Many financial commentators have forecast that after the current recession ends, or at least steadies, Hungary may be converted into yet another export-dependent economy. By this estimate, automotive will be in better shape than most industries in the country; 90% of Hungarian-made cars and 88% of its engines and components are exported. And there will be benefits from the scrappage initiatives being introduced in many of its European export markets.
Since the early 1990s, several foreign car manufacturers, such as Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier One suppliers, have set up production facilities there. Additionally, they are soon to be joined by Daimler, in the shape of a full production plant making A- and B-Class models at a greenfield site plant 80km south of the capital, Budapest.
As with all European Union countries, Hungary is restricted as to how much direct financial incentive it can offer to any prospective incoming employer. That said, help is often given in other ways, through tax allowances, training subsidies and improvement of infrastructure, road and rail link building etc. This despite the EU seeking to have a ‘level playing field’ for all its members in this area.
To get the governmental view of how and why carmakers have located in Hungary, AMS spoke to Csaba Kilián, Executive Investment Director, Investment Promotion Directorate, Investment and Trade Development Agency of Hungary.
What makes Hungary attractive to carmakers? “50% of the total investment of an incoming company can be subsidised by us and there are differences among the regions in Hungary,” says Kilián. “Budapest enjoys the lowest ‘intensity ratio’, 25% maximum, while two-thirds of Hungary can contribute 50% to projects. This consists of part cash, part tax breaks, and we can give some job creation subsidies. And on top of the EU ratio, we can give some training subsidies.
The tax relief can last for a maximum of 10 years.”
With Audi, GM Powertrain and Suzuki already well established, and with Mercedes starting production in 2012, one might expect the region to concentrate on attracting a ‘supporting cast’ of suppliers. To this Kilián says: “These go together, if we can bring more carmakers, they will bring suppliers with them to service their needs.”
The Daimler plant coming into the country is a major boost to the local and national economy. Kilián outlines some of the details: “450 hectares of greenfield have been allocated for the new plant. This was a very complex deal and the deciding factors were the cost competitiveness and high quality of the workforce, and the good road and rail infrastructure. The new plant will be just 2km from the M5 highway, with a good link road that will be widened. The rail connection is next to the site, which has a direct link to the main rail network of Europe.”
Part of the site is destined for a supplier park, and there are close to 60 hectares available just a few hundred metres away.
The high standards of technical education in Hungary can be attractive to incoming carmakers and suppliers. ITD-H works as a ‘matchmaker’ in this area, as Kilián explains:
“There have already been many meetings between Daimler and the local universities and technical schools. Daimler expects a high level of education in the workforce, we are expecting a very good cooperation in this area.”
As in many areas, Kilián expects to see Hungarian management take over from Daimler’s international service personnel (ISPs) as the plant becomes established.
“We foresee the Daimler workforce being similar to Audi in its makeup, moving to a high percentage of Hungarian engineers and managers after the start-up phase. We have seen this happen in all the international companies that have come here.
“We are very pleased to see Daimler coming to the southern part of Hungary, this gives us a good balance of auto sector employment in the country. We have Suzuki in the north and Audi and GM in the west. In the eastern and southern parts of the country we have a strong supplier base, particularly in electronics, along with some very good technical education facilities.”
As the issue went to press, it was announced the ITD-H had won first place in Site Selection magazine’s 2009 first annual Global Best to Invest rankings.
Production: €16.7 billion (2008)
Export: €15 billion (2008)
Export ratio: 90% (2008)
Skilled workers’ average (monthly) gross wage: €384 (2008) (Source: Public Employment Service)
Share of foreign capital: 75%
Distribution of companies by ownership:
Domestic: 52%, Foreign: 23%, Joint venture: 25%
Number of employees: 100,000 (2009 January)
Daimler are committed to building its new plant during 2009 and 2010, with production expected to start in 2011. AMS spoke to a company spokesperson and asked what were the deciding factors on coming to Hungary?
“The decision to build the plant in Kecskemét was based on qualitative as well as quantitative factors. Among the most important factors were availability and quality of land, infrastructure (road and rail), availability of resources (water, gas), supplier footprint, availability of qualified potential staff, quality of life and general economic climate.
How did the decision process work, which departments were involved, from manufacturing, logistics, sales/marketing, engineering?
“The decision was made in a comprehensive approach.
Experts from various units of the company were involved.” How much help did Mercedes/Daimler get from Hungarian government agencies, finding land, building access roads, finding construction partners, financial help?
“We received outstanding support from partners at all levels of government and administration in Hungary. As an example, the site selection process was also the result of close cooperation with the Hungarian Government’s ITD agency.”
Will you be looking for local plant design and building partners, or will you bring companies from Germany, companies you worked with before?
“We are currently planning to work both with local companies as well as with companies from Germany.”
Will you be sourcing machinery from Hungarian suppliers or using your long-time partners from Germany, etc? Hungary is a long way from the nearest port - are you planning to truck cars into other European markets or truck/rail to ports for export to the US, etc?
“The process regarding these topics is still ongoing, so we cannot provide details at this point in time. Please bear in mind that the plant is scheduled to start production in 2012.” Hungary has a high-level technical education system with many well-qualified engineers. Was this part of the reason for locating there?
“As outlined, availability of qualified potential staff was one of the factors in the decision to build the Kecskemét plant.”
What percentage of your engineers and other higher-level workforce will you look for locally and will this change as the plant develops?
“We expect to employ up to 2,500 people, of which about 300 will have higher levels of qualification (university, etc).”
Will you be bringing operators/line workers in from nearby countries to keep labour costs even lower than Hungary’s? The plant will be close to Bosnia/Herzegovina, Serbia, Romania.
“We are planning to primarily recruit our workforce in Hungary.”
The plant will be quite close to Graz - home of Magna Steyr – will they be more involved in the future in setting-up the plant/engineering new vehicles etc?
“Magna Steyr is our partner for building Mercedes-Benz G-Class vehicles at the Graz plant, which was just recently extended until 2015. The company is not involved in setting up the Kecskemét plant or in the development of our compact car segment vehicles which will be produced there. Both these tasks are performed by the respective units of Daimler AG.”
General Motors Powertrain - Hungary Ltd. (GMPT-H) is a subsidiary of General Motors
Powertrain Europe, part of General Motors Corporation. The company manufactures ECOTEC Family-1 gasoline engines (1.6 - 1.8 litre) and is the sole producer of Allison automatic transmissions, outside the US, for trucks and buses. The plant is located on the western border of Hungary, near the city of Szentgotthárd. GMPT-H is the largest employer in the region, providing work for 1,350 people and is third in the list of the 20 largest companies operating in the Hungarian automotive industry, with net sales revenue of €560 million. GM Europe’s market share is 9.5%, 1,982,300 vehicles, and GMPT-H produces the engine for 25% of those vehicles.
Car production was stopped at Szentgotthárd in 1999, the result of a global GM decision. In 1999, GM were able to free themselves from the full car obligation, deciding to concentrate on powertrain manufacture.
AMS talked to Andor Paizer, Plant Manager of GMPT-H, first asking him about how Hungary will fit into GM Europe plans, considering its expansion in other parts of Eastern Europe and Russia. Paizer does not see car production returning to the site, even given the output of engines at the new powertrain plant that he is going to head up in Uzbekistan (SOP set for 2011). “Uzbekistan will be an engine plant with foundry, to supply into the Asaka, Uzbekistan, assembly plant.”
During the recent downturn in sales - and thus demand for engines - the flexibility of the plant and its workforce has come to the fore, says Paizer. “Lean and flexible production is very important here; when volume has dropped, we have been able to release 80 ‘leased’ or agency workers – we managed not to shed any salaried members.”
Automation and shifts in production
The level of automation in the GM plant is quite high, in both machining and assembly operations. Paizer has not been tempted to ‘manualise’ any jobs to create work for operators in the downturn. “We have kept the same high level of automation to maintain efficiency and quality.”
On uptime and plant efficiency, Paizer is very positive. “We run between 80 and 90% uptime on the cylinder head line, and 80% on the overall engine machining line which is pretty high for this industry, and these measurements include tool change times.”
The flexibility of the plant and workforce is exemplified by the recent changes to accommodate falling demand, says Paizer. “We are now running a two-shift system, with no weekend work. Last year was exceptional; we were delivering cylinder heads and crankshafts to GM DAT for the rampup of the Lacetti, and we ran four shifts, which included weekends.
“In our top production year of 1999, we produced 511,000 engines. Our capacity in three shifts is 460,000 units. The four shift period was run without any further investment in machinery.”
Paizer is very proud of the intellectual growth of his teams, particularly in maintenance, using the total productive maintenance (TPM) systems favoured by Japanese manufacturers. “We know how to care for the machinery, be it 18 years old or new, and we have won certification from the Japanese Institute for Plant Maintenance. We have got our people to write ‘textbooks’ on their experience of autonomous maintenance and quality management. This way we retain the knowledge of our people – even if they leave the company. We spread this knowledge up and down the chain, from management through to engineers.”
He sees the loyalty of the company to the workforce as a key factor in the plant’s continued success: “Our workforce wants stability in their jobs, they want to ensure they have a long-term employment here, many are looking to stay here for 20-25 years.”
New machinery - the ‘Dream Budget’
GM Szentgotthard buys in all cast and forged parts for the engine and transmission lines from outside Hungary, except for the cylinder heads, supplied by Mexican company NEMAK from their Gyor foundry. These are raw castings that are only locator-milled before delivery.
Forged steel con rods are used in the engines, GM electing not to use powder metal. Although the company is investigating in the use of PM globally, Paizer does not see it in the pipeline yet, the plant buying-in connecting rods and camshafts for new projects, but ultimately making block, head, crankshaft, connecting rods and camshafts in-house.
Paizer names the areas where he is looking to buy new machines and upgrade existing equipment. “We work on planned maintenance of existing machinery, but we look forward to ‘winning’ the fourth-generation Family One GM engine and this could demand new technology machinery.
It is really drive systems that we are looking to upgrade, we introduced drive systems from Indramat (now part of Bosch Rexroth), and we worked together with the supplier to reduce energy consumption in this area.”
In line with Gary Cowger’s drive to get compressed air and hydraulics out of GM plants world-wide, Paizer is sanguine about adopting total electric servo power: “We use some compressed air power for checking leakage measurements to check fixture placement, de-burring and valve lapping. We want to get air out of the plant but it is very expensive.
We are always looking to reduce cost – we have a system to detect any small leakage, we run these tests on Saturdays and Sundays using an audio system which can find leaks that the human ear would not be able to hear.”
Given a ‘dream budget’, AMS asked Paizer what he would like to install in the plant: “I would use CBN grinding technology, hard tools in boring, more laser honing, otherwise I am very keen on machining centres instead of transfer lines, I would use CNC machining centres, with all the flexibility that they can offer. This allows parallel machines, easier to manage, with one supplier for all machines, easier training for the operators, higher uptime – this is why we have 10% higher uptime in the cylinder head facility than in the engine plant.
“I would definitely be interested in using more vision system installations; we have studied this here – we have more than 10 different vision systems so we can compare and select.”
While the engine plant uses mainly GM Europe standard machinery providers, there are a handful of Hungarian machine suppliers in the Allison truck transmission section.
Demag ... cranes
Dürr Ecoclean ... cleaning machines
JW Froehlich ... safety gates/cages
Gehring ... machining for honing
Grob ... machining centres
Heller ... machining centres
Huller Hille ... transfer lines
Johann A Krause of Bremen ... control systems
HTCM ... tool management
Liebherr ... structures
Indramat ... drive system control
Trumpf ... laser honing station
Engines are 100% cold tested and Paizer feels this is one of the crucial parts of the assembly process: “As an example, we made development here on noise detection in the cold test rig. Sensor makers advised us against this, they said it was impossible, but we found a way of using this system. We worked with a technical university in Hungary and installed a microphone system here, and we wrote bespoke software to operate it. The system is so accurate that it recently detected a nut fixture that was intermittently fouling a cover on an engine. This was a noise - and thus a fault - that could not have been detected any other way.
“We run the engine leak test, then cold test, and then hot test on selected engines, normally 10% of production. We increase the percentage of hot test when starting a new engine line, of course.”
Paizer will soon leave Hungary to manage a new powertrain plant that will feed engines to the GM Asaka plant, assembling cars for the Central Asian market. The plant is a JV between the government and GM and will feature a lot of local content, both suppliers and labour: “We will get all local labour from Uzbekistan but at the beginning there will be support personnel from other GM facilities.”
Plant building – integrator or GM?
“The building work has already started, and we are using local building contractors. They are following GM standards and design, services, etc. The plant will be very green, there will be no compromise on environmental standards in the plant. There will 1,200 people if we get up to capacity – 300,000 engines per year. All four-cylinder gasoline engines at the start.”
AMS visited Magyar Suzuki in 2003, when there was no automation to speak of in the plant. Welding operations were exclusively hand-held spot and MIG, and there very few robots. Production was made up of assembly of Suzuki Swift and Ignis models, body-in-white and assembly of Wagon R, together with body-in-white for GM Agila-badged Wagon R models, assembled at Gliwice, Poland.
Now the welding shop is fully automated, the transformation mainly engineered by Japanese supplier Hokuto under the direction of Suzuki.
Suzuki policy is to build and test complete installations in Japan; engineers and operators travelled to Japan to ‘learn’ the equipment, which was then sent to Hungary.
AMS talked to Gyula Novák, Factory Manager, Production Division, Magyar Suzuki Corporation and we started by talking about the changes since 2003, particularly in the body shop. “Takt time in 2003 was four to five minutes and involved some very heavy manual operations, operators often having to use two or three welding guns for each job. Each operator had to learn several spot point positions; of course this can compromise quality.
“In the welding shop, we made a very big automation investment, starting in 2003. The building was extended to enable raising production to 300,000 cars per year. We installed more than 600 robots in the welding shop to turn production to almost full automation. The other large investment was made in the paintshop, which was also extended and water-based paint technology was introduced.”
Novák was deeply involved in the Suzuki European Renaissance programme, a two-fold project encompassing preparation for 300k production by the end of 2008, and also to prepare the European distribution network to market the vehicles. This was the main reason for the expansion of the plant. “Takt time in assembly line is now 63 seconds – 1.05 minutes. In the welding shop it is closer to 2.5 minutes, average across the three different production lines and we are running at 97% operation ratio [plant utilisation].
Fanuc ... robots
Hokuto ... hemming presses
Nadesco ... spot welders
NKC (Nakanichi) ... conveyor systems
Tai-kisha ... paint shop
Timpery ... manual weld guns
Yoko Tech Corp ... vision systems
Labour: In 2003, workers travelled into the plant each day by Suzuki-provided buses from Slovakia. With the strengthening of the euro in Slovakia and the relative weakness of the Hungarian forint, there has been a significant reduction in the previously cheaper Slovakian workers. “The change in currency exchange came at the time that we needed to reduce production due to falling demand.
From January 5, 2009 on, we cut one group of operators to return to our ‘classic’ two-group, two-shift operation instead of the previous three-group, two-shift operation that we had for the last 18 months. We also reduced our free worker pick-up bus service catchment area from 50 kilometres to 30 kilometres. This is not a Slovakian-Hungarian issue, it is just a hard fact of the times that the orders are falling.”
Technical education and training: “Suzuki policy is to follow the ‘ladder’ of management development, many of our ‘leaders’ here have started on the shop floor, graduated to become team leaders, then assistant managers and so on. The knowledge that the people get at technical school or university here is just the basics; they must learn the Japanese, and especially the Suzuki, manufacturing system which is totally new to our beginners, even the skilled engineers. We don’t look for people from other carmakers; we want to start people from scratch.”
Door hemming: You are using press hemming – have you looked into the latest roller hemming techniques? “I have heard about roller hemming but we are getting good results with the ‘old’ press system. Suzuki does not tend to try the latest techniques, such as laser welding/brazing, or roller hemming.
And what would Novák buy with a dream budget? “I would like to have a fully-automated paintshop, including painting difficult-to-reach areas and sealing cavity wax application.”
Shift system: “Due to maintenance, we stop production for at least two hours per day. Suzuki’s Japanese plants stop for at least three hours per day so we feel we are doing very well!
We do not work Sundays either, even when demand was higher, under the three-group, two-shift system. Working Sundays would be very much against Hungarian tradition and culture. We have worked Saturdays occasionally, but at present it is a ‘classic’ five-day week system.”
Paintshop: The paintshop extension was engineered and built by Tai-kisha.
“We use a water-based pre-coating, solvent-based primer, water-based colour coat and 2-pack clearcoat which is solvent-borne. We have not tried powder clearcoat – I have visited several Japanese plants but have not seen it there.”
Japanese managers: “We have around 15 resident people from Japan, they are in high positions, they are working primarily with shop managers and department managers. Their main task is to provide good communication with the mother company.”
Exporting expertise to Japan? “Water-based painting is a new technology within Suzuki globally. It was first introduced here in Ezstergom. In 2008, we had several managers and engineers come from Suzuki Japan to study the installation.”
Summing up the Suzuki way in Hungary
“We are very proud to use many local Hungarian suppliers; we have 10 suppliers close to the plant, a small ‘family’ in the industrial park that we have created here. These suppliers have travelled to Japan; once a year we select several suppliers and take them to Suzuki to see the ‘Japanese way’.
In the last year we ran 120 hours per week in a three-team, two-shift operation. I think this was a real affirmation of how we have risen to the challenge. While our lines are very flexible, we are not ready to produce other vehicles straight away; we hope that challenges like this will come.”
Bosch: Bosch has been present in Hungary for 109 years. The company is the second-largest foreign employer in-country, with 13 local subsidiaries and a total headcount of more than 7,000. Bosch in Hungary is increasing its efforts to adapt the domestic technical higher education system to the needs of the market by supporting numerous training programmes in Budapest, Hatvan and Miskolc. Bosch’s Budapest Development Centre has recently recruited its three-hundredth engineer developer.
The development centre recruits 100 new engineers per annum, where the highest quality of professional challenges is offered to colleagues.
Modine Manufacturing Company: Modine is a global leader in the design and development of heating and cooling solutions, with revenues of approximately $1.6 billion in fiscal 2007. The corporation is investing $12 million to build a state-of-the-art facility in Gyöngyös Industrial Park, further extending Modine’s global manufacturing footprint. The site was chosen to leverage operating synergies with Modine’s Mezôkövesd site, and the decision was based on Hungary’s superior local logistics and infrastructure, together with favourable wage levels.
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