Czech auto industry at a crossroads

The proportion of manufacturing industry in the economy of the Czech Republic is the biggest among all EU countries. And within that, the auto sector is by far and away the most important, accounting for around a third of all industrial production with the figure showing no sign of falling. But the sector is very much at a crossroads with immediate and longer term challenges putting a question mark over continued growth. Zdeněk Petzl is acting director of the Czech Automobile Industry Association. I asked him how the first half of the year appears so far.

Zdeněk Petzl|Photo: Ondřej Tomšů, Radio Prague International

ʺThe first half of the year looks very promising. We have got an increase in production of over 5 percent which in total comes to over 800,000 vehicles. That’s all types, cars, buses, trucks, and trailers as well. From the numbers we can see that this trend will continue through the rest of the year at least. Even though some analysts spoke bleakly about this year, production is still rising and we are reaching the pre-crisis limits we had back in 2009.ʺ

This is true for the whole sector, personal cars, buses, trucks, everything or is there more room for growth in certain areas?

ʺThe growth for each sector is based upon the actual platform. Knowing that in trucks we have only one company, Tatra, its growth is massive. It is around 50 percent. If that happened in personal cars it would obviously be great. It would mean huge numbers, but that is not possible. The total growth is around 5 percent and personal cars are almost at that level.ʺ

That brings the question to how near the Czech auto sector is working at almost full capacity?

ʺSpeaking about capacity, I think it is important to look at what passengers are actually demanding these days. I am not saying anything new, but it’s the large SUVs. Why, it is obviously clear that we are in a period of positive economic growth. This is the case, plus the demand for SUVs. Both Škoda Auto and Hyundai offer SUVs and this is why Hyundai is operating at its capacity limit and why Škoda is growing annually. Regarding possible extra production, I think we will see a rise year by year but it will not be possible to see double digit growth or anything like that."

ʺThat is not something that can be solved from one year to the next simply by putting more robots into production."

So what are the brakes [to growth] at the moment? Presumably one of them is for all Czech companies at the moment is the difficulty of getting skilled workers. Is there room for more automation to meet that problem?

"You’re right, the demand for skilled workers, or for any workers for that matter, is pretty high at the moment. And from what we have learnt, our companies have to turn down requests by OEMS [original equipment manufacturers] and some of the other suppliers which means that we are ruining the possibility of growth of these companies and the growth of the whole economy of the Czech Republic. Regarding automation, the auto industry is at the forefront of automation and almost all companies are implementing such measures. Obviously, from an economic point of view these measures have to be spread over several years so the increase in automation happens year by year but the demand for skilled workers will be there for years to come. That is not something that can be solved from one year to the next simply by putting more robots into production.ʺ

Where will you get these workers… the Czech Republic, other countries, neighbouring countries, Ukraine…where will they come from?

Photo: Marián Birošík, Public Domain

ʺThat’s a hard question. I think the answer is not Ukraine or these countries. This is just a short term measure that can only solve a small part of our problem. I think the problem lies in our education system. I think we have done quite a good job dismantling technical education in the last 20 years where it became a sort of shameful thing to say that you are educating yourself technically or studying a technical subject. What we need to do is to motivate young people, not just from the Czech Republic but from other countries, so they see the country as an interesting place for studying. This is the direction where our industry is thinking and we are trying to come up with initiatives to support this sort of transition."

There has been quite a lot of talk in recent months, years even, of adopting the German type of training where people learn in education and learn in the workplace. But from what I’ve heard recently there seems to be more talk and not much action with some reluctance maybe to adopt a German model just because it is German – which is a bit unfortunate. Have you got any comments about that?

"We have to look at the models that are around us. The Germans have this model that has been perfected over decades. We see that Slovakia has taken up part of that model and I think it is of the utmost importance that the Czech Republic comes up with the best of these models around us that actually works and is implemented. We are trying to push for this change but, honestly, it is taking quite a long time. This is something we are not happy about and we would like to push in the coming years.ʺ

"Honestly, I think that these proposals represent not just a threat to the industry but a threat to Europe in general.ʺ

You have a forum for cooperation with the neighbouring countries, the V4 countries, Slovakia, Poland, and Hungary. What can you actually do with those countries? Slovakia you already mentioned, the auto industry is perhaps even more important there, per capita, than in the Czech Republic. How can this cooperation help in some way?

ʺI think this is very important, especially at the European level. Obviously, most of the V4 countries are fairly small, with the exception of Poland, but in Brussels I think the V4 countries are still perceived as something new so I feel it is very important to cooperate and discuss because we come from the same background and have similar issues and if we speak with one voice in Brussels we can achieve changes that we need."

Are there any specific issues where you are trying to push your, or a regional point of view, in Brussels?

"We are trying to bring sense to the technical discussions on harmonisation and emissions and all these things that are dramatically changing our area of economic activity.ʺ

Presumably you feel that some of the proposals on emissions are too strict, too expensive, whatever…?

Photo: Ruben de Rijcke, Wikimedia Commons, CC BY-SA 3.0

ʺIt is a fact that developments these days are not governed by technical development itself but by legislative decisions. It is of the utmost importance that these decisions are taken with regard to what is technically achievable on the technical site and what is acceptable on the customer side. We have been an active player in the development of these regulations and we said that we are going to adhere to them and fulfil them by all means. But if the government decides to put such dramatic change in motion, then there also needs to be another step. How do we actually promote the change – for instance the acceptance of electric vehicles etc among people. Obviously, if you see a rise of new technology, in the beginning it is rather expensive and then with mass production it comes down. So we need a push, a first push to sort of get them going, accepted by the customers and then to get them to the market really."

Sure, coming to electric cars, self-drive cars, these are the big challenges. I think today in Britain there is actually supposed to be an announcement that traditional cars powered by petrol and diesel will be banned from 2040. That has already happened in France. You have no choice, but how much does this represent a challenge to your industry because that model of motor, that model of development has been in place for around 100 years. It’s a big change isn’t it?

"Honestly, I think that these proposals represent not just a threat to the industry but a threat to Europe in general. In Europe we have a single market and you can have country by country specific rules and measures, for example, one country banning Euro 5 diesel, another Euro 6, and so on, one country banning diesel cars from 2030, another banning all combustion engines from 2040. It will obviously break up the single internal market. What I think we should do right now is have a common European debate how to tackle this problem. The automotive industry actually will adhere to whatever is decided, we have always done that and we are ready to put our money and our engineers to work towards this goal. But such a decision needs to be taken on a general level and not just on a case by case basis.ʺ

ʺWe feel pretty confident that production in the Czech Republic would not move elsewhere."

Narrowing it down a bit, how much is this a threat to the Czech Republic… it’s probably fair to say that the Czech Republic has not been in the lead with regard to electric cars. Overall, these big changes mean that technologies and know-how that have been developed here won’t be applicable so much in the future and that new plants can perhaps grow elsewhere…?

ʺYou are absolutely right, something has to be done because these changes are transforming the whole industry as it is. This is why we have started working on a memorandum with the Czech government. The memorandum should bring a mutual understanding as to what the changes are and what needs to be done to tackle those changes. Obviously, our companies will have to orientate much more on electronics and IT production and they are, even in these days. For example, look at the company Brisk, they have been known for their world famous spark plugs but they have also been producing sensors and coming up with solutions for general services based on the use of these sensors. Our industry is understanding the changes and is adapting itself and what needs to happen to trickle those change into the rest of the Czech economy and every company that is part of our industry is promote more research and development and talk more about what these changes actually mean. This is what we are trying to achieve as part of the memorandum…"

That memorandum, you are hoping that it will be signed in September…?

ʺWe hope it will be signed by the current government so that the incoming government will have something actually to build on because, as you said, there is not time to lose. If we lose time we might also lose a significant part of the industry."

Illustrative photo: Tomáš Adamec

Coming to that, some people might say that logically Škoda Auto now sells around a third of its cars in China and that in the long term China will produce more of its own cars and that some of the components and parts industry could be located in cheaper places like Moldova. How much is that a possible scenario?

"I don’t see it happening in the coming years really. I think the Czech Republic and the V4 countries generally have a great asset up their sleeve and that is their location. Considering the fact that there are no warehouse or storage areas these days really and most goods are stored on the trucks, trains, and planes that are on the move on a daily basis. So I think that it is important to be close to your customers and having international borders in the way where you do not know whether the truck will pass in one hour, five hours, or one day might lead to stoppages in production and that would lead to great losses by manufacturers or suppliers. Based on that, we feel pretty confident that production in the Czech Republic would not move elsewhere.ʺ