. In Romania the car market has reached a critical level this year.” This is how Constantin Stroe, president and GM of the Association of Automotive Manufacturers of Romania (ACAROM), summarized the current car scene. A rather gloomy perspective and, with Jerome Olive, COO of Renault Dacia, adding, “The forecasts for 2011 are in line with the ones for this year”, the sector does not seem to be on the road to an immediate return to profit.

“In 2010, it would be a great achievement if we reached about 90 percent of last year’s production, which was 130,000 units,” said Stroe, who is also Dacia’s vice-president.

What has saved the two carmakers with operations in Romania, Dacia and Ford, from total disaster has been exports. “Car exports reached 238,273 units at ten months, compared to 242,688 recorded at the end of 2009, while total car production reached 279,000 vehicles at the end of 2009,” said Stroe.

Despite success on foreign markets, the two carmakers have their own demons to fight if they are going to keep their heads above water.

Dacia complains as work force drives up costs

Dacia cites “fluctuations in salaries, which at Dacia have increased three times in the past five years, and the exchange rate instability which erodes the value of investments in Romania” among the main difficulties encountered in day-to-day operations. As a result of these problems, French constructor Renault has decided to build its new production unit in Morocco.

Dacia officials have bemoaned the economic instability. “Compared with 2009, the economic environment has deteriorated this year: the reduction in lending, public-sector salary cuts of 25 percent and the VAT increase have destabilized the economic environment,” said Olive.

According to Alexandra Gatej, adviser to the president on the national and international business environment, from next year the government will continue the “cash for clunkers” program (where the purchase of new cars to replace old models is subsidized) and will introduce a car tax on Euro 5 (an emissions standard) vehicles. Carmakers welcome the government’s intended tax, hoping it will reduce the level of used car imports.

“I agree with the statement that the tax on Euro 5 vehicles was introduced to hike the value of other cars,” said Stroe.

Meanwhile, investments made in Renault’s Dacia plant and the acceleration of the development of Ford Romania’s factory are attracting new investment in the local automotive industry and creating the potential for a third manufacturer to enter the local market.

“Romania produces three times fewer cars than Hungary, reported per thousand inhabitants, and ten times fewer than in Slovenia. For us there is great growth potential. There is room for a third carmaker,” said Stroe.

The Romanian car industry posted a turnover of EUR 8.1 billion last year, which was 6 percent of the country’s GDP. The industry is expected to up this to a 10 percent weight in the GDP this year, according to the ACAROM official.

Ford goes low cost

The small class model Ford B-Max will begin production at the Craiova plant by the end of next year and its commercial launch will follow in 2012, announced Dionisio Campos, president of Ford Romania. The first copies of the firm’s upcoming low-class B-Max will be assembled at the plant from the end of next year and will be launched in serial production from 2012, according to Campos.

The company has already established a list of nearly 20 suppliers who will produce components for both the future small-class model, the B-Max, and the next generation light commercial Ford model, the Transit Connect.

Among the suppliers is Johnson Controls, which will produce seats for the future B-Max after investing some EUR 10 million, according to media reports, to establish the new production facility. Lear Corporation, an American company specialized in cable production, is another supplier.

In the first ten months of this year nearly 7,500 Ford Transit Connect vans rolled off the production line in Craiova, according to statistics from the Automotive Manufacturers and Importers Association (APIA), with over 99 percent being exported.

“Production at the plant is currently 85 units per day, according to market demand. For this reason, production next year will be at a similar level,” said Campos. The cars go to Germany, France, Spain and Italy, but the main export destination is the United Kingdom.

By the end of this year, Ford will complete a total investment of EUR 200 million in the Craiova plant, about one third of the total target of EUR 675 million promised through the privatization contract, initially by 2012, and now, in the crisis, by 2013, when the firm must reach production of 300,000 units per year.

In the absence of a third carmaker it is unlikely that Romania will reach the 1 million car production target announced by the presidential advisor, even by 2020.

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