Currently in Hungary, the car industry accounts for a quarter of their industrial output. Germany’s Audi has just announced an over $1 billion expansion plan which will strengthen an economy that is struggling for growth. Hungary has become a center of production for export to the rest of the EU, just like the neighbouring Czech Republic. This isn’t just a big deal because of the amount of money being put into the project, but it also shows that these plants can become increasingly important over time as they do more than just simple assembly work.
Since Audi opened an engine plant in the city of Gyor in western Hungary 18 years ago, production has steadily increased. Gyor will now become one of the company’s four major production centers worldwide, making it able to handle all aspects of the manufacturing process. The other centers are in Germany and Belgium, making this the first in Eastern Europe, or any emerging market for that matter. They are spending $1.3bn on expanding production at the plant to 125,000 cars a year by 2013. Even the Hungarian government is chipping in with a subsidy of $61m, partly because 2,100 jobs are being created. Not only that, but it for sure will bring more jobs if you include the suppliers based nearby.
When Audi first opened the plant in Gyor, it was dealing with the German labor unions to introduce more flexible working, a problem it could avoid in Hungary. To bring about less controversy, it launched small-scale production of a new design used in a small number of models instead of using existing models (in essence taking jobs away from Germany). As the new range of engines was introduced across other Volkswagen models, the plant became a major engine producer.
This investment is of vast importance to the wider economy. The recession sent Hungary’s car production plummeting by more than 40% in 2009, but since the auto industry is again proving to be one of the best sources of investment and growth in the region. Now more car manufacturers are getting involved. A Mercedes factory is currently being built, and Opel, the German subsidiary of the United States’ General Motors, is now focusing engine production in the country. This could be a turning point for all of central Europe to bring in high-value investment. These factories will bring high quality jobs as new colleges and training facilities are being set up close to the Gyor plant. By diversifying its export base, Hungary can drive its economy through foreign investment. Most importantly this investment shows that Central Europe is starting to modernize their wider economy, which is shifting from the low-grade investment that has driven central European economies in the past.