Bumpy road

Not all car manufacturers have enjoyed a smooth ride, however. Among the firms that have felt the pinch in Bulgaria is Switzerland Oskar Ruegg, which manufactures parts for motor vehicle lighting systems in Stara Zagora. Its main customers are Audi, Volkswagen and Daimler. "We have felt the impact of the crisis very strongly since November," the administrative manager of Oskar Ruegg Bulgaria, Tsvetomira Hristova, said.

In November, orders dropped by 15 per cent and, since most components are hand-made, the company had to lay off staff. By now, the decline in orders has reached 50 per cent of the pre-crisis levels, forcing the management to make six per cent of its workers redundant and move the rest to a four-hour working day, with each employee receiving half a salary and 120 leva on top.

"We are living in a time of unprecedented challenges. The motor vehicle industry, the main market for Melexis, has been hit especially hard by the financial and economic crisis and 2008 was a bad year for the company," Melexis Bulgaria financial director Diana Dimitrova said.

Revenues decreased by nine per cent for the full year, with sales shrinking the most in the fourth quarter, when demand for cars reached its lowest. Operating profit fell 29.6 million euro, prompting the company to make 10 per cent of staff redundant globally. "The Bulgarian unit is making its contribution. We are periodically halting production at our three production facilities for periods ranging from several days to two-and-a-half weeks. In Germany and Belgium, we use every opportunity to reduce the working hours of all our personnel, but in Bulgaria, unfortunately, there are no such state programmes," Dimitrova said.

All measures are geared towards allowing Melexis to generate cost savings and to ensure sufficient cash generation over the next quarters, as well as improving gross margins in the long term.

New opportunities
Increasingly, companies that manufacture parts for the motor vehicle industry are looking for opportunities to branch out their operations and minimise the risk to their business. Some Bulgarian companies have already started doing the same – the subsidiary of Germany’s Grammer, which manufactures car seats in Troudovetz, is also making seats for buses, trucks and tractors. Its management is trying to avoid laying off any of its 570 employees by moving them to other subsidiaries.

EPIQ, for its part, branched out long ago, manufacturing parts for telecommunications systems (Sony), household appliances (Tefal, Rowenta, SEB Group, Calor) and medical equipment (IEM, Tefal).

Melexios too is not relying only on the motor vehicle industry. About 70 per cent of its revenue is generated by the sector, but the rest come from telecommunications, medical equipment and the industrial sector.

Oskar Ruegg Bulgaria’s Tsvetomira Hristova said: "We are also working on developing new products and plan to launch a production line servicing another sector in the autumn."

In times of crisis, good managers become more inventive in seeking new opportunities for their business and that might just be one of the factors that will speed economic recovery.

Koreans on the prowl
South Korean companies are interested in investing in car parts manufacture in Bulgaria, with the country’s embassy commissioning a report on the automotive and related industries from the National Chamber of Electrical Engineering, the organisation’s chairperson Roumen Atanassov has said. The South Korean firms, however, are still only at the fact-finding phase.

According to Deloitte Consulting, potential investors in the sector are looking at, in order of decreasing importance, political and economic risks, the availability of qualified personnel, foreign language proficiency, infrastructure, corruption and, lastly, tax breaks.

A recent survey by management consultancy A.T. Kearney, carried out among 180 managers in the automotive sector worldwide, showed that about 40 per cent plan to relocate manufacturing capacities to other countries, while another 15 per cent said they were considering the option.

Kapital weekly, issue 25