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Carmakers in higher gear in Central Europe

By Karel Janicek

Associated Press

Published: Wednesday, Oct. 26 2011 12:10 a.m. MDT

In this photo taken Sept. 29, 2011, the assembly line at the Hyundai car plant in Nosovice, northeast Czech Republic, is seen. South Korea's Hyundai introduced last month a third shift at its plant near the northeastern Czech town of Nosovice to be able to produce SUVs and sedans for European markets 24 hours a day. Despite the painful financial turmoil that has engulfed the eurozone and cast uncertainty over world economic growth, there is still plenty of demand for new cars from low-cost plants like the one at Nosovice.

Petr David Josek, Associated Press

NOSOVICE, Czech Republic — If it's true that the global economy is grinding to a halt, carmakers in Central Europe seem to have not heard about it.

Assembly lines continue to hum and some are even increasing production and hiring new workers as the automotive sector shifts to a higher gear in what seems to have become a safe haven region for many companies.

South Korea's Hyundai introduced last month a third shift at its plant near the northeastern Czech town of Nosovice to be able to produce SUVs and sedans for European markets 24 hours a day.

Despite the painful financial turmoil that has engulfed the eurozone and cast uncertainty over world economic growth, there is still plenty of demand for new cars from low-cost plants like the one at Nosovice.

"We do not expect any problems with car sales in Germany and Europe in the near future," said plant spokesman Petr Vanek.

"If we just look at Germany itself, August year to year, 2010 to 2011, there was an increase on the car market of 19 percent," he said.

Automakers invested in the Czech Republic and neighboring countries are attracted by the cheap but skilled work force, low taxes, weak labor unions and good highways and train connections. That combination makes the country a desirable place for investment even during an economic slowdown, when costs need to be cut in more expensive developed markets like Western Europe.

The region is also strategically placed in the geographic heart of Europe — close to the continent's biggest economies as well fast-growing emerging markets to the east, like Russia.

The €1.12 billion ($1.51 billion) Nosovice plant has been steadily increasing output since it opened three years ago, in the middle of a global credit crunch and recession. It sold 200,010 of Hyundai's i20 compact cars, i30 station wagons and ix35 SUVs across 48 countries in 2010.

With its new third shift and 755 new workers in place, the company hopes sales will reach 240,000 this year and 300,000 by 2013.

Just on the other side of the border from Nosovice, business is also booming in the northwestern Slovak city of Zilina, known as Europe's Motor City or a "Detroit East."

South Korea's Kia Motors Corp., which is part of the Hyundai Motor Group, just opened a new €100 million ($135 million) motor plant there and is hiring another 1,000 new workers to add a third shift in early 2012.

"So far, we have enough orders," plant spokesman Dusan Dvorak said.

In the Slovak capital, Bratislava, a Volkswagen AG plant has been producing the Up, a new subcompact car, since August. It already makes the Volkswagen Touareg, the Audi Q7 and the bodies of the Porsche Cayenne.

It has also started producing low-emissions city cars for Volkswagen's Skoda Auto and Seat brands. A €308 million investment in the facility created 1,500 new jobs and should boost total production from 144,000 units in 2010 to some 400,000 next year.

Skoda Auto in the Czech Republic has reported increasing sales in the key European markets as well as in the faster-growing Asian economies. It expects global sales to grow by double digits this year to well over its record of 800,000 vehicles.

The region is of course not immune to the global economic slowdown, and the first warning signs have appeared.

A plant of French carmaker PSA Peugeot Citroen in the western Slovak city of Trnava announced last week it is halting production lines for nine days between Oct. 28 and Nov. 18 due to falling demand linked to "a tense economic situation and social unrest in Europe."

Despite the output halt, the plant is still planning to ramp up annual output to 300,000 cars by introducing a third shift in July 2012, spokeswoman Ivana Pavelkova said. That is a sharp increase from last year's production of 186,000 cars.

Renault SA's subsidiary Dacia in Romania reported a 21.4 percent drop in sales in its key French market while car exports for the first 7 months of 2011 were down by 7.7 percent compared with 2010 in that country.

The heavy investment in automaking in the region is also creating concerns that it may become a bubble ready to burst.

Tomas Huner, deputy Industry and Trade Minister warned that cars represent more than 20 percent of overall industrial output in the Czech Republic. That's "the maximum for the industry's stability," he said.

"If ... more car plants are built then the industry would not benefit from it any more," Hunar told The Associated Press.

From January through September, Czech car factories, including a Toyota and Peugeot Citroen small car joint venture, produced a total of 895,728 units, up 11.4 percent on the year.

Despite the warnings, the mood in Nosovice remains optimistic.

Tomas Pomajblik, 27, took a job recently at the Hyundai assembly line despite having a university degree because he believes there's room for his "professional growth."

"I can see that Hyundai is here to stay for a long time."

Alison Mutler in Bucharest and Vanessa Gera in Warsaw contributed to this report.

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