Korea, Poland, Typify Global Automotive Boom

BY investing in Poland's domestic automobile market, international automakers have their sights set not only on Poland but the East and also the West.

"Poland is the practical, logical, efficient, and a politically safe move towards the East," including the Russian and other East European markets, says Aleksander Czepurko, director of PlanEcon-Poland, a commercial research firm specializing in the economies of those regions.

Poland's own appetite for autos is growing. And low labor costs could help manufacturers produce here for Western European customers as well.

Last year, the Polish car industry received a boost as General Motors Corp., South Korea's Daewoo Motor Corp., and Ford Motor Company raced to build a base in Poland. They joined Fiat Auto, which invested in two manufacturing facilities in 1992. In addition to Poland's promise as an exporter, the car- makers are seeking access to Poland's relatively closed market, with high duties and import quotas.

The roads in large cities like Warsaw and Krakow now swell with vehicles. For the first 10 months of 1995, Poles bought 228,684 new cars, a 7.7 percent increase over the same period in 1994. Polish passenger-car market projections have new-car sales reaching 350,000 by the end of 1996, and 500,000 by the end of the century. Most new-car buyers come from large cities where incomes are highest.

Poland hopes to boost its role as an East-West trade crossroads by building a modern highway structure over the next 20 years that will connect Western Europe with the former Soviet Union. More cars will travel over the better roads, which will serve as a trade link for automakers as well as the broader economy.

"The stakes are high and the development of trade between East and West is vital and important to Poland's future economic development," Dr. Czepurko says.

After several years of negotiating with the Polish government and assembling vehicles in Poland, GM's German subsidiary Adam Opel AG announced plans to build a modern manufacturing plant in southwestern Poland. The 2,000-worker plant will make about 70,000 cars annually.

GM hopes to break ground in April and begin production in early 1998.

The Polish Opel will contain 60 percent local parts. A company spokesman says that GM wants to source parts here not only for the Polish plant but for its worldwide network.

GM was also negotiating with the Polish government over $350 million privatization plan for the state-owned auto manufacturer, Passenger Car Automobile Plant (FSO). But it lost the deal in November to Daewoo Motors.

Daewoo slammed the door on GM's bid when the South Korean firm agreed to invest $1.12 billion by 2001 in a joint venture with the ailing FSO. The FSO-produced Polonez, the best-selling car in Poland, captured 26 percent of the market this year with 59,276 vehicles sold.

FSO, which is the last automaker to be privatized in Central Europe, will be owned 70 percent by Daewoo and 30 percent by workers. Daewoo officials have set a production target of 220,000 Daewoo automobiles by 2001. Currently, Daewoo's imports give it a scant 1.4 percent of the Polish market.

Fiat's $260 million investment in Poland's Small Car Automobile Plant (FSM) in 1992 has paid off for the Italian carmaker. Fiat captured 51 percent of the Polish market in the first 10 months of 1995 by selling 117,000 domestic or imported cars.

Ford began assembling Escorts and Transit vans at a plant in Plonsk in October.

David Thursfield, director of Ford's body and assembly division in Europe, says, "To us, Poland is the key to Central Europe not only because of its geopolitical location but also because it has good potential for industrial development."