In neutral gear
Asked to describe the current state of Bulgarian car parts manufacturers, Ognyan Vassilev, quality control director at electronics manufacturer EPIQ Electronic Assembly, relates an African proverb.
"Every morning, the antelope wakes up knowing that it must outrun the fastest lion, or it will be eaten. Every morning, the lion wakes up knowing that it must run faster than the slowest antelope, or it will starve."
"The company’s success on the market nowadays depends on how fast we work and the quality of the product. Unless we improve ourselves, we will soon stop being good," he says.
The company owns three plants in Botevgrad in central Bulgaria, which account for two thirds of the manufacturing in the group, the rest spread over facilities in China, the Czech Republic, France, Germany and Mexico.
So far, it has invested more than 20 million euro in Bulgarian operations and its revenue for 2008 topped 268 million leva. One of the few high-tech investments in Bulgaria, the local subsidiary has expanded rapidly and is often hailed as an example of good management practices.
But even EPIQ could not avoid being affected by the economic slowdown. In early January, two production facilities had to switch to employing its workers part-time, which resulted in a salary cut of 30 per cent, on average. The direct reason, however, is not the economic crisis, but falling quantities of goods from subcontractors.
"We have made very few staff redundant since January. We prefer to continue paying our employees even if they are not employed full-time and keep them with the company," EPIQ said. "Over the past several months we have had unexpectedly large orders from some of our customers and we expect that in the second half of the year, the market situation will improve. Still, we will recover to where we were before the recession struck only in a year or two."
Two other major car parts manufacturers in Bulgaria – French firm Montupet, which has a production facility in Rousse, and Japan’s Yazaki in Yambol – do not seem greatly affected and are not complaining about a lack of new orders. Montupet’s plant in Rousse started several months ago making engine cylinder heads for Dacia as part of a long-term contract with Renault, the majority shareholder in the Romanian car maker.
Quality control testing prior to the launch of production took five months, human resources manager Ivelin Dimitrov said. The company is now quality testing the production cycle of engine parts that would be manufactured for Renault and Audi.
Yazaki, too, relies heavily on a strategic partner. At the start of the year, the company began production of cables for the Renault Scenic. It also makes all the wiring that goes into different versions of the Renault Megane. "Both models are highly sought after in Europe and since February we have seen our orders double," general manager Uwe Abraham said. Abraham said he expected Yazaki’s turnover in Bulgaria to rise from 18 million euro in 2008 to 53 million euro in 2009. The company will even hire additional staff, increasing its payroll from 2850 to 3000 over coming months.
Bumpy road
Not all car manufacturers have enjoyed a smooth ride, however. Among the firms that have felt the pinch in Bulgaria is Switzerland Oskar Ruegg, which manufactures parts for motor vehicle lighting systems in Stara Zagora. Its main customers are Audi, Volkswagen and Daimler. "We have felt the impact of the crisis very strongly since November," the administrative manager of Oskar Ruegg Bulgaria, Tsvetomira Hristova, said.
In November, orders dropped by 15 per cent and, since most components are hand-made, the company had to lay off staff. By now, the decline in orders has reached 50 per cent of the pre-crisis levels, forcing the management to make six per cent of its workers redundant and move the rest to a four-hour working day, with each employee receiving half a salary and 120 leva on top.
"We are living in a time of unprecedented challenges. The motor vehicle industry, the main market for Melexis, has been hit especially hard by the financial and economic crisis and 2008 was a bad year for the company," Melexis Bulgaria financial director Diana Dimitrova said.
Revenues decreased by nine per cent for the full year, with sales shrinking the most in the fourth quarter, when demand for cars reached its lowest. Operating profit fell 29.6 million euro, prompting the company to make 10 per cent of staff redundant globally. "The Bulgarian unit is making its contribution. We are periodically halting production at our three production facilities for periods ranging from several days to two-and-a-half weeks. In Germany and Belgium, we use every opportunity to reduce the working hours of all our personnel, but in Bulgaria, unfortunately, there are no such state programmes," Dimitrova said.
All measures are geared towards allowing Melexis to generate cost savings and to ensure sufficient cash generation over the next quarters, as well as improving gross margins in the long term.
New opportunities
Increasingly, companies that manufacture parts for the motor vehicle industry are looking for opportunities to branch out their operations and minimise the risk to their business. Some Bulgarian companies have already started doing the same – the subsidiary of Germany’s Grammer, which manufactures car seats in Troudovetz, is also making seats for buses, trucks and tractors. Its management is trying to avoid laying off any of its 570 employees by moving them to other subsidiaries.
EPIQ, for its part, branched out long ago, manufacturing parts for telecommunications systems (Sony), household appliances (Tefal, Rowenta, SEB Group, Calor) and medical equipment (IEM, Tefal).
Melexios too is not relying only on the motor vehicle industry. About 70 per cent of its revenue is generated by the sector, but the rest come from telecommunications, medical equipment and the industrial sector.
Oskar Ruegg Bulgaria’s Tsvetomira Hristova said: "We are also working on developing new products and plan to launch a production line servicing another sector in the autumn."
In times of crisis, good managers become more inventive in seeking new opportunities for their business and that might just be one of the factors that will speed economic recovery.
Koreans on the prowl
South Korean companies are interested in investing in car parts manufacture in Bulgaria, with the country’s embassy commissioning a report on the automotive and related industries from the National Chamber of Electrical Engineering, the organisation’s chairperson Roumen Atanassov has said. The South Korean firms, however, are still only at the fact-finding phase.
According to Deloitte Consulting, potential investors in the sector are looking at, in order of decreasing importance, political and economic risks, the availability of qualified personnel, foreign language proficiency, infrastructure, corruption and, lastly, tax breaks.
A recent survey by management consultancy A.T. Kearney, carried out among 180 managers in the automotive sector worldwide, showed that about 40 per cent plan to relocate manufacturing capacities to other countries, while another 15 per cent said they were considering the option.
Kapital weekly, issue 25
"Every morning, the antelope wakes up knowing that it must outrun the fastest lion, or it will be eaten. Every morning, the lion wakes up knowing that it must run faster than the slowest antelope, or it will starve."
"The company’s success on the market nowadays depends on how fast we work and the quality of the product. Unless we improve ourselves, we will soon stop being good," he says.
The company owns three plants in Botevgrad in central Bulgaria, which account for two thirds of the manufacturing in the group, the rest spread over facilities in China, the Czech Republic, France, Germany and Mexico.
So far, it has invested more than 20 million euro in Bulgarian operations and its revenue for 2008 topped 268 million leva. One of the few high-tech investments in Bulgaria, the local subsidiary has expanded rapidly and is often hailed as an example of good management practices.
But even EPIQ could not avoid being affected by the economic slowdown. In early January, two production facilities had to switch to employing its workers part-time, which resulted in a salary cut of 30 per cent, on average. The direct reason, however, is not the economic crisis, but falling quantities of goods from subcontractors.
"We have made very few staff redundant since January. We prefer to continue paying our employees even if they are not employed full-time and keep them with the company," EPIQ said. "Over the past several months we have had unexpectedly large orders from some of our customers and we expect that in the second half of the year, the market situation will improve. Still, we will recover to where we were before the recession struck only in a year or two."
Two other major car parts manufacturers in Bulgaria – French firm Montupet, which has a production facility in Rousse, and Japan’s Yazaki in Yambol – do not seem greatly affected and are not complaining about a lack of new orders. Montupet’s plant in Rousse started several months ago making engine cylinder heads for Dacia as part of a long-term contract with Renault, the majority shareholder in the Romanian car maker.
Quality control testing prior to the launch of production took five months, human resources manager Ivelin Dimitrov said. The company is now quality testing the production cycle of engine parts that would be manufactured for Renault and Audi.
Yazaki, too, relies heavily on a strategic partner. At the start of the year, the company began production of cables for the Renault Scenic. It also makes all the wiring that goes into different versions of the Renault Megane. "Both models are highly sought after in Europe and since February we have seen our orders double," general manager Uwe Abraham said. Abraham said he expected Yazaki’s turnover in Bulgaria to rise from 18 million euro in 2008 to 53 million euro in 2009. The company will even hire additional staff, increasing its payroll from 2850 to 3000 over coming months.
Bumpy road
Not all car manufacturers have enjoyed a smooth ride, however. Among the firms that have felt the pinch in Bulgaria is Switzerland Oskar Ruegg, which manufactures parts for motor vehicle lighting systems in Stara Zagora. Its main customers are Audi, Volkswagen and Daimler. "We have felt the impact of the crisis very strongly since November," the administrative manager of Oskar Ruegg Bulgaria, Tsvetomira Hristova, said.
In November, orders dropped by 15 per cent and, since most components are hand-made, the company had to lay off staff. By now, the decline in orders has reached 50 per cent of the pre-crisis levels, forcing the management to make six per cent of its workers redundant and move the rest to a four-hour working day, with each employee receiving half a salary and 120 leva on top.
"We are living in a time of unprecedented challenges. The motor vehicle industry, the main market for Melexis, has been hit especially hard by the financial and economic crisis and 2008 was a bad year for the company," Melexis Bulgaria financial director Diana Dimitrova said.
Revenues decreased by nine per cent for the full year, with sales shrinking the most in the fourth quarter, when demand for cars reached its lowest. Operating profit fell 29.6 million euro, prompting the company to make 10 per cent of staff redundant globally. "The Bulgarian unit is making its contribution. We are periodically halting production at our three production facilities for periods ranging from several days to two-and-a-half weeks. In Germany and Belgium, we use every opportunity to reduce the working hours of all our personnel, but in Bulgaria, unfortunately, there are no such state programmes," Dimitrova said.
All measures are geared towards allowing Melexis to generate cost savings and to ensure sufficient cash generation over the next quarters, as well as improving gross margins in the long term.
New opportunities
Increasingly, companies that manufacture parts for the motor vehicle industry are looking for opportunities to branch out their operations and minimise the risk to their business. Some Bulgarian companies have already started doing the same – the subsidiary of Germany’s Grammer, which manufactures car seats in Troudovetz, is also making seats for buses, trucks and tractors. Its management is trying to avoid laying off any of its 570 employees by moving them to other subsidiaries.
EPIQ, for its part, branched out long ago, manufacturing parts for telecommunications systems (Sony), household appliances (Tefal, Rowenta, SEB Group, Calor) and medical equipment (IEM, Tefal).
Melexios too is not relying only on the motor vehicle industry. About 70 per cent of its revenue is generated by the sector, but the rest come from telecommunications, medical equipment and the industrial sector.
Oskar Ruegg Bulgaria’s Tsvetomira Hristova said: "We are also working on developing new products and plan to launch a production line servicing another sector in the autumn."
In times of crisis, good managers become more inventive in seeking new opportunities for their business and that might just be one of the factors that will speed economic recovery.
Koreans on the prowl
South Korean companies are interested in investing in car parts manufacture in Bulgaria, with the country’s embassy commissioning a report on the automotive and related industries from the National Chamber of Electrical Engineering, the organisation’s chairperson Roumen Atanassov has said. The South Korean firms, however, are still only at the fact-finding phase.
According to Deloitte Consulting, potential investors in the sector are looking at, in order of decreasing importance, political and economic risks, the availability of qualified personnel, foreign language proficiency, infrastructure, corruption and, lastly, tax breaks.
A recent survey by management consultancy A.T. Kearney, carried out among 180 managers in the automotive sector worldwide, showed that about 40 per cent plan to relocate manufacturing capacities to other countries, while another 15 per cent said they were considering the option.
Kapital weekly, issue 25