Romanian car parts industry shifts into higher productive gear

SIBIU, Romania (Reuters) – Standing near buzzing weaving machines that spit out hundreds of meters of pink fabric every day for car airbag cushions, Christian-Alex Dodu points to an empty gray floor. «There’s enough space for new machines,» he shouted above the din of the machinery. «By the end of this year, it will be full.» A few years ago, this was just a green field on the outskirts of the medieval Romanian city of Sibiu. Now, it houses a shiny plant for Japanese car parts maker Takata Corp, for whom Dodu is director for strategic production planning in Romania. Romania is fighting to attract firms like Takata, which bring in technology, jobs and hard currency, badly needed in the poor former Soviet satellite as it works to enter the European Union next year. The EU’s executive will recommend on September 26 whether Romania is fit enough to follow its East European peers into the EU in 2007, or if a one-year delay is needed. Romania and Black Sea neighbor Bulgaria missed the first wave of the EU’s eastward enlargement in 2004 due to slow reforms. Since then, Romania’s transformation has gained pace, and it expects foreign direct investment to climb 44 percent to a record 7.5 billion euros this year. Earlier this year, the World Bank said it was the second-fastest reforming country in the world. But many reforms have failed to stick and Romania is still struggling with dilapidated communist-era infrastructure, red tape and endemic corruption, the subject of a strongly worded letter from EU officials on September 8. Nonetheless, prospects for EU entry, along with cut-rate taxes and cheap labor, make Romania an attractive location for parts makers who supply the international car plants that dot the Eastern European landscape. Automotive powerhouse The region has become a car sector powerhouse over the past few years as industry majors shift their assembly lines to former Soviet satellites, encouraged by cheap labor, institutional stability provided by EU membership and prospects for fast productivity growth. Despite global overcapacity, carmakers throughout the region are boosting production, fueling the auto parts business for companies like Takata. Romania’s low wages of around $400 a month compare with $890 in the Czech Republic and $620 in Slovakia, both regional strongholds in the car industry. «It’s more likely that suppliers may come to set up plants, because the supplier industry is not as developed in Romania as it is in Slovakia, the Czech Republic or Poland,» said Carol Thomas, analyst at JD Power Automotive Forecasting. Since 2002, total turnover of car part makers in Romania nearly doubled to 1.1 billion euros in 2004, according to a study by Bucharest-based Central Europe Trust Company. The car industry accounts for some 8 percent of the country’s exports. Romania ranked as the sixth-largest automaker in Central and Eastern Europe last year with 175,000 cars produced, slightly behind Slovakia and Slovenia. The region’s top producer, Russia, assembled more than 1 million vehicles, according to JD Power. Romanian production is dominated by Renault’s Dacia plant, which produces the no-frills Logan brand, with an annual output of 170,000 cars. But the days of Renault’s supremacy may be numbered as its rivals seek to take over smaller carmaker, Daewoo Automobile Romania, from the government in coming months. «A new strategic investor for the plant can definitely boost the car industry in Romania, which can be seen as an engine for the economy,» Economy Minister Codrut Seres told Reuters. Some 700,000 airbag cushions leave Takata’s Sibiu plant, launched a year ago, every month for assembly lines in the Czech Republic, Poland and Germany, where inflators are mounted. BMW, Volkswagen, Mercedes, Ford, Opel and Toyota all use airbags from Takata, which competes on the global market with Swedish Autoliv and US-based TRW. Takata hopes to boost production to up to 8 million airbag cushions next year. The number of employees could nearly double by 2009 from the current 750. The Japanese firm also makes some 4.8 million steering wheels and 5.5 million safety belts a year in the Romanian city of Arad close to Hungarian borders. «Romania is the best option. It has a tradition in the textile industry… and there is only one border to cross to the EU,» Dodu said of his firm’s decision.