Slovakia, EU's Detroit, Maneuvers Around Meltdown

Despite Economic Crisis, Auto Production Accelerates In Slovakia, The EU's "Detroit East"

(AP)  Every 60 seconds, to a robotic burst of Mozart's Symphony No. 40, a new Kia sedan or SUV emerges from beneath a cascade of sparks at the South Korean carmaker's gleaming assembly plant in this northwestern town.

Ex-communist Slovakia is fast becoming Europe's Detroit: a humming automotive haven where _ for now, at least _ there's no sign of the crisis gripping America's Big Three.

"We're talking about adding jobs, not eliminating them," says Jun-Bum Park, general manager of Kia Motors Slovakia, which opened the sprawling euro1 billion ($1.36 billion) complex in Zilina in December 2006.

Maria Novakova, secretary-general of the Automotive Industry Association of Slovakia, forecasts the creation of up to 30,000 new jobs between now and 2010 as the country's fledgling automotive sector prepares to shift into higher gear.

"We're in a good position to grow," she says. "Frankly, we don't want to be compared to Detroit because we don't want to end up like Detroit."

To be sure, the U.S., Canada, China, Japan and Russia all dwarf Slovakia in sheer number of cars produced. Japan turned out nearly 11.6 million vehicles last year, and the Big Three churned out just under 10.8 million.

But the tiny nation, which also hosts PSA Peugeot Citroen in the western town of Trnava and Volkswagen AG in the capital, Bratislava, leads the world in per-capita production.

Slovakia made a record 571,071 cars in 2007 _ 105.7 units for every 1,000 Slovaks. Industry officials say the East European nation of 5.4 million will top that this year with 610,000 cars, and it hasn't even hit full capacity yet.

Contrast that with the gloom settling over General Motors Corp., Chrysler LLC and Ford Motor Co., all desperate for Congress to approve $25 billion in loans _ a lifeline they contend is needed to stave off even deeper layoffs or bankruptcy.

Analysts say carmakers are drawn to Slovakia because it has a cheap but skilled work force, low taxes, weak labor unions, good highways and other logistics, and a strategic location in the geographic heart of Europe that's close to emerging markets in Russia, Ukraine and elsewhere in the former Soviet Union.

"It makes sense to be there," says Ferdinand Dudenhoeffer, director of the Center of Automotive Research at Germany's University of Gelsenkirchen, who calls Eastern Europe "the new El Dorado of production."

Can the country sustain its success in the face of recession? Dudenhoeffer is skeptical.

"There is no country or carmaker anywhere in the world that is immune from this crisis," he warns.

Slovakia made painful economic reforms before and after it joined the European Union in 2004. The payoff: Its economy is one of Europe's most vibrant, with 7.4 percent growth in 2008 despite the global meltdown and a solid 4 percent projected for next year. And on Jan. 1, 2009, Slovakia joins the common euro currency.

The average monthly wage is just euro650 ($840), with auto workers earning about euro800 ($1,033) a month. That's at least four times less than their counterparts in Germany earn, and pension and health care costs are also a fraction of what the Big Three pay out.

Although Slovak auto workers are unionized, they've struck a deal with foreign carmakers to ensure their wages keep pace with inflation and raises don't exceed a company's productivity in percentage terms.

"American unions are more drastic and demanding," says Kia's Park. "We are listening to our employees, trying not to have confrontations."

All that helps explain why a thriving network of suppliers and parts manufacturers has sprung up around the Kia, Peugeot Citroen and Volkswagen plants _ a euro20.8 billion ($26.8 billion) a year industry that employs 76,000 Slovaks.

Never mind that workers like Katarina Turanova, a senior trim line operator at the Kia factory in Zilina, can't afford to buy one of the cars she makes.

Turanoa, 33, acknowledges that without Kia, the town nestled in the foothills of the Mala Fatra mountains _ where craggy peaks are topped with the ruins of medieval castles _ easily could languish in a recession.

Instead, highway billboards highway cheerfully offer cars "Made in SlovaKIA."

"Unemployment is down, and there are new job opportunities," she says. "Zilina and all of Slovakia are finally on the map."

For Kia, the Zilina complex also gives it a foothold in the EU, without which it would be subject to 10 percent tariffs on its imports.

Myung-Chul Chung, an executive vice president, says that alone justifies its investment in Slovakia _ a cavernous and virtually self-contained complex that includes an engine factory and body, pressing and painting facilities.

But Chung says the country's expertise in manufacturing tanks, troop transport trucks and other military vehicles during the communist era also gave it an edge over other possible locations in the Czech Republic, Hungary and Poland.

In Zilina, Kia produces small, inexpensive, fuel-efficient models such as the CEE'D sedan and Sportage SUV, marketed to low- and middle-class buyers, and Chung says that will help it weather the economic storm. It still plans to add a third shift by 2010, when it hopes to operate around-the-clock.

Despite the generally rosy forecast for Slovakia, clouds are gathering elsewhere in the region.

Volkswagen's Skoda Auto AS unit in the neighboring Czech Republic is cutting production to deal with slackening demand, and analysts say 10,000 automotive jobs could be eliminated in that country in the next few months.

French-Romanian carmaker Dacia has halted production altogether until Dec. 7, and a key supplier has announced layoffs. Peugeot Citroen says it will lay off at least 2,700 workers, though it insists its assembly plant in Trnava won't be affected. And the Hungarian subsidiary of Japan's Suzuki Motor Corp. is planning to cut around 1,200 jobs.

Yet the economic slump didn't stop Hyundai Motor Co. from opening its first European production facility earlier this month _ a euro1 billion ($1.36 billion) plant near the eastern Czech town of Nosovice. And Peugeot Citroen says it intends to produce the new C3 Picasso exclusively in Slovakia starting in 2009.

Chung says he's watching closely as the drama unfolds in Detroit.

But he won't presume to offer any advice to the original Motown as America's automakers spin their wheels.

"The Big Three are the history of this industry," he says. "We're very young _ and we're still learning."

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Associated Press Writers Bree Fowler in New York and Karel Janicek in Zilina, Slovakia, contributed to this report.