Sky High in Slovakia

Joe Sherman
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Ibra Ibrahimovic
Sky High in Slovakia

Following Czechoslovakia's velvet divorce in 1992, cynics said that Slovakia, the poorer but more beautiful half of the seventy-four-year partnership, ought to receive alimony. After all, Slovakia had only two claims to fame: it made good tanks, which were no longer needed by the dead Warsaw Pact countries; and Andy Warhol's parents came from there, although the pop artist himself insisted, "I'm from nowhere."

Today, Slovakia definitely is somewhere. In a display of peasant grit and capitalistic opportunism, the country has not only risen out of the rubble of communism but has grabbed hold of a solid piece of the global auto industry. Smaller than West Virginia, with Alps-like mountains, lush Danube-basin plateaus, and a long history of oppression by its powerful neighbors, Slovakia now finds itself on the verge of being the world's biggest automaker.

Well, sort of.

The boast is a marketing gimmick. But a clever one. Slovakia is about to become the biggest automaker in the world per capita. By 2009, three assembly plants - an older Volkswagen operation near the capital of Bratislava, a newer Peugeot Citroën (PSA) plant near the walled-in city of Trnava, and Kia's brand-new, robot-packed monster strung along the wild Váh River in the Malá Fatra Mountains - will be producing some 900,000 vehicles per year in a nation of 5.4 million people. That shakes out to one new car for every six Slovaks.

The boom has made Slovakia the envy of the so-called "little tigers." The tigers are four members of Central Europe's post-communist rust belt: Poland, Hungary, the Czech Republic, and Slovakia. Industrially challenged after 1989, those countries now have eight assembly plants and hundreds of auto suppliers, and they are a key to the survival of automaking in the European Union, a sprawling economic system of 500 million people in twenty-seven countries, many with rising incomes and car lust. But the tiger with the sharpest claws and the biggest hunger is the smallest of the lot, Slovakia.

To better understand the transformation, I went there to talk with top managers, analysts, and critics of the car boom.

My first stop is Zilina, a small, funky city in the mountainous north. Kia's complex is located on a greenfield site just east of the city. Two miles long, with assembly, engine, and cockpit systems linked by automated material handlers, it was built quickly, in twenty-eight months, after some 800 landowners sold out to the government and moved away. Here, Kia is making the Cee'd (pronounced "seed"), an oddly named, Euro-designed hatchback for the midrange market. The Korean company, whose reputation is to jump in and make a big splash - none of that old-fashioned incremental stuff for Kia - loves technology, and the plant proves it. There are about 400 robots, enough surveillance cameras to please Big Brother, and a single, universal assembly line that can handle eight different models at once. In 2007, production on the line was 150,000 vehicles. In 2009, it ramps up to 300,000.

In-Kyu Bae, Kia's CEO in Slovakia, has a smart appearance that suggests he combines the power of a modest general and the hands-on attitude of a serious mechanic. Kia's motto, "The Power to Surprise," is sewn over a pocket. Bae says Kia came to Central Europe "to survive in a global market," that the culture shock of Slovakia "was tough." And that he is pleased. "This year, I'll make a profit," he declares. He'll do so by selling Cee'ds in competitive markets, including Germany, to demonstrate the car's appeal. "It is strong," he boasts. "Unlimited speed. If we are not successful in Germany, we can't be a success in Western Europe."

It sounds like Bae has his sights on one German competitor in particular. "Audi," he says, jutting out one arm and turning a thumb down. "Twenty years ago, it was a junk car." The thumb flips up. "Today, Audi has high name value." Bae sits back and crosses both arms. "Now, Kia can do that."

Volkswagen's CEO in Bratislava, Andreas Tostmann, isn't convinced that Kia's strategy is sound. A rising star at VW, Tostmann, 45, exudes Teutonic coolness. He wears rimless spectacles and a striped shirt and tie. When I ask if he's visited Kia's much-touted, robot-filled plant, he smiles faintly and says, "No." But he knows what is fundamental in this country: cheap labor. It is just as efficient and more flexible than robots.

"If you don't want to make use of Slovakia's low labor costs, OK," Tostmann says, alluding to Kia. "Then come in with a big technology investment, like Kia has. But that seems a little crazy to me." He explains his rationale: "In Germany, we have forty euros ($60) an hour labor costs. In Austria, thirty. In Spain, twenty-five to thirty. Here, it is seven euros an hour."

VW leans heavily on cheap labor. It has 9000 employees (Kia has 2000) working in eight large production halls on multiple assembly lines. "People from the poorer side of life," as Tostmann puts it, they produce mostly high-ticket Touaregs and Audi Q7s. One line pounds out Porsche Cayenne bodies, which go to Stuttgart for final assembly. A former mainstay, the low-end VW Polo, is now an anomaly in the SUV-dominated lineup. Total production this year will be about 250,000 vehicles.

"It doesn't matter what you make here," Tostmann says. "It will be profitable."

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