Parts makers are welcome in Romania

By Martin Dokoupil From Reuters| Apr 19 2007
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SIBIU, Romania Standing near buzzing weaving machines that spit out hundreds of meters of pink fabric every day for car airbag cushions, Christian-Alex Dodu points to an empty gray floor.
 
"There's enough space for new machines," he shouted above the din of the machinery. "By the end of this year, it will be full."
 
A few years ago, this was just a green field on the outskirts of the medieval city of Sibiu. Now, it houses a shiny plant for the Japanese car parts maker Takata, for whom Dodu is director for strategic production planning in Romania.
 
Romania is fighting to attract companies like Takata, which bring in the technology, jobs and hard currency that are badly needed in the poor, former Soviet satellite as it works to enter the European Union next year.
 
The European Commission, the EU's executive, will issue a recommendation on Tuesday on whether Romania is fit to follow most of its East European peers into the EU in 2007, or whether a one-year delay is needed.
 
Romania and its Black Sea neighbor Bulgaria missed the first wave of the EU's eastward enlargement in 2004 because of the slow pace of reforms.
 
Since then, Romania's transformation has gained pace, and it expects foreign direct investment to climb 44 percent to a record €7.5 billion, or $9.5 billion, this year.
 
The World Bank described Romania this year as one of the fastest-reforming countries in the world.
 
But many of the changes have failed to stick, and Romania is still struggling with dilapidated Communist-era infrastructure, red tape and endemic corruption, the subject of a strongly worded letter from EU officials this month.
 
Nonetheless, prospects for EU entry, along with low taxes and low-cost labor, make Romania an attractive location for parts makers who supply the international car plants that now dot the East European landscape.
 
The region has become a powerhouse in auto production over the past few years as industry majors shift their assembly lines to the former Soviet satellites, encouraged by low wages, institutional stability provided by EU membership and prospects for fast productivity growth.
 
Despite global overcapacity, carmakers throughout the region are raising production, and that is helping the order books of auto parts business for companies like Takata.
 
Romania's average wage rate is around $400 a month, considerably lower than the $890 in the Czech Republic and $620 in Slovakia, both of which have become regional centers for the car industry.
 
"It's more likely that suppliers may come to set up plants, because the supplier industry is not so developed in Romania as it is in Slovakia, Czech Republic or Poland," said Carol Thomas, an analyst at JD Power Automotive Forecasting.
 
From 2002, the total sales of car parts makers in Romania nearly doubled to €1.1 billion in 2004, according to a study by Central Europe Trust Co., a consultancy based in Bucharest. The car industry accounts for about 8 percent of the country's exports.
 
Romania ranked as the sixth-largest automaker in Central and Eastern Europe last year with 175,000 cars produced, slightly behind Slovakia and Slovenia. The region's top producer, Russia, assembled more than one million vehicles, according to JD Power.
 
Romanian production is dominated by Renault's Dacia plant, which produces the no-frills Logan brand, with an annual output of 170,000 cars.
 
But the days of Renault's supremacy may be numbered as its rivals seek to take over a smaller carmaker, Daewoo Automobile Romania, from the government in coming months.
 
"A new strategic investor for the plant can definitely boost the car industry in Romania, which can be seen as an engine for the economy," the economy minister, Codrut Seres, said.
 
About 700,000 airbag cushions leave Takata's Sibiu plant, opened a year ago, every month for assembly lines in the Czech Republic, Poland and Germany.
 
BMW, Volkswagen, Mercedes, Ford, Opel and Toyota use airbags from Takata, which competes on the global market with Autoliv of Sweden and TRW of the United States.
 
"Romania is the best option," Dodu of Takata said of his company's decision to locate in the country. "There is only one border to cross to the EU."

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