The Automobile Sector - One of the Stars of the Bulgarian Industry in Recent Years

Novinite Insider » OPINIONS | April 25, 2019, Thursday // 14:12| Views: | Comments: 0
Bulgaria: The Automobile Sector - One of the Stars of the Bulgarian Industry in Recent Years

The production of parts and components for cars is one of the sectors whose expansion in recent years has become one of the motors of the Bulgarian industry and of the economy as a whole. Thanks to the common European market and the globalization of car production, Bulgarian car parts manufacturers have successfully integrated into European and international supply chains as suppliers and subcontractors for world brands such as BMW, Mercedes, Renault, Nissan, Audi, Ford, Porsche and others, and even recently for Tesla, writes Desislava Nikolova, Chief Economist at the Institute for Market Economics for Money.bg.

Both companies with Bulgarian capital and companies with foreign capital work in the sector. Towards the end of 2017, foreign investment in vehicle production (where car parts are a major part) reached € 340 million cumulatively, growing almost four times compared to 2008. Japan's Yazaki is among the more famous foreign investors in this sector with three production facilities in the country (in Sliven, Yambol and Dimitrovgrad), where cable car installations are produced and which employs about 5 500 people. Another large-scale foreign investment in the sector is that of the "Dreaming Technologist", working in the higher-tech segment. They have two plants in the country (in Botevgrad and near Plovdiv), where they produce automobile sensors, as well as a business center and a test laboratory in Sofia.

According to information from the Bulgarian Investment Agency, other foreign investors in the sector are Turkish "Sa-Ba Bulgaria" (which has recently become American), in whose factory Dimitrovgrad are made lighting fixtures for cars, the Canadian company "Magna" Plovdiv oil pumps for the new Mercedes-Benz C-Class, the French "Montuipe", which produces in Rousse disc brakes for the Audi Q7, the German "Bertella Thermal Control", which produces Bojuriste air conditioning systems for BMW models, Audi, Volkswagen, and Porsche Cayenne. According to Stamen Yanev, Director of BAI, in every 8 of the 10 produced cars there are parts produced in Bulgaria.

In some specific segments of this sector, Bulgarian manufacturers have become an absolute market leader - for example, according to Colliers International's recent sector analysis of 2017, 90% of all airbag sensors in European cars are produced in Bulgaria. According to the same survey, the preferred locations for such productions are around Sofia, Pernik, Vratsa, Mezdra, Trakia economic zone to Plovdiv, Sliven, Yambol, Kardjali, Targovishte, Rousse. Although the concentration and scale of this business are larger in southern Bulgaria, there are a number of businesses in Northern Bulgaria.

The sector in Bulgaria is extremely diverse in terms of the product range, producing more trivial parts in the country that do not require a highly skilled workforce (such as the cable installations mentioned, for example) as well as more advanced technological parts and systems behind who are researchers and engineers. Speaking of R & D in this field, it is important to say that in Bulgaria, according to the above-mentioned Colliers report, there are already three R & D centers in the car industry, all three of which are foreign investors - American "Viseon" and "Seneca Texolojis" and the German "Ber-Hella Thermocontrol".

The presence of these centers is indicative of a good environment both for more standard production processes, which are attracted mainly by relatively low labor costs and higher technology, which are guided by the presence of good engineering and other specialists. Among the latter, for example, are the electronic control systems, the overall design of the electrical systems, the diagnostics and others.

Otherwise, almost everything part of the car is produced in the country - bearings, cables, air conditioning systems, filters, accumulators, gearboxes, alternators, starters, switches, steering wheels, injection systems and modules, alarms, installations, sensors, seat parts, lighting fixtures and more.

Given that there is no car production in Bulgaria, almost everything is exported to production facilities for cars around the world. In the last years (after the 2008-2009 crisis), the sector globally picked up speed in line with the economic recovery, and this has also had a positive impact on the Bulgarian production and sales of car parts. The export of car parts reached BGN 1.7 billion in 2018 compared to only BGN 371 million 10 years earlier. Of course, we can not make this sector one of the country's main export sectors with its export share of 3.2% but its sales growth is remarkable - just 10 years ago, its share in exports was only 1.2% .

In line with investment in this sector and favorable business environment, the number of employees in this sector increased more than 2 times between 2008 and 2018, from 10,823 in the last quarter of 2008 to 24,047 in the same period in 2018 , which is over 4% of industrial workers at the end of 2018 or about 1% of employees in the economy. As for the jobs created by this sector, it is very important to take into account the important social role it plays, especially with its segments that do not need skilled work. These productions create employment for unskilled or low skilled workers who, after the collapse of the property bubble and the sharp drop in employment in construction, find it hard to find work in the country. By the way, part of the employers in this sector show good practices for working with the Roma population (including Yazaki) and play an extremely important role both for this vulnerable group on the labor market and for the society in terms of overcoming of different stereotypes and prejudices towards this minority.

Overall, the car manufacturing sector in Bulgaria marks a remarkable upturn after the crisis, due both to the favorable conditions for the production and sales of cars in Europe and worldwide and to the obviously attractive conditions for doing such business in Bulgaria . Among the main factors that attract foreign and local investors to this industry is still the low labor cost, including the relatively low taxes on labor. This, however, is changing due to staff shortages and the corresponding wage growth, which means that some of the investors in this industry (in its more standard and artisanal segments) are likely to withdraw from Bulgaria in the direction of destinations with cheaper labor in the coming years.

However, the fact that companies in the higher-technology segments come and work here also means that this sector can be restructured and continue to grow even when withdrawing part of its investors, for whom low labor costs are the main factor. It seems that the sector in the country has not yet reached its point of saturation - despite the increase in salaries in the last years, the news for the next investor is almost daily. However, it is noticeable that most of the new investors are targeting less developed regions, where labor costs remain relatively lower. An example is Vratsa, where a German-owned electronic parts and equipment company is being built, and only a few days ago was announced the start of a project for BGN 22 million by Teklas-Bulgaria for the production of rubber and plastic gaskets for cars.

For several months the decision of the German concern Volkswagen, which put Bulgaria on the short list for its future plant for several of its brands, is also expected. Besides this would be the first investment in the production of finished cars, it would be on a completely different scale - more than 1.4 billion euros on preliminary information. Such an investment would now place Bulgaria on the map of the world's manufacturers in this industry and send a very strong signal to other potential investors - not only in automotive production but also in other sectors. Given this, it is extremely important that the institutions involved in the negotiations with the German concern and its consultants do the job well. Otherwise, Bulgaria is doomed to remain on the periphery of this sector, despite the good trends of recent years.

This material originally appeared on Money.bg on 25.04.2019 

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