Automotive
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Czech automotive sector hurting
( 05 / January / 2009 )
The global automobile crisis that began in Detroit has hit at the economic heart of the Czech Republic.
“The sharp slowdown in European demand has dried up automobile and auto part production, which accounts for a fifth of the country’s total industrial output and 10 percent of gross domestic product,” daily Wall Street Journal (WSJ) said in its European edition. WSJ focuses on carmaker Škoda Auto, one of the fastest growing car brands in Europe and Asia, which will probably cut its wage costs by 75 percent due to the weaker demand. The carmaker is laying off temporary staff rather than regular employees and plans to suspend production for one month as well as temporarily shorten the working week to four days a week.
The decline in order numbers will spill over into the whole supply chain, that is, from producers over to the key suppliers and further down to other suppliers, said John Wormland, director of British car industry consultancy Autopolis.
The Czech Statistical Office (ČSÚ) reported that industrial production plunged 7.6 percent annually in October after expanding 8.9 percent in September, due to a sharp drop in automotive manufacturing, WSJ said. Czech auto exports fell 15 percent in October, sending the country’s external trade balance into deficit. The Czech current-account deficit nearly doubled in October, climbing from Kč 12.1 billion in September to Kč 21.99 billion due to the palpable drop in car exports, according to WSJ.
Shortly after the Velvet Revolution in 1989, Western investors reinvigorated the obsolete automobile making industry. The Czech Republic soon became a low-cost assembly center, and the production and assembly of cars became the engine of the whole economy, WSJ said.
According to Miroslav Plojhar, an emerging market economist at London investment bank JP Morgan Chase & Co., not only sectors directly related to the car production, such as tires, cars and car parts production are affected. It is also the indirect demand for energy, plastics and banking services that suffer. There is a strong multiplication effect, and if the car sector keeps dropping, it could drag the whole economy into recession, WSJ reported.
Czech Business Weekly