BULGARIA CIS CZECH REPUBLIC HUNGARY CENTRAL SLOVAK REPUBLIC SLOVENIA EUROPE The Source For Automotive Information On Central Europe™ AUTOMOTIVE February 1998 On The Web at http://www.cear.com™ ™ REPORT Volume III, Issue 2 ISSN 1088-1123

over 26% compared to the same period a 1997 Automotive Regional Market year earlier. The figures, released by Highlights SAMAR, show that local production Executive of the Year accounted for 306,384 units, and imports Summary totaled 134,532 units. CEAR™ Congatulates its 1997 Central Europe Automotive • New Cars Sales in Poland Up 26% Fiat was the best selling brand, capturing a Executive of the Year: • Skoda Gets ISO 9001 Certification market share of 35.09%. Daewoo held • Suzuki Hungary Expands Production strong at the number two position with a Capacity market share of 25.72%. GM-Opel was the Daewoo Group • Dacia and Hyundai Sign Licensing third best selling brand with a market share Chairman Agreement of 9.33%. • New CEO at Daewoo Automobile Kim Woo-Choong Romania J.T. Granatelli Lubricants Signs • Timken Buys Romanian Bearing Distribution Agreement For Central & This year’s “CEAR™ Central Europe Manufacturer Eastern Europe Automotive Execu- tive of the Year” Poland On December 18, 1997, J.T. award is presented to Granatelli Lubricants, Inc. Daewoo Group reported that it entered into a Chairman Kim Woo- New Car Sales Grow By 26% material exclusive licensing Choong. The arrangement and purchase agree- CEAR™ chooses During the first 11 months of 1997, new car ment with Union Construction Chairman Kim to sales in Poland totaled 440,916 units, up Enterprise, Inc. The agreement receive this award has an estimated value of $28.8 because of his Inside million over a ten year period. dynamic leadership and active involve- Feature Country: Hungary Pursuant to the agreement, Union is ment in Daewoo’s granted exclusive marketing and massive investment distribution rights for Lithuania, program for the • CEAR™ Exclusive Interview With Daewoo Central European Poland, , and Kaliningrad. Chairman Group Chairman Kim Woo-Choong: p. 13 . The agreement calls for certain Kim Woo-Choong • Product Review - Corrosion Inhibitors: p. 22 “take-or-pay” provisions, including • Hungary’s New Company Act: p. 6 Under the guidance the posting of a performance bond by • Analysis: Russian Car & Components of Chairman Kim, Daewoo’s strategic Union in the sum of the aggregate product assault on Central Europe has had a Industry: p. 14 to be purchased under the agreement. profound impact on the competitive • R&D Assistance in Hungary: p. 24 dynamics of the region’s auto sector. The • Romanian Production & Sales Statistics: p. 9 “This agreement with Union is a culmina- boldness and sheer magnitude of Daewoo’s • Corporate Tax Changes in Hungary: p. 15 tion of eighteen months of test marketing attack surprised many and has forced • Poland Car Statistics: pp. 7, 20 throughout Poland, Belarus, Kaliningrad, competitors to speed up and bolster their and Lithuania,” said Harry Hibler, President • Hungarian Supplier List: p. 21 own activities in Central Europe. of J.T. Granatelli. “Union’s preliminary • Extra Info for Email Subscribers: pp. 25, 26 Continued on Page 2 Continued on Page 12

Place Your Ad Here. Includes a direct link to your email address or web site. Easy as a mouse click. [email protected] CEAR.COM ™ Highlights Continued from Page 1 CENTRAL markets. EUROPE marketing efforts have been extremely Hungary AUTOMOTIVE well received within those regions, and REPORT™ are further evidenced by Union’s firm Suzuki Expanding Capacity commitment to continue to develop and February 1998 grow those emerging markets for [our] Magyar Suzuki plans to expand its Volume III, Issue 2 product line.” ISSN 1088-1123 yearly production capacity to 70,000 vehicles from the current capacity of J.T. Granatelli Lubricants, Inc. manufac- 50,000 vehicles. Estimated produc- tures, markets, sells, and distributes its tion for 1997 is 60,000 vehicles, proprietary line of motor oil, general which was achieved through over- household and motor vehicle lubricants, time production, Saturday operation, and contiguous products worldwide. and other methods.

Czech Republic Suzuki currently produces the Swift model at its factory in Esztergom, Ronald F. Suponcic, Jr. Jeffrey A. Jones, Esq. Skoda Auto Receives ISO 9001 Hungary. Car production at the plant Publisher Editor-in-Chief Certification; New Engineering Center began in October, 1992. Editorial Assistant Under Construction Barbora Grossmannova Romania On December 15, 1997, Skoda Auto a.s. Research Assistant received ISO 9001 certification. The Katarina Trginova Dacia & Hyundai Enter Into German auditing company RW TUV Licensing Agreement Design Essen confirmed the quality of all Big Sky Creative processes at the company, from automo- Caroline Bond Troubled Romanian carmaker Dacia [email protected] bile engineering through purchasing, has entered into an agreement with production, and sales. Skoda also Hyundai. Pursuant to the agree- Web Site Design supplies components to various plants of Big Sky Creative ment, Dacia will assemble 50,000 Ron St Clair other VW Group subsidiaries. Skoda’s Accent models, as well as 100,000 [email protected] Vrchlabi plant achieved the best quality in Hyundai engines per annum. Ac- the entire VW Group in the third quarter Reporters cording to company sources, Dacia Catalin Dimofte, Bucharest of this year. should start assembling the Hyundai Magda Sowinska, Warsaw Accent in 1999. The standard model Valerie Dumas, Budapest In December 1997, the foundation stone Bostjan Okorn, Ljubljana should sell in Romania for $8,000, was laid for Skoda’s new engineering jeopardizing Daewoo’s domestic February Columnists center in Mlada Boleslav. The Czech Andrea E. Villanyi, Strikeman Elliot market share. Dr. Erzsebet Szilagyi, Reti & Antall Crown 200 million ($6 million) invest- Denes Szabo, Ernst & Young ment will provide new workplaces New CEO at Daewoo totalling 3,800 sq.m. for 160 engineers The CENTRAL EUROPE AUTOMOTIVE REPORT™, and designers. Skoda’s engineering staff 4800 Baseline Rd., Suite E104-340, Boulder, CO 80303, In January, Daewoo Automobile USA, is published monthly, except August, by Central has increased to a total of 1000. Romania will have a new CEO. European Trade & Marketing, L.L.C. in Boulder, Colorado. Former CEO Dong-Kyu Park returns According to plans agreed to with the to the corporate headquarters in The entire contents of this magazine in print and elec- VW Group, Skoda will double production Seoul, Korea, while Oh Joon Kwoon tronic formats are copyrighted 1998 by Central to 500,000 automobiles per year by the European Trade & Marketing, L.L.C. with all rights re- will take over in Craiova. served. Reproduction or use in any form, without per- end of the century. mission, is prohibited. Annual subscriptions are Mr. Kwoon is considered a high flier USD$500 for the Standard Print and Email Edition, Daewoo Avia Increases Production & within the Korean chaebol, where he USD$900 for the Analyst Edition, and USD$1,850 for Sales the AutoNewsFast™ Edition. has worked since 1972. He previ- ously held important positions in Offices in Central Europe and the United States During the first 11 months of 1997, Daewoo’s overseas operations, Business, Editorial, Subscription, Advertising, Daewoo Avia produced 4,826 units of and Market Research Inquiries to: including chairman of Daewoo Avia vehicles and 876 units of vehicles Heavy Industries branches in Japan CENTRAL EUROPE AUTOMOTIVE REPORT™ from Daewoo’s Lublin plant in Poland. and the US. 4800 Baseline Rd., Suite E104-340 In 1996, Avia vehicle production totaled Boulder, CO 80303 USA Tel: +1-440-843-9658 Fax: +1-206-374-5282 4,448 units. For all of 1997, the company Email: [email protected] expects to sell 5,500 Avia vehicles, with More Market Highlights 2,800 of those units destined for export on Page 4

2 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 CENTRAL EUROPE AUTOMOTIVE REPORT™ EDITORIAL CALENDAR

The Source For Automotive Information On Central Europe On The Web at http://www.cear.com 1998 Issue Feature Automotive Reviews Special Reports Ad Close Date

Jan 98 Poland Body/Chassis 1997 Year in Review/ Dec 10, 1997 1998 Forecast

Feb 98 Hungary Central Europe’s na Jan 10, 1998 Executive of the Year

Mar 98 Czech Republic Components & Systems Auto Aftermarket Feb 10, 1998

Apr 98 Slovak Republic Marketing & Advertising na Mar 10, 1998

May 98 Romania/Bulgaria Electronics Auto Consultants Apr 10, 1998

Jun 98 Poland/Slovenia OEM Special: Who Supplies Who na May 10, 1998

Jul 98 Hungary Powertrain Exporting to Jun 10, 1998 Central Europe

Aug 98 Not Published

Sep 98 Czech Republic Plastics Auto Engineering Aug 10, 1998

Oct 98 Slovak Republic Logistics Human Resources Sep 10, 1998

Nov 98 Romania/Bulgaria Interiors Real Estate Oct 10, 1998

Dec 98 Poland/Slovenia Financing na Nov 10, 1998

Regular Monthly Columns

Feature Country - featured country market overview and news, plus updates from around the region Profile Interview - interviews with regional automotive executives Product News - information on new products, components, and vehicles in the market Opportunity Spotlight - regional companies offering investment, joint venture, or partnership opportunities Legal Advisor - updates on legislation and legal matters pertaining to the automotive industry Focus On Investment - investment analysis of regional automotive related companies Accounting & Finance - updates on accounting, tax, and customs changes pertaining to the automotive industry To Subscribe or Place an Advertisement Tel: +1- 440-843-9658 Fax: +1- 206-374-5282 Email: [email protected] Highlights Continued from Page 2 International “As with other acquisitions, we will be working to strengthen Rulmenti Grei by Appoints Vice President Of The Romanian media reported that the introducing advanced technology and New Market Development change was triggered by the low domes- manufacturing processes,” said Robert L. tic market sales performance of the Leibensperger, executive vice president Visteon Automotive Systems has company — some 4,700 units during the and president-bearings for The Timken appointed James B. Smith III to the first ten months of 1997. Company. position of vice president of New Market Development. Smith, formerly vice However, things look vastly different “Over the next five years, we will match president of Finance and Chief Financial from Daewoo’s perspective — a com- the Romanian privatization reinvestment Officer for Ford Credit, will be respon- pany renowned for its stubborness in in the enterprise to establish Ploesti as a sible for evaluating and pursuing new pursuing long-term goals. Mr. Park — a major technical center for the design and business opportunities for Visteon on a man with a military background — may manufacture of bearings for industrial global basis. well have been the best person to lead the applications. The output will be substan- company through its initial development tially above the current level.” Prior to his appointment with Ford stages, which involved team building, Credit, Smith was executive vice presi- capital investments, and meeting short Timken’s deal with the Romanian State dent of Financial and Administrative deadlines. Ownership Fund happened quickly, with Matters for Autolatina, the joint venture less than 5 months elapsing from the first between and With full speed production now under- plant visit to the signing of the definitive AG in Argentina and Brazil. way, the focus has changed to soft agreement. Following dissolution of Autolatina, management areas such as human Smith was vice president of Financial and resources, marketing, and sales. Given Rulmenti Grei was built in 1979 and Administrative Matters for Ford’s Mr. Kwoon’s credentials as a marketing employs some 1,000 people. It manufac- Argentina and Brazil operations. Smith man, he may be the right person to boost tures over 1,200 types and sizes of joined Ford in 1970 and has held a company’s sales. Mr. Kwoon is, how- bearings, including tapered, cylindrical, variety of positions in North America, ever, cautious. “Our sales target for 1998 spherical, and ball bearings. South America, and Europe n is 40,000 units — equally shared between the domestic and overseas New Car Sales, Exports, & Production markets,” he said. Up In Romania During First Nine Months Timken Signs Quick Agreement to Buy Romanian Bearing Manufacturer New car sales in Romania during the first nine months of 1997 totaled 66,358 units, In December, the Timken Company up from 65,298 units sold during the Place Your signed a definitive agreement to acquire same period last year. The top selling 70% of Romanian bearing manufacturer brand was Dacia with 58,427 units sold, Internet/Print Ad Here. Rulmenti Grei S.A. Rulmenti Grei, up 21% compared to 1996. Daewoo was This could be a direct link located 60 km north of Bucharest in the second best selling brand, with 3,520 to your Ploesti, produces bearings used in a wide units sold, and Volkswagen captured the email address, range of industrial applications, including number three position, selling 1,187 web site, steel and aluminum rolling mills, paper units. mills, marine systems, and oil and gas and production. In addition to serving Passenger car exports from Romania new business. customers in Romania, Rulmenti Grei during the first nine months totaled exports to customers in Eastern and 14,545 units, up from 4,219 units a year Your ad appears in the Western Europe, Asia, and North earlier. Print Edition, America. Passenger car production in Romania Email Edition Timken is paying $37 million for the during the first nine months was 80,930 and on Romanian government’s 70% share. units, up from 65,364 units a year earlier. CEAR.COM ™ However, Romania’s privatization Light commercial vehicle production It’s as easy as a process returns 60% of the purchase dropped from 15,559 units in 1996 to mouse click. price back into the development of the 12,485 units in 1997. firm. Rulmenti Grei has been 70% [email protected] owned by Romania’s State Ownership Fund and 30% by private investment groups and individuals.

4 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 about $10 million, is purchased locally, Hungary Profile: primarily from four suppliers. This is an Ford Hungaria’s Alba Plant Quietly Expanding area of opportunity that we have to focus on a lot more. In fact, we’ve just Doubles Size and Sales localized our purchasing [unit], we’re putting in their office. So, more focus will be on the region. Ford has found fertile land in Hungary expect a moderate change from that, but for its component manufacturing nothing dramatic for the near term. CEAR: What was your target for local operations. Ford Hungaria’s Alba plant purchases by this year? has grown quickly, with starter motors CEAR: Was all of this growth planned Pearn: We would have hoped to be at and air fuel charging assemblies recently from the beginning? 60%-80% by now. Maybe we expected added to its product mix of DIS coils and Pearn: The only plan from the start was too much too quick. And with the slow fuel pump equipment. In June 1998, two products. We built the plant a little economic growth in 1992-1993, things production of modular fuel pumps, fuel bigger in anticipation that things would got pretty flat for a while. Now they’re delivery modules, and washer reservoirs go well and we’d have the opportunity to starting to take off again. are scheduled to begin. create some new products. CEAR: What’s the biggest problem The Alba plant is a high Then when the starter came with local suppliers? Lack of capital? volume facility, along, that took up the extra Lack of partners? Not learning quick producing about 90% of square footage. The original enough? all fuel pumps, DIS coils, building concept was for Pearn: Somewhat all of the above. Our and starters used by somewhere around 200,000 sq. experience has been the lack of quality Ford in Western Europe. feet and anywhere from 300- standards that fulfill our quality Sales in 1997 totaled 500 people. That was the expectations. That being the first and $200,000,000, compared complete vision. Over the past foremost. Second, and related to that, is to $100,000,000 in 1996. 6 years, the vision has changed the capital availability. They just don’t dramatically, with some of it have [access to capital]. So antiquated John Pearn is Managing changing as late as 1996. So, equipment, in some cases, just doesn’t Director of Ford some substantial growth. have the capability. Third has to do with Hungaria Manufacturing attitude, delivery standards, expectations. and Sales Ltd., and has John A. Pearn CEAR: Has the local held this position since government assisted you We’ve been in and out of Hungarian April 1996. From 1978 to 1996, Mr. during this expansion? suppliers who, up front, appeared to have Pearn held a number of manufacturing, Pearn: The local government here in the right attitude. But come to delivery product engineering, and business Szekesfehervar has been receptive and on a day to day basis, they were woefully planning assignments in US plants and willing to work with us and has seen the behind. We’re a three shift operation and offices of Ford. In December of last benefits and the basically just-in- year, the CEAR™ interviewed him in infrastructure time. It’s not Hungary. improvements we can “Right now, about acceptable to say make. “We’ll get it to you CEAR: You’ve been recently 20% of our overall tomorrow.” So expanding your operations at the Alba CEAR: How is your production we’ve learned plant. Can you give us an update? supplier localization through that process Pearn: We’ve increased production program progressing? purchases, for a and we set our from our original DIS coil and fuel pump Pearn: If there’s a volume of about $10 expectations up equipment, which was installed back in negative side, it’s the front. Now, we do a 1991. Since then we’ve gone into starter suppliers. From the million, is purchased much better job of motors, completed a service building original concept, we had conveying to the expansion in March 1997, and [started] a a 3-phase integration potential supplier new product line — air fuel charging [plan]. The first step what we expect of them. So that assemblies, with equipment installation in was to integrate the product using our relationship is improving. June 1997. In October 1997, we traditional worldwide supply base, so we completed a full manufacturing building imported lots of supplies from North and And we continue to work with an expansion which will launch us into some South America and Asia. The second additional 5-10 suppliers right now, new products for the future. phase was supposed to be localizing improving their standards, explaining our [supply purchases] in Europe. And the expectations, and they have potential. Today, we’re at around 400,000 square third phase was to localize purchases in We’ll continue to work with them. feet — we started off with a building of Central or Eastern Europe. about 200,000 sq. feet. So we’ve CEAR: How has your job been doubled in size, and that occurred in just We have not done well getting to the changed by the creation of Visteon, the last two years. third phase. We’re behind schedule from Ford’s new auto parts division? In our manufacturing operations we our original plan back in 1989 and 1990. currently have about 1,200 people, and Right now, about 20% of our overall with administration around 1,350. We production purchases, for a volume of Continued on Page 10

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 5 refined and expanded; Hungary’s New Company Act • an individual will be permitted to be an Hungary Legal Advisor executive officer in three companies simultaneously; Andrea E. Villanyi, Strikeman Elliot and Dr. Erzsebet Szilagyi, Reti & Antall • detailed rules applying to specific corporate forms (e.g. right of pre- retroactive effect to the date of execu- emption to purchase a quota, employ- The legislation currently in force in tion of the company’s constating ees’ quota and exclusion in the case of Hungary which governs the operation of documents; limited liability companies, and companies, Act VI of 1988 on Business streamlining of regulations applying to Associations, as amended (the “Compa- • a business association will be permitted different classes of shares in the case of nies Act”), will imminently be replaced to operate pending registration, as a companies limited by by a new legislative regime - more pre-company, upon shares) will be attuned to current market realities. the filing of its revised; application for “A party acquiring a The new Companies Act has been registration with the majority stake in a • the rules governing submitted to Parliament and is expected Court of Registry, one-member limited to enter into force on or around July 1, subject to certain Hungarian company liability companies 1998 (180 days following its promulga- restrictions; will be required to offer and companies tion by Parliament). Existing companies limited by shares (e.g. will be granted a leniency period follow- • the Court of the same price for foundation and ing the entry into force of the new Registry will be quotas or shares to contribution-in-kind) Companies Act in order to satisfy its required to minority shareholders.” will be significantly requirements, which generally will apply promptly register tightened; retroactively. the business association in the “The new law is • a separate chapter At the same time as the new Companies Company Register, governing the area of Act — which governs the substantive within 30 - 60 days criticized for concern law, intro- legal issues pertaining to corporate of receipt of the prescribing excessive ducing new rules in matters — takes effect, a new Company application for minimum capital respect of limited Registration Procedures Act is also registration, liability companies expected to enter into force. This act depending on the requirements for and companies regulates the procedure of the registration corporate form, founding companies limited by shares (e.g. of business associations and the opera- abolishing the often regulations pertaining tion and supervisory role exercised by the lengthy delays limited by shares and to controlling and Court of Registry currently experi- limited liability controlled compa- enced in registra- companies.” nies), will be elabo- Given the dynamic nature of the legisla- tion; rated; tive process, it is impossible to predict with absolute certainty the precise nature • the Court of • the expanded role of chambers of of the legislative provisions that will Registry will be required to register or commerce (e.g. issuance of tax, social finally be approved by Parliament. reject the application for registration of welfare and Central Statistics Office a limited or unlimited partnership identification numbers) will be envi- Highlights of the New Draft Compa- within 30 days, while limited liability sioned; nies Act and Company Registration companies and companies limited by Procedures Act shares must be registered within 60 • the office of company manager will be days; re-introduced, the company manager is Certain of the fundamental legal provi- a duly authorized employee charged sions that are expected to undergo major • the rules governing the scope of with acting in the name of the company; revision, elaboration, or innovation are authority and the liability of senior the following: officers (e.g. the managing director of a • where the quotaholders’ or sharehold- limited liability company, or the board ers’ equity in a limited liability com- • a business association will come into of directors of a company limited by pany or company limited by shares, existence upon the date of its registra- shares) will be clarified; respectively, fails to meet the pre- tion in the Company Register by the scribed minimum level for two con- Court of Registry competent in its • the rules governing conflict of interest secutive fiscal years and is not in- jurisdiction not, as currently, with with respect to senior officers will be Continued on Page 18

6 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 CENTRAL EUROPE Subscription Order Form AUTOMOTIVE Fax To: +1-206-374-5282 Tel: +1-440-843-9658 Email: [email protected] REPORT™ Mail To: 4800 Baseline Rd., Suite E104-340 Boulder, CO 80303 USA

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Polish Vehicle Market Segmentation (YTD November ’97)

Passenger Cars & Commercial Vehicles

YTD SALES (Units) CHANGE MARKET SHARE (%) SALES IN NOVEMBER Segment 1997 1996 % 1997 1996 1997 1996 Segment A 135,121 116,374 16.11 30.65 33.28 11,601 10,109 Segment B 106,678 77,861 37.01 24.19 22.27 6,991 5,319 Segment C 151,960 128,344 18.40 34.46 36.71 12,840 11,698 Segment C/D 39,904 23,999 66.27 9.05 6.86 1,824 1,591 Segment D/E 2,192 1,196 83.28 0.50 0.34 176 46 Segment F 197 107 84.11 0.04 0.03 10 6 Segment S 1,246 746 67.02 0.28 0.21 42 17 Segment MPV 2,910 397 633.00 0.66 0.11 295 32 Segment 4WD 708 608 16.45 0.16 0.17 55 48

Total Passenger Cars 440,916 349,632 26.11 100.00 100.00 33,834 28,866

Light Comm. Seg. 23,945 26,040 -8.05 47.77 58.49 2,080 3,296 Medium Comm. Seg. 26,183 18,484 41.65 52.23 41.51 3,131 2,376

Total Commercial Veh. 50,128 44,524 12.59 100.00 100.00 5,211 5,672

Source: SAMAR s.c., Local Manufacturers and Official Importers, ACEA

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 7 Tips For Success In Central Europe Cooperation Between Automotive Companies

Cooperation between automotive companies is becoming more commonplace, as companies find that they can learn from and work with their competitors and achieve mutually beneficial results. The high costs of some development projects — such as those for new, sophisticated technology — almost demand that companies work together and pool their resources.

Cooperation is especially important in emerging markets such as Central Europe, where the dynamics of doing business are complicated by a culture that is still grappling with the ways of capitalism, debilitating bureaucracy, a shortage of investment capital, and poor information dissemination.

Not all companies, however, believe in the value of jointly attacking problems. The head of a western vehicle manufacturer with a factory in Central Europe remarked to me that everyone in the region tries Jeff Jones to go it alone. “Investors must work together to solve problems,” he said. This sounds like good advice. There’s no shortage of resource draining problems to overcome in Central Europe. Some situations, such as solving border delays or dealing with convoluted customs regulations, may require a group effort. Going solo may result only in a bandaged head.

Smaller companies working in Central Europe are especially vulnerable to being overwhelmed by the region’s treacherous business landscape. Big companies often enjoy the benefit of special treatment from local governments and have substantial financial resources to help them muscle through problems.

Small companies usually have neither. Not only must they resort to ingenuity to overcome difficulties, but they should also enlist the aid of their peers and competitors. By working in unison, market challenges can be more quickly and efficiently met.

Companies must leverage each other’s knowledge and expertise and surmount the problems they face each day. Then they can get on with the more important task of succeeding in this [email protected] extraordinary market.

Romanian New Vehicle Production & Assembly (in units)

Jan.-Sept. 1997 Jan.-Sept. 1996 % Change Passenger Cars 80,930 65,364 23.81% Light Commercial Vehicles 12,485 15,559 -19.75% Commercial Vehicles (3.5-7 ton) 202 972 -79.22% Commercial Vehicles (over 7 ton) 1,203 2,761 -56.42% 239 380 -37.10% Up to 15 places 89 n/a — Over 15 places 150 380 -60.52% TOTAL 95,059 85,036 11.78% Source: APIA

Romanian New Vehicle Exports (in units)

Jan.-Sept. 1997 Jan.-Sept. 1996 % Change Passenger Cars 14,545 4,219 244% Light Commercial Vehicles 1,187 5,409 -78.05% Commercial Vehicles (3.5-7 ton) ——— Commercial Vehicles (over 7 ton) 18 29 -37.93% Buses Over 15 places 15 n/a — TOTAL 15,765 9,657 63.24%

Source: APIA

8 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Romanian Car Production and Assembly (in units)

Company Model Jan.-Sept. 1997 Jan.-Sept. 1996 % Change ARO 10 (1.4 liter) 362 366 -1.09% 10 (1.9 liter diesel) 744 633 17.53% 24 (2.5 liter) 472 1094 -56.85% 24 (2.5-3.2 liter diesel) 777 912 -14.80% Dacia Berlina 1.4 liter 42,404 37,482 13.13% Break 1.4 liter 12,801 13,268 -3.52% Nova 1.6 liter 5,268 n/a — Daewoo Cielo 1.5 liter 16,752 11,609 44.30% Espero 1.5 liter 501 — — Espero 1.8 liter 849 — — TOTAL 80,930 65,364 23.81%

Source: APIA

Romanian Car Exports (in units)

Company Model Jan.-Sept. 1997 Jan.-Sept. 1996 % Change ARO 10 (1.4 liter) 190 440 -56.81% 10 (1.9 liter diesel) 401 567 -29.27% 24 (2.5 liter) 79 368 -78.53% 24 (2.5-3.2 liter diesel) 256 304 -15.78% Dacia Berlina 1.4 liter 708 1563 -54.70% Break 1.4 liter 52 962 -94.59% Nova 1.6 liter 756 15 4,940% Daewoo Cielo 1.5 liter 12,103 — — TOTAL 14,545 4,219 244% Source: APIA

Romanian New Vehicle Imports (in units)

Jan.-Sept. 1997 Jan.-Sept. 1996 % Change Passenger Cars 3,648 4,894 -25.45% Daewoo Cielo — — — Daewoo Espero — — — Daewoo Tico 121 1,700 -92.88% Other Makes 3,527 1,888 86.81% Light Commercial Vehicles 527 450 17.11% Commercial Vehicles (3.5-7 ton) 197 293 -32.76% Commercial Vehicles (over 7 ton) 165 199 -17.08% Buses 95 15 533% Up to 15 places 88 n/a — Over 15 places 7 15 -53.33% TOTAL 4,632 5,851 -20.83% Source: APIA

Romanian New Vehicle Sales (in units)

Jan.-Sept. 1997 Jan.-Sept. 1996 % Change Passenger Cars 66,358 65,298 1.6% Light Commercial Vehicles 11,190 10,692 4.6% Commercial Vehicles (3.5-7 ton) 404 1,243 -67.5% Commercial Vehicles (over 7 ton) 1,265 2,899 -56.36% Buses 308 385 -20% Up to 15 places 171 n/a — Over 15 places 137 385 -64.41% TOTAL 79,525 80,517 -1.2% Source: APIA

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 9 Profile Continued from Page 5 We had the opportunity to pull them all communication, none of the rest would together and try some real out of the box work. The flat organization is conducive Pearn: As part of Visteon, we have a thinking, [with] unique structural to communication, operational sharing of new focus which is trying to penetrate relationships and information, and some of the outside markets. Right now attitudes. We had a empowerment. as Visteon, we sell about 5% of our total brand new locally.” business on outside sales. Our vision is management team “All of our people work on a We meet with the to sell about 20%. I won’t time bind us, [that included] entire production because the sooner the better as far as people with all salary basis, so there are no and administrative we’re concerned. different time clocks. At the time of team once a month experiences. launch, we were the only all- and we talk about We recognize that Ford on an assembly open issues, the basis has a limited capacity worldwide. We take an salaried work force in the business direction We’re overcapacitized from an assembly integrated system of Ford Hungaria, standpoint in the global market of the approach to operational auto industry. But where we’ve supplied organizational challenges, and just the 8 million units within Ford in the development by combining and really efficiencies. It’s an opportunity for two- past, now we see opportunity for the 50 enveloping into teams the engineering, way communication. million units that are out there. And that production, maintenance, and quality will be some of the focus in the future. under one product manager. Individual At all-employee camp meetings, product managers are responsible for all [employees] discuss within their work We’re not going to create outside those facets of the business within certain teams critical plant strategy issues. business at the expense of our traditional product lines. Because of their empowerment and customers — Ford assembly operations. responsibility, they need time to It’s going to be in addition to them. Work teams are empowered to make key themselves to talk about strategies — decisions such as scheduling, allocation how to be more efficient, what kind of CEAR: Where do you see most of this of manpower, and hiring. The production design or process issues are there. Twice new business coming from? work teams [have] a great level of a year, at a minimum, these all-employee Pearn: Primarily Central Europe. Right autonomy. camp meeting take place. now we ship worldwide. About 90% of our business is to Western Europe. We Our structure basically has 4 layers of We have a plant newspaper published ship to Mazda in Japan, they’re one of organization from me to any worker in quarterly, and an in-plant email system our customers for starter motors. And we production. There are very few levels — available to all employees, [enabling] ship to our Brazilian plants in South that’s purposeful and intended [to anybody to communicate with anybody in America. Soon we’ll be shipping starter facilitate] teamwork, openness, and this organization. My door is 90% of the component sub kits to our Indian plant. empowerment of employees. time open and I’m willing to talk with all employees. We’re focused on CEAR: You’ve created a unique All of our people work on a salary basis, communication, in an atmosphere of organizational system at the Alba so there are no time clocks. At the time teamwork. plant. Could you explain this system? of launch, we were the only all-salaried Pearn: This was a pilot started in 1990. work force in the Ford Motor Company The vision is that we leverage each other, We had the opportunity to grow from worldwide. Since then, some other plants so that we continuously improve on new scratch and implement any organizational have taken a similar approach, but on a plants and new launches. And that structure that we wanted. [Management] much smaller scale. development, I think, is what has gotten was very supportive of doing something us to where we are today, and where we unique, [implementing] some ideas that CEAR: What’s the key to making this hope to go in the future. we had bounced around in North organizational structure work? America and other worldwide locations Pearn: I would say the key point is open CEAR: What kind of training do you of Ford. communication between all offer for employees? organizational offices. Without Pearn: We have training and language programs available to all employees Ford Hungaria Alba Plant Quality Awards & Certifications when they first come into the company. We focus on safety and quality related December 1994 Q1 Award skills — these are my two priorities. August 1995 Total Quality Excellence Award for Ignition Products Then on to social, technical, and business October 1995 Preventative Maintenance Excellence Award practices. When starting with such a November 1995* Customer Driven Quality Award for 1.1 Kw Starter dramatic change in culture and with the December 1995* Customer Driven Quality Award for Fuel Pump Communist influence in Hungary, we January 1996 ISO 9002 Certification need a common understanding, a July 1996 Ford Total Productivity Maintenance Checkpoint “A” baseline. And we continue to work on September 1996* Customer Driven Quality Award for DIS Coil that and improve it. January 1997 Piloted “Ford Production System” initial application in Europe February 1997 FTPM Checkpoint “B” November 1997 QS 9000 A continuing education program is *First in Ford System Source: Ford Hungaria available to all employees, and that’s not

10 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 unique at the Alba plant but is [offered for a university to Ford Hungaria Alba Plant End Products by] Ford worldwide. train right here from our population. Product Annual Capacity CEAR: How do you keep your DIS Coil 2.0 million employee pay competitive? We’ve been talking Fuel Pump 2.0 million Pearn: We are very much a competitive with the university in Permanent Magnet Starter 1.5 million company and we focus on compensation Vesprem and the I-Core — Twin Tower Coil — surveys with updates every six months. technical and Air-Fuel Charging Assembly 0.5 million We [conduct] salary surveys of major economic university Source: Ford Hungaria industries throughout Hungary, by in Budapest and it region and even by city, to make sure we looks like we’ll have stay competitive. We don’t want to some programs. little or no rail for components. We drive inflation, nor can we lag behind focus on trucking. We control it all here our competitors. We want good people, CEAR: What percentage of your locally with our customers and key we expect that, and we demand that administrative staff is Hungarian? suppliers. We do use some air freight in from a pay-for-performance basis. But Pearn: We’re now about 70% Hungarian the case of a crises. We do a lot of sea we also want to create a unique management — we started off with 100% shipment for customers in Japan or environment. That’s what we think North American. From 13 North South America. We product to helps retain our employees. Americans, we quickly jumped to 26 with Bremen in Germany and then use sea a one-to-one ratio between Hungarians shipments from there. We’ve maintained low employee and North Americans. After that, we turnover compared to the industry and ballooned, staying at the 200-300 CEAR: What’s the Alba plant we think a lot of that is strictly employee level for about 4 years. Just in particularly good at? environment and our organizational the last 2 years our expansion has really Pearn: We have a good blend here of structure. On a competitive wage basis, taken off. We’ve gone from a little under technology and assembly-type we’re not significantly different from the 600 people two years ago [to the current operations. We are by no means just an rest level of 1350]. assembly plant. We’ve spent a lot of money and effort and there’s a lot of CEAR: How do you attract employees CEAR: What’s been the biggest technology in this plant. Two out of our who live outside of the Szekesfehervar surprise for you since starting original three products are best in class region? operations in Hungary? products where we have superior quality Pearn: We have a home loan program Pearn: The changing regulations. We in comparison to our competitors implemented to recruit and maintain have to be adaptable as quick as possible worldwide. employees. In certain regions within because of governmental modifications to Hungary, people are not real mobile and policies, practices, and laws. Whether it’s CEAR: Does Ford’s recent executive hesitant to move. This program is customs, consistency in legislation, or changes in affect your partially [targeted] at engineers and being able to predict some of the laws. operations in Hungary? finance people we need to attract from That’s what causes duress in our business Pearn: It does and it doesn’t. Definitely the economic and technical universities plan. We just don’t have that we’re all within Ford Motor Company in Budapest or Miskolc. It says “We predictability today. and just last month I was at need your talent, we want you to move manufacturing off site with Rolf locally.” It’s an incentive to do that, and The other goes back to the supply base. Zimmerman, our new manager. The it’s worked out pretty well. That’s a little bit of a negative surprise. continued focus on the Ford production Not that it doesn’t have good potential — system, we’re all in it together from that CEAR: Has the local labor market I believe it does. And we’re going to respect. I do have some local flexibility, limited your growth plans? place more emphasis and focus on that obviously, for our needs here in Pearn: To date, it hasn’t. But I know in arena. But we’re behind the original plan. Hungary, and Mr. Zimmerman and our Szekesfehervar unemployment is new officials within Ford of Europe are running somewhere in the 4-5% range, CEAR: How’s the customs situation very much a part of it. so it’s awfully low compared to some affecting your operations? adjacent regions, especially compared to Pearn: It’s improved slightly, but not to CEAR: What’s the key to your the northeast and southeast in Hungary. the worldwide or EU standards that we are continued success? I think it will be a limiting factor at some expecting in the short-term. We continue Pearn: We’ve got to look to the future, point in the future, unless we, and that to work with our customs officials. We look for growth opportunities. We need includes the government, do something. are a three shift operation. We can’t be to focus on making our customers serviced just on an 8-10 hour basis during successful by supplying innovative, I’ve worked locally with the mayor here the day. It’s very inefficient from the quality products that meet and exceed in town and with some universities, trafficking patterns concept. That’s an their expectations n trying to [develop] the opportunities and area where we could use some programs that can attract new people to improvement. the region. For example, rather than forcing people to relocate who are from CEAR: How’s your logistics chain Miskolc or Budapest, what’s the organized? opportunity to have a satellite location Pearn: We’re primarily using road. Very

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 11 Exec of Year Continued from Page 1 second half of the paint shop, and a new In 1997, Daewoo also started preparing hall where the Lanos will be assembled. for the opening of its R&D center in the buildings of the former State Motoring Chairman Kim is a man of action. In Institute in Warsaw. So far, 200 of the 1997, he spent a total of 233 days $450 Million Invested Into Engine & 1,000 engineers planned for the center overseas, which included 23 business Transaxle Production have already been hired. The center will trips to 42 countries. He spent an specialize in projects for the Central and incredible 775 hours in the air and Daewoo’s operations in Romania were Eastern European markets. traveled some 520,000 kilometers. hit hard by the political and economic turmoil experienced in that country in Components Group Established Daewoo Fortifies Position in 1997 Daewoo Group Chairman Kim Woo-Choong Daewoo’s activities in Poland in 1997 also included the inaugura- In 1997, Daewoo fortified its Born: tion of the Daewoo Automotive activities in Central Europe December 19, 1936, Taegu, Korea Components Group in Septem- with the investment of over $1 Education: ber. This new group should billion into its local operations Kyunggi High School, Seoul (1956) substantially improve the quality — this is money actually spent, Bachelor of Arts (economics), Yonsei University (1960) of components available to not not just promised. The Work History: only Daewoo but other auto Economic Development Council (1960) investments primarily funded Hansung Industrial Co., Ltd. (1961 - 1967) makers in Central Europe. new equipment and buildings Daewoo Industrial Co., Ltd. (1967 - present) in Poland and Romania. Board Memberships: The components group is com- Harvard Business School prised of the many sub-assembly Daewoo also strengthened its Wharton School production plants that Daewoo sales in Central Europe during Univ. of Michigan School of Business Administration acquired when it purchased the 1997. In Poland, for instance, Hanoi School of Business FSO plant in 1995. By the year Daewoo closed the gap with its Memberships: 2001, Korean firms are expected rival Fiat. At the end of Foreign Investment Advisory Council to President of to have invested $364 million into November 1997, Daewoo’s International Business Leaders’ Advisory Council for the these plants in the form of joint Mayor of Shanghai, China market share in Poland was Asia Pacific Leadership Meeting ventures with Daewoo, sales of the almost 26%, compared to Fiat’s Council of the World Economic Forum companies should reach $735 35%. Honors: million, and total employment will International Business Award, 1984 rise to over 8,500 workers. Chairman Kim didn’t direct (International Chamber of Commerce) Daewoo’s efforts from a Order with the Grade of Grand Commander Commercial Vehicle Sales & comfortable office suite in (Kingdom of Morocco) Production Up in Czech Repub- Korea. He traveled to Eastern Order of Dostlik (Uzbekistan) lic European countries 18 times Legion d’Honneur (France) during the year, including visits Honor Al Merito Grando Gran Cruz (Colombia) Daewoo Avia in the Czech to Poland, Romania, Hungary, Commander’s Cross of the Order of Merit (Germany) Republic expected to produce and Commander of the Order of the Crown (Kingdom of Belgium) Czech Republic, and Bulgaria. Sitara-i-Pakistan (Pakistan) sell 5,500 Avia commercial He also made 16 trips to CIS Order of the Two Niles (Sudan) vehicles in 1997, up 23% com- countries such as Uzbekistan, Family: pared to sales of 4,448 units in Ukraine, Kazakhstan, Russia, Married, three children 1996. Some 2,800 Avia vehicles and Belarus. were expected to be exported, an 1997. Spiraling inflation and interest 80% increase compared to 1996. $660 Million Invested Into Warsaw rates and an unstable currency forced Factory Daewoo Automobile Romania to lower Is Daewoo’s Pace Sustainable? its production targets for 1997 due to In 1997, Daewoo pumped $660 million poor domestic sales prospects. Union Indeed, Daewoo was busy in 1997. And of its planned $1.5 billion investment into troubles also rocked the company early in certainly, Chairman Kim is not likely to its Zeran factory in Warsaw. About $556 the year. slow down the company’s efforts in 1998. million has been set aside for production Critics and competitors, however, wonder of a new model for the Polish market — Despite these problems, Daewoo’s just how long Daewoo can keep up the the Lanos — and assembly of the Nubira assembly line revved up to full speed in furious pace, and whether there are and Leganza. 1997 and the company invested $450 enough consumers to buy the 1.1 million million into new machinery for in-house vehicles the company plans to produce in Daewoo’s investment program at the production of engines and transaxles. Central and Eastern Europe by the year Zeran factory will fund a new press line, 2000. a new line for die stamping, welding shop New R&D Center In Warsaw modernization, construction of the Continued on Page 18

12 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Interview With Executive of the Year: CEAR: What is Daewoo’s current passenger car and commercial vehicle Daewoo Group Chairman production goal for Central and Eastern Europe? Kim Woo-Choong Kim Woo-Choong: Daewoo will produce 1.1 million passenger cars and and [now] they are all competing to enter commercial vehicles in Central and CEAR: What was it that first caught the market. Eastern Europe by the year 2000. About your attention about the possibilities half of this total will be manufactured in for vehicle production in Central It is Daewoo’s basic strategy to enter a Poland. By that time, many of the Europe? market before others and to work with the foreign cars will be replaced by domestic Kim Woo-Choong: I was involved in people and the government of the host cars and if quality goes up as planned, trading and in many other businesses in country for mutual development. This exports to nearby Western European Central Europe as early as the 1970’s. strategy is not countries can also be This was long before Korea made just for the expected. diplomatic ties with Central European automotive sector “While our competitors nations. From my point of view, the but for all of were hesitant to invest, CEAR: Some automobile plants in this region had been Daewoo’s Daewoo took risks and critics claim that producing competitive models, but lost business activi- Daewoo is building international competitiveness due to a ties. participated in Central up too much lack of consistent investments and Europe before others. capacity in a inefficient management. CEAR: Will market already Daewoo’s Many companies overcrowded and I believe that these factories can all strategy be observed what we were extremely competi- regain their competitiveness with the affected by the doing and now are all tive. How do you introduction of new models, renovated turmoil in Asia? respond to this? facilities, and a management that empha- Kim Woo- competing to enter the Kim Woo-Choong: sizes product quality and efficiency. In Choong: The market.” The world automo- view of these factors, I gained confidence current economic bile industry that Daewoo was the [right] partner and crisis in Asia is production capacity so we initiated our plans for operations the result of the booming economic is about 68 million cars a year. Daewoo’s [in the region] as soon a we ended the growth of the past couple of decades that goal for car manufacturing in Korea and joint venture with GM in 1992. has faced a need for structural reorgani- abroad is just 2.5 million. Moreover, the zation. It has come at a time when the car plants that Daewoo is currently CEAR: Why is Daewoo the right local currency, which has actually been operating worldwide are actually existing company to flourish in Central overrated, is also being reevaluated. plants that Daewoo has renovated. So Europe? there is a difference from the literal Kim Woo-Choong: The Central Euro- In Korea especially, the $23 billion trade meaning of increase in capacity. pean region has given up Socialism and deficit in 1996 — which comes from the the people are eager for economic sudden fall in value of the 16 megabyte Also, we are concentrating on emerging development and are well educated in DRAM semiconductor from $50 to just markets and not mature markets where fundamental technology. Daewoo, on the $6 — has been a major factor in this the market competition is high. I believe other hand, has accumulated experience crisis. But I believe that the Asian that our choice reduces conflicts with our in fast growth and is a multi-functional economy will rise back to its feet soon competitors and also increases our corporation that can support infrastruc- since the basis of the Asian economy is competitiveness. ture in trade, electronics, heavy industry, strong. and finance. With both advantages CEAR: Daewoo is committing massive combined, I believe that we can create Daewoo’s overseas investments in the amounts of money to vehicle produc- synergy power. near future may need adjustments, but it tion in Central Europe. How long will will not affect the overall plan. In the it be before you expect to see a return CEAR: What is the key to Daewoo’s past month, I have made a decision to on your investments? strategy in the Central European auto establish regional head offices in 21 Kim Woo-Choong: In regions such as industry? countries. These head offices will be Central Europe where there is potential Kim Woo-Choong: While our competi- responsible for all the projects within for long-term growth, cooperation for tors were hesitant to invest, Daewoo took each country and by early 1998, many mid and long-term growth based on risks and participated before others as a experienced senior executives will be mutual respect and the pursuit of mutual partner in the automobile sector. Many dispatched to these head offices as companies observed what we were doing presidents. Continued on Page 16

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 13 Russia & CIS Developing Production & Improving The Watch Quality of Autos & Parts in Russia

The following are edited excerpts from a Measures to Increase Production & Russia is closely monitoring the experi- paper prepared by Victor I. Pashkov, Head Improve Quality ence of Uzbekistan, Belarus, and other of Economic Analysis at ASM Holding in countries that are utilizing taxation and Russia. The paper was delivered last Traditionally, the inadequate quality of other privileges to develop automobile October at a supplier conference orga- domestic automobile parts resulted from construction. nized by IBC UK Conferences in Warsaw. their production not being an independent sub-sector but being concentrated in the Daewoo’s Demands ASM-Holding is a company created by production of large automobile plants. In more than 160 automobile and agriculture the 1980’s, only 15 of 146 automobile By building automobile plants in consumer machinery construction enterprises from parts plants were independent, with the countries, the Koreans are procuring Russia, CIS, and Baltic countries to remainder being part of large enterprises. extraordinary taxation and customs represent and protect the interests of its Internal production relations in such privileges from country governments. shareholding enterprises. enterprises did not aid the resolution of quality problems. For example, during the discussion of In 1997, the majority of automobile issues related to the creation of a joint construction enterprises shall pass through Today, the domestic auto industry’s most venture between AvtoZAZ and Daewoo, the lowest critical point and shall begin to important task is to set up the production Daewoo’s demands formed a long list: increase production volume and restructure of parts that meet international quality themselves while taking into account standards. In our opinion, this should be • exemption of the joint venture from consumer requirements, their solvency, and achieved through the implementation of a payment of VAT and profit tax; the overall economic situation. Thus, in number of key measures. • an amnesty for the plant with regard to the first six months of 1997 there was a debts to the budget; substantial increase in the volume of Organizational Restructuring • a three-year exemption from payment of production compared to the corresponding all taxes and import duties on approxi- period in 1996: 8.0% for , 11.3% for The organizational restructuring of active mately 100,000 Korean-assembled cars; passenger cars, and 17.9% for buses. plants must take place, making provision • exemption from social welfare payments for the allocation of parts production to and extra-budgetary fund payments; and The data on the relationship between legally independent enterprises and • the adoption of severe restrictive volume of sales and volume of production facilitating the creation of a competitive measure against imports of other in the first six months of 1997 provide environment. The restructuring of such manufacturers’ automobiles to Ukraine evidence of the achievement of a process enterprises may be initiated by changing of production reconstruction in response to the taxation system — primarily through These demands do not appear excessive if consumer demand. Thus, Zil sold 93.6% regulating VAT rates — and by creating one takes into consideration that success of trucks manufactured; GAZ sold 100% other economic conditions to ensure that can come only where there is speedy of trucks, 99.8% of passenger cars, and restructuring is attractive. concentration of huge resources, and that 98.7% of buses manufactured; the project itself shall be implemented in sold 100% of trucks and 100% of passen- Presently, there is an unfortunate predomi- an extremely compressed time period. ger cars; UAZ sold 105% of trucks, 99.6% nance of large associations of enterprises of passenger cars, and 104.5% of buses; with narrow specializations that are not Belarus Entices Ford VAZ sold 100% of passenger cars; Krasny capable of reacting quickly to market Aksai sold 108.7% of passenger cars; and demands, including the demand for The Belarus government, giving priority to the Kurgansk Plant sold 86.1% of its constant improvement of quality. extricating the country from a severe production. investment crisis, granted the US/Belarus Joint Ventures Must Be Encouraged joint venture (“Ford-Union”) considerable Unfortunately, sales of the Moskvich plant privileges: remain low: 30.3% of production for the The creation of joint ventures with foreign first six months of 1997. But on the companies should be an effective method • from the registration date, the joint whole, enterprises have learned to operate for improving the quality of parts produc- venture was exempted from payment of in the market and, in our opinion, it can be tion. customs duties, value added tax, and expected that the tendency for automobile excise duties on machines, equipment, production growth shall continue for the Investment Incentives For Domestic & tools, raw materials, parts, overland near future. Foreign Investors transport facilities, and spare parts and accessories for these facilities imported However, the stability of this tendency A system of privileges should certainly be into the territory of Belarus and intended shall depend on how quickly plants can employed, providing state support to for the production of Ford automobiles; improve the quality of automobile equip- enterprises cooperating as part of joint and ment produced and maintain their competi- ventures or independently developing high • exemption from payment of tax on profit tiveness. quality auto parts. Continued on Page 19

14 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 According to the new tax regulations, Watch Out! New Tax Changes in Hungary each branch of the foreign company is Hungary Tax, Customs, and Finance Update considered as a separate taxpayer but at Denes Szabo, Ernst & Young the same time being liable for any debt of the other branches. A branch is treated as a permanent establishment of the foreign amended and available as well. From company and taxed by the general In November 1997, the Hungarian 1998, a 5-year 50% tax holiday can be Hungarian corporate income tax rules. Parliament passed the 1998 tax regula- claimed for production companies that tion amendments. The amendments start (after December 31, 1995) a capital Branches of the same foreign entity and include a number of changes to the tax project of at least 1 billion HUF. Compa- the foreign entity itself are treated as laws and a complete reformulating of the nies that have already qualified for this related parties. Transactions between the excise tax system. For readers of the holiday may choose which revenue branches or between the foreign company CEAR, it may be of importance that new criteria they want to apply, i.e. the old and its Hungarian branch have to be tax holidays are available for companies export criteria of 25% year-on-year made on an arm’s length basis regulated starting capital projects and that their increase with a minimum of HUF 600 by the transfer pricing rules (see below). local tax burden may be reduced. million or the new sales increase require- Branches are also subject to the thin ments. capitalization rules (see below). Another significant change is the introduction of the ‘branch concept’ in Local Business Tax ‘Dividends’ paid to the ‘parent’ company the Hungarian tax and legal system and The base and the maximum rate of local will be subject to the 20% dividend the reformulating of the withholding tax business tax in Hungary is regulated by withholding tax. An applicable treaty system. Most other amendments are, law. Municipalities can levy lower rates may, however, override most of the above however, corrections or modifications to or give credits in their jurisdictions. The mentioned rules. the already existing regulations. The maximum rate of local business tax 1997 tax regulations contained certain allowed by law has been changed from Withholding System for Non-Residents rules that were unfair or impossible to 1.2% (1997) to 1.4% (1998), and to 1.7% A separate new section of the Act on implement. Some of these rules have and 2.0% (1999 and 2000 respectively). Taxation Procedures deals with the been amended now with retroactive effect withholding and reclaim procedures of indicated as (1997). This increase is compensated for produc- personal and corporate income tax, as tion companies as they can decrease their well as the dividend withholding tax for Tax Holidays for Investors tax base by one-third of the cost of non-Hungarian residents. According to There are new tax holidays available until products sold. This deductible portion these regulations tax withheld from the 2011 for production companies that have will be increased to two-thirds and to a taxable income of a non-resident must be started or start a capital project after full deduction in 1999 and 2000 respec- paid to the tax authorities by the 10th of December 31, 1996. tively. Until now no deduction was the month following the payment of available for production companies for income. Such withholding must be A 10-year 100% tax holiday can be production cost. Trading companies will reported by May 31 of the following claimed by companies starting a capital not benefit from the deduction as they year. project of at least 3 billion HUF (approx. can already deduct cost of goods sold USD 15 million) if the project is realized from the tax base. Should an applicable treaty state that in an underdeveloped region of Hungary. Hungary cannot tax the income in Underdeveloped region is defined as a Branches question, no tax should be withheld if the region a) where the unemployment rate In the past, foreign companies could open recipient of the income provides the was higher than 15% in December of any a representation or information office in payer with his certificate of residency of the two preceding years, or b) men- Hungary. Such offices could gather or before the income is paid. In case the tioned as such by a government decree. provide information but were not allowed applicable treaty allows Hungary to tax An additional requirement is that the to actively engage in trade or business in the income at a reduced rate, the normal number of employees must be increased Hungary. Consequently, foreign compa- Hungarian rate must be withheld unless by at least 100 persons for the second nies had to establish a separate Hungar- the payer has received permission from year after the completion of the project. ian entity if they wanted to do business in the tax authorities for applying the treaty Hungary. rate directly. The same 10-year 100% tax holiday is available for capital projects of at least From 1998, it is possible to set up a In case more tax has been withheld in 10 billion HUF (approx. USD 50 million) branch in Hungary. Foreign companies Hungary than allowed by the treaty, a without any limitation regarding the with a permanent establishment, e.g. a refund may be claimed from the North- location. Here the required increase in construction site in Hungary established Budapest Section of the Hungarian Tax number of employees is 500. before 1998, can continue their opera- Authorities. tions in their current form till December These holidays can be claimed in those 31, 1999. After that they have to change Corrections to 1997 Rules years when the company increases its the form of the operation into a branch. Depreciation (1997) sales revenues by at least 5% of the value In order to reflect the new possibility of capital project. many regulations (e.g. legal, accounting, According to the 1997 regulations tax tax) have to be amended or modified. One of the old tax holidays has been Continued on Page 16

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 15 Woo-Choong Continued from Page 13 centers in Korea and England to receive industry in the future [will see] strong training. competition and active strategic alliance. prosperity is more important than short- This means closer relationships between term profits. CEAR: You are not only automobile known as a charis- makers but also I approach matters with an attitude of matic leader and among parts investment for the future. Returns on motivator. How do “Daewoo’s overseas suppliers. So it will these investments will come when you describe your investments in the be very difficult to Central European countries join the EU leadership philoso- survive in this and when stock exchanges become active phy? near future may need business with a and thus we are able to introduce a part Kim Woo-Choong: adjustments, but the thought of doing of the stock on the open market. The Korean people crisis in Asia will not everything alone. have experienced I once again would like to stress that extreme poverty affect the overall Daewoo began with investments are more important than under the colonial era plan.” just 5 employees and returns. I am planning to reinvest all and also the Korean $10,000 in 1967. profits from this region for the near War. I told myself We were able to future. that our next genera- “I am planning to achieve this fast tions need not go reinvest all profits growth because we CEAR: What will be the theme of through these made friends with Daewoo’s Central European strategy hardships of our past. from this region for our partners and after the year 2000? I believe that only the near future.” pursued a common Kim Woo-Choong: The present strategy sacrifice makes this goal of mutual of gaining price competitiveness through possible, I have prosperity. Coop- mass production should change. The worked from five to eration will become most important factor in the 21st century nine and not from nine to five. I have even more important in the automobile automobile industry will be emissions never had a holiday off and many industry. and fuel economy. Also important will devoted workers have understood and be color and design variation to meet the followed me well. I think that Poles and CEAR: What is the essence of your various needs of the customer and the people of Central European countries business philosophy? reducing the time it takes to get new who have historical backgrounds similar Kim Woo-Choong: It is my experience models out. This means that R&D and to Korea can easily understand my and my belief that if you love your job, marketing skills that are closely tied with thoughts. many opportunities will open up. You the consumer will be important factors. have to try new things that no one has CEAR: What are the keys to being an done and go places no one has gone Daewoo already has established R&D effective executive in today’s global before n centers in Central & Eastern Europe and automotive industry? has sent engineers to Daewoo’s research Kim Woo-Choong: The automotive

Tax,Customs Continued from Page 15 Based on the 1997 rules, a company must Other Rules of General Interest depreciation cannot exceed the one used twice increase its tax base by the amount Although these rules are not new, they for commercial purposes. This means that of debts forgiven — once under the title must be mentioned here since the in case the company depreciates some of ‘debts forgiven’ and then under the title Hungarian tax inspectors have started to its assets faster for commercial than for ‘credit loss’. This unfair rule has been focus on group transactions. tax purposes, these assets cannot be fully amended and now there remains only one depreciated for tax because no tax increasing item — ‘debt forgiven’. Transfer Pricing depreciation can be taken at the end of The Hungarian Tax Authorities may the useful life when the assets have Self revision, tax audits (1997) make transfer pricing adjustments where already been fully depreciated for transactions between related parties have commercial purposes. Due to mismatching regulations in the not been concluded at arm’s length terms. accounting and tax laws, findings of self The tax base has to be adjusted by the This rule has been amended stating that revisions and of the tax audits hit the tax difference between the arm’s length when assets have been fully depreciated base twice — once as revision of the past (“market”) and the contract price. for commercial purposes but not yet for years and then as items booked in the The market price must be determined by tax, tax depreciation can be still carried year of findings. This strange treatment one of the following methods: on until the assets are fully depreciated has been modified and now the result of • comparable uncontrolled prices, for tax as well. such findings can be reversed when • resale price, calculating the tax base in the year of • cost-plus method, or Debts forgiven (1997) findings. Continued on Page 18

16 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 CENTRAL EUROPE Classifieds & AUTOMOTIVE REPORT™ Investment Opportunities

Manufacturer of driving PIAST Manufacturer of car & trucks, tractors, ships, & sta- Csaba Kilian, ITDH shafts, steering shafts, steer- tel: 48-22-827-8700 truck air and oil filters seeks tionary aggregates. 1996 re: Pemu ing gears, and spare parts fax: 48-22-826-7341 joint venture partner for pro- turnover expected to be $20 tel: 36-1-118-0051 seeks foreign investor. Poland duction, financial, and distri- million. fax: 36-1-118-3732 Wieslaw Kosieradzki bution cooperation. Monthly Jan Vesely, IESC Hungary PIAST Manufacturer of hydraulic air filter capacity for cars of tel: 420-2-2499-3170 tel: 48-22-827-8700 cylinders, up to 32 bars 60,000, and 6,000 for trucks fax: 420-2-2499-3176 Supplier of for Suzuki fax: 48-22-826-7341 pressure, 25-160 piston di- Jorgen Varkonda Czech Republic cars & spare parts for Poland ameter, up to 4,000 mm SNAZIR Ikarus seeks purchaser. length, seeks Slovak Repub- re: Sandrik a.s. Partner sought for producer Company undergoing Manufacturer of centrifugal lic commercial cooperation, tel: 421-7-5335-175 of diesel injection equipment privatization process. oil separators, heaters, wa- offers production to order. fax: 421-7-5335-022 for development, produc- Csaba Kilian, ITDH ter and oil coolers for cars Jorgen Varkonda, SNAZIR Slovak Republic tion, & sale of single and re: 02/Aut/96 & trucks, water pumps for re:Rerosa s.r.o. multi-cylinder in-line injec- tel: 36-1-118-0051 vans, trucks, and ships seeks tel: 421-7-5335-175 Manufacturer of pressed tion pumps for all types of fax: 36-1-118-3732 foreign investor. fax: 421-7-5335-022 parts for cars, press units, diesel engines, as well as for Hungary Wieslaw Kosieradzki Slovak Republic electric carriages, and ma- injection systems, testing, PIAST chine tools seeks commercial measuring, & adjustment Battery manufacturer seeks tel: 48-22-827-8700 Manufacturer of exhaust or production cooperation. equipment. 1995 turnover joint venture partner for pro- fax: 48-22-826-7341 flanges,light welded steel Jorgen Varkonda, SNAZIR was $40 million. cessing used vehicle starter Poland constructions,agricultural re: BAZ a.s. Jan Vesely, IESC batteries. $2.1 million machines, and hydraulic tel: 421-7-5335-175 tel: 420-2-2499-3170 Csaba Kilian, ITDH Manufacturer of fuel supply components under Sauer Co. fax: 421-7-5335-022 fax: 420-2-2499-3176 re: Perion systems for car & van en- license seeks joint venture Slovak Republic Czech Republic tel: 36-1-118-0051 gines, compressors for partner. fax: 36-1-118-3732 pneumatic braking systems Jorgen Varkonda U.S. partner sought for Hungary for cars, buses, & farm trac- SNAZIR Czech producer of crank- Manufacturer of plastic tors, compressor units & re: Topolcianske Strojarne a.s shafts (various sizes up to parts for Opel, Mercedes, pneumatic fittings, & spare tel: 421-7-5335-175 2500 mm lengths) for pur- VW, & Suzuki seeks equity parts for compressors seeks fax: 421-7-5335-022 pose of contract manufactur- partner who is engaged in foreign investor. Slovak Republic ing. Company is supplier to plastic processing business. Wieslaw Kosieradzki producers of engines for $5 million Get the Word Out, Send Us Your News! Sell Your Product, Make Sure Your PR & Marketing People See This Service, or Make sure the auto industry hears about your company’s activities in Central Europe. Send the CEAR™ your news about: Opportunity with a CEAR™ • recent and projected sales and production figures • new joint ventures or cooperation agreements 50 Word Classified • facility expansion plans (e.g. new equipment, new buildings) • business expansion plans (e.g. new markets, new products, new supply contracts) for USD$50 • personnel changes, recent awards, licenses, certifications • new product news • upcoming company events (e.g. supplier conferences) Fax or Email Your Classified. Include your name, phone, Fax, email, or mail press releases to the CEAR™: fax, and address. Email: [email protected] Tel: +1-440-843-9658 Fax: +1-206-374-5282 Toll Free inside US Fax: (800) 684-3393 Fax: +1-206-374-5282 Slovak Republic Fax: +421-7-361-085 Email: [email protected] Post: 4800 Baseline Rd. Suite E104-340, Boulder, CO 80303 USA Legal Continued from Page 6 and accelerated registration procedure Tax,Customs Continued from Page 16 in the Company Register; creased as required, then the business • any other method resulting in association will be required to trans- • to strengthen currently ineffectual legal appropriate pricing. form itself into another corporate form provisions, guaranteeing greater It is understood that these rules reflect the which does not stipulate minimum protection of creditors’ and minority 1995 OECD Transfer Pricing Guidelines. capital requirements or which has a shareholders’ rights; and However, the law does not give detailed lower capital requirement which the definition of the said methods or explana- existing quotaholders’ or shareholders’ • to harmonize definitions applied in tion on how these methods should be equity already satisfies; currently existing laws governing applied. entrepreneurial activities with other • the minimum capital requirement of a legislation dealing with securities, Thin capitalisation limited liability company will be taxation, accounting, and bankruptcy. The Hungarian tax laws set a debt to increased to three million Hungarian equity ratio of 4:1. This means that if a forints, from its current minimum of Some criticisms of the proposed new related party provides a loan to a one million Hungarian forints; corporate legislative regime that have Hungarian company, a certain part of the interest paid may not be deductible. This been made include the following: non-deductible interest is defined as • the minimum capital requirement of a interest paid on a loan exceeding four company limited by shares will be • it prescribes excessive minimum times the net equity of the recipient. Net increased to 20 million Hungarian capital requirements for founding equity is to be calculated based on the forints, from its current minimum of 10 companies limited by shares and opening balance sheet and loan means the million Hungarian forints; limited liability companies; average amount of the loan outstanding.

• a party acquiring a majority stake in a • it does not delineate Because taxes are complicated, the Hungarian company will be required to sufficiently clearly aforementioned should not be regarded offer the same price for quotas or between the responsibili- as offering a complete explanation or shares to minority shareholders; ties and liabilities of used for decision-making. Consult a tax professional for advice on your specific members of the Board of situation • because no minimum capital require- Directors and other n ments are prescribed for them, the senior officers; and Mr. Szabo is a Senior Manager at Ernst popularity of the unlimited partnership & Young’s Budapest office. and limited partnership will likely • it fails to adequately increase; guarantee protection of the rights of minority • with respect to companies limited by shareholders n shares, the new Companies Act will abolish the restriction that foreigners Exec of Year Continued from Page 12 are only permitted to own registered shares; and Chairman Kim is confident. And he says the severe economic crisis Korea is FUTURE • the classes of shares will be defined currently grappling with will not change more precisely and consistently, and the Daewoo’s plans for Central Europe. (see issuance of the preference share, interview with Chairman Kim p.13 ). ISSUES employees’ share and interest-bearing Time will tell. The company must overcome many obstacles before it can share, as well as the common share will Regional Special Report: reap the rewards of its grand strategy for be permitted. Automotive Aftermarket the Central European auto industry. Poland Sales and Production The Central European auto industry is a Summary Statistics remarkable market. Billions of dollars are being plowed into the auto sector and The primary objectives of enacting the 5 Q’s With GM’s Czech Purchasing scores of the world’s leading automotive Manager new Companies Act and Company companies have established strongholds Registration Procedures Act include the throughout the region. The market is rich Slovak Car Park Analysis following: with talent and expertise. Dynamic executives such as Chairman Kim ensure Wiring Harness Review • to refine currently incomplete or that the future holds great promise and inadequate regulations affecting excitement n Dacia: Beating the Odds companies, leading to a streamlined Czech Republic Legislative Review

18 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Russia Continued from Page 14 achieved through the support given to the The relationships between these enter- joint venture by the state, which intro- prises are defined by the conditions of from the sale of services and its own duced tax privileges for five years. tied state credit of 500 billion rubles, production for five years from the time which is granted by the Russian Federa- a profit is declared, including the first Decisions to Grant Privilege Come tion Government to the Government of year of profit. Slowly Belarus. Belarus shall use these funds to acquire engines from the “Russian In 1997, the joint venture intends to There is a particular need for rationaliza- Motors Company.” The first tranche of assemble 6,000 Escorts and Transits and tion of taxation and customs policies in credit (50 billion rubles) has already been expects to develop the capacity to order to support enterprises producing paid, signifying the commencement of produce 20,000 vehicles a year. automobile components. Unfortunately, the project’s implementation. implementation of decisions to grant Kaliningrad Attracts Automakers With taxation privileges proceeds with great Tied credit as a means for stimulating the Incentives difficulty. For example, it would appear foreign consumer’s ability to pay has had that there are no obstacles to implementa- very restricted use in Russia. The Certain state support measures have been tion of the “Statute on the Procedure for success of the above project is extremely adopted to create assembly-line produc- Applying VAT and Excise Duties on important since it shall open up new tion of modern passenger cars in Supplies of Goods/Services in Relation opportunities to develop automobile Kaliningrad Oblast. An order of the to Industrial Cooperation when Payments construction in both countries, providing Russian Federation Government has are Made Between Economic Subjects of new Belarus automobiles with new granted enterprises engaged in imple- CIS Member States” (the “Statute”). Russian diesel engines. menting the project an investment tax credit of 120 billion rubles, and the Introduced by the CIS Inter-State International Accounting Standards introduction of $30 million of investment Economic Committee, the Statute was Essential To Attract Investment credit from foreign banks has also been approved by the Council of CIS govern- permitted under state guarantees. ments in January 1997. It provides that Serious hopes of reviving the investment payments for goods (work, services) process — especially foreign investment Substantial privileges have been granted supplied by the economic subjects of CIS — are tied to the introduction in 1997- by decisions of the Kaliningrad Oblast member states in accordance with 1998 of accounting practices complying Duma and the Kaliningrad City Duma. agreements concluded on the basis of with international standards. This For legal entities taking part in this inter-state industry and inter-industry permits the balance sheets of domestic project, incentives included: production cooperation and production enterprises to be rendered comprehen- specialization agreements shall be made sible for foreign investors. • exemption from payment of local profit at market prices and tariffs without value taxes for three years; added tax or excise duties. Presently, a great volume of documents • profit taxes reduced by 75% in the have been published regulating the fourth year and by 50% from the Implementation of this Statute would activities of foreign investors in Russia. prescribed rate in the fifth year; have substantially influenced the reduc- The efficiency of this regulatory base, • property tax exemptions for the first tion of prices of manufactured products, however, is extremely low. First, because two years, and a 50% reduction from increased the ability of consumers to pay, privileges granted are insubstantial, and the prescribed rate in the following and would have provided an incentive to second, because enterprises remain non- years; inter-state parts suppliers and increased transparent to foreign investors due to the • reduction of the lease payment (land production in CIS country enterprises. special accounting systems used by the tax) rate by 50%; But on various pretexts, the CIS member companies. • cancellation of the advertising duty and states avoided this agreement. Evidently, retail trading right fee for the first three interested parties — automobile manu- OAO ASM-Holding has approached years, with partial reductions in the facturers and their unions — need to state administrative bodies with a request fourth and fifth year. show greater persistence in working with to entrust it with the organizational work state administrative bodies and demon- of converting Russia’s automobile Uzbek/Daewoo Joint Venture strate the necessity for introducing enterprises to meet international account- privileges. ing standards, especially component The Uzbek/Daewoo joint venture manufacturers. involved establishment of a plant with a Russia and Belarus Use Tied Credit designed capacity of 200,000 automo- Credits Speed Up Investments biles per year. In 1996, 24,878 automo- The following companies are taking part biles were produced (of which 96.3% in a well known project for the develop- Automobile manufacturers are looking to were sold), and the plan for 1997 was ment of diesel engine production: AO state administrative bodies for more 125,000 cars. “Yaroslavl Engine Plant,” AO “Tutaev precise definition and speedy implemen- Engine Plant,” Yaroslavl Fuel Equip- tation of a procedure for state support of A significant part of the funds earned by ment Plant, Yaroslavl Diesel Equip- the most promising investment projects the joint venture are earmarked for a new ment Plant, Automobile Plant, on a quota basis by granting preferential plant in Taskent for production of some Minsk Wheeled Tractor Plant, BelAZ, credits out of budgetary funds. Up to the 300,000 1.5-1.8 liter engines. To a large and Mogilev Automobile Plant. present time, a large number of such extent, such positive results have been Continued on Page 22

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 19 Best Selling Brands in Poland

Ranking by Retail Volume (YTD November ’97) Passenger cars Commercial Vehicles Make Volume Market Share Make Volume Market Share FIAT 154,718 35.09% DAEWOO MOTOR POL. 12,657 25.25% DAEWOO 113,414 25.72% DAEWOO 10,711 21.37% GM - OPEL 41,132 9.33% CITROEN 5,340 10.65% SKODA 22,121 5.02% FIAT 3,461 6.90% RENAULT 20,009 4.54% MERCEDES 3,441 6.86% FORD 16,323 3.70% FORD 3,412 6.81% VW 13,562 3.08% SKODA 2,260 4.51% SEAT 11,479 2.60% VW 1,770 3.53% PEUGEOT 8,959 2.03% PEUGEOT 1,714 3.42% HONDA 7,887 1.79% GM - OPEL 1,178 2.35%

Source: SAMAR, s.c.

Sales Loss Leaders in Poland (YTD November ’97)

Passenger cars Light Commercials Medium Commercials Make Units Units Make Units Units Make Units Units ’97 v ‘96 ’97 v ‘96 ’97 v ‘96 PF 126 45,907 -10827 Fiat Cinquecento Van 1,538 -4174 FSC - Zuk 187 -390 FSO - Polonez 46,256 -8651 FSO Polonez Truck 10,449 -2767 Daily 36 -86 Tavrija 150 -1105 FSO Polonez Cargo 262 -373 Mercedes Sprinter 2 11 -38 Renault Megane 10,928 -809 Fiat Uno Van 670 -325 VW Transporter 123 -36 Renault 19 0 -757 Ford Escort Van 118 -61 Fiat Ducato 89 -19 299 -646 Fiat Fiorino 30 -57 Toyota Hiace 19 -18 Hyundai Accent 748 -587 Peugeot 306 XA 35 -4 Renault Master 3 -8 Renault Clio 1,822 -307 Renault Clio Societe 199 -1 Renault Trafic 26 -7 Citroen ZX 779 -272 LDV 15 -4 Peugeot 405 13 -226

Source: SAMAR s.c., Local Manufacturers and Official Importers, ACEA

Exhibitions, Conferences, and Shows in 1998

1998 June 18-20 Beijing, China Automotive Sourcing in China Feb. 23-26 Detroit, MI SAE Int’l Congress & June 22-27 Kiev, Ukraine Auto Show Exposition June 23-30 Beijing, China Auto China ’98 Feb. 26-27 Warsaw, Poland EuroForum Central & Sept. 15-20 Frankfurt, Germany Automechanika Eastern Europe Auto Conference Sept. 27-Oct. 1 Paris, France FISITA Congress Mar. 5-15 Geneva, Switzerland International Motor Oct. 1-11 Paris, France Int’l Paris Motor Show Show Oct. 21-Nov. 1 Birmingham, UK Int’l Motor Show Mar. 27-April 5 Belgrade Auto Show (unconfirmed) Nov. 12-15 Cairo, Egypt, Cairo Motor Show April 11-19 New York, NY Int’l Auto Show Nov. 27-Dec. 6 Essen, Germany Essen Motor Show April 15-19 Tallinn, Tallinn Auto Show April 24-May 3 Turin, Italy International Auto Show April 25-30 Poznan, Poland Int’l Fair of Auto Industry May 12-14 Goteburg, Sweden Vehicle Industry Suppliers and Buyers Expos For more information, please contact the CEAR™. May 29-June 7 Porto, Portugal Auto Show To list Contact Information for your show contact June 3-14 Buenos Aires, Argentina Auto Show Ronald Suponcic at: Tel: +1-440-843-9658, June 6-11 Brno, Czech Republic AutoTec Fax: +1-206-374-5282, or Email: [email protected]

20 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 CEAR™ Hungarian Automotive Parts & Components Suppliers

Csepel Autogyar Kft. FAKTOR 92 Kft. MOM IKARUS Szegedi KOMPOZITOR Kft. Trucks, fire-fighter trucks, car Komloi Gyara Alkatreszgyarto Kft. Heat and acoustical insulation frames, power steering, Brake cylinders, brake and parts: doors, ventilating coatings, sandwich structures of Place Your clutches, cardans, car frame clutch elements panels, defrosters, accordions, special hardness components. Mate Istvan hand strap systems, mirrors Kecskemethy Geza Web/Print Ad Dagi Pal tel: 36-72-481-517 Telihay Laszlo tel: 36-251-5766 Here. tel: 36-24-368-117 fax: 36-72-486-259 tel: 36-62-324-088 fax: 36-252-6122 fax: 36-24-366-911 fax: 36-62-324-449 This could be a FRIMAG Szerszamgyarto KOVACS Acel es direct link to DAIKIN-Bakany Kft. INA Gordulocsapagy Kft. Femszerkezet Keszito Rt. Tengelykapcsolo Gyarto Kft. Tools for polyurethane forming Rotation and linear - ball Brake cylinders, brake and your email Clutch disks and structures Konkoly Tibor bearings, rolling contact clutch components, die forged address, web Banai Balazs tel: 36-22-407-809 bearings and frictional bearings parts, free-forming parts, tel: 36-34-311-117 fax: 36-22-407-661 Racz Jozsef aluminum pistons site, and new fax: 36-34-311-122 tel: 36-175-9098 Kovacs Attila business. GANZ KAPCSOLO-es fax: 36-156-7135 tel: 36-313-0292 Your ad DIGEP Holding Rt. Keszulekgyarto Kft. fax: 36-113-6090 Power tools, front axles, pumps, Low voltage devices (refrigera- Individual Alarm Systems appears in the forging machines tion & heating controllers, stop Alarm systems, immobilisers, Kozlekedesi Muszergyarto Print Edition, Dr. Kosaras Csaba lights, fog lamps, wipers) modules for comfort features Rt. tel: 36-204-5348 B. Molnar Istvan Bartha Lorant Manufacturing and repairing Email Edition fax: 36-204-4356 tel: 36-260-0873 tel: 36-131-1455 measuring instruments for and on fax: 36-261-7670 fax: 36-131-1455 vehicles, retailing car parts, EAST - SOLE Kft. R&D CEAR.COM ™ Processing rubber products, Hajdu Kalman vallalkozo Industry Gepgyarto Kft. Bauer Dezso It’s as easy as glues Friction linings, clutches, brake Welded and cut elements tel: 36-140-3302 Kiss Istvan pads Horvath Laszlo fax: 36-129-1653 a mouse click. tel: 36-56-477-212 Hajdu Zsolt tel: 36-52-223-245 [email protected] fax: 36-56-450-748 tel: 36-334-2997 fax: 36-52-372-500 KUNPLAST Muszaki fax: 36-334-2997 Muanyagipari Rt. ECKERLE Kft. Hungary INTERGEP Kereskedelmi Bumpers, motor protecting Manufacturing electric parts for HAJDU Kft. covers, number-plate lights, the vehicle industry Heating technology, motor Cup-and-ball joints, air-valves, interior lights, ashtrays, fuses Too Much Info for Hunyadi Istvan driven household appliances, parts for implements and Krajan Vince the Print Edition. tel: 36-78-311-150 plate forming and injection machines tel: 36-76-463-455 fax: 36-78-311-150 molding tools Koronczi Laszlo fax: 36-76-462-991 CEAR™ Email Kubinyi Sandor tel: 36-92-384-263 ELASTICO Kft. tel: 36-52-384-006 fax: 36-92-384-263 KVJ Muvek Rt. Subscribers got: Rubber spare parts, rubber fax: 36-52-384-706 ABA clamps, exhausters, parts profiles ITT Automotive from pressed and welded 1. Fastest Sales Kemenesi Karoly HFAL Alkatreszgyarto Magyarorszagi Ktg. sheets, special screws and Climbers in Poland - tel: 36-400-1614 Kereskedelmi Szolgaltato Kft. Manufacturing plastic and connectors Data Table fax: 36-400-1641 Manufacturing brake air other parts for passengers cars Kiss V. Jeno conduits, hoses for hydraulics Felegyhazi Szilvia tel: 36-25-259-460 2. New Car Registra- ELASTO ART Kft. and dynamometers tel: 36-268-1241 fax: 36-25-259-442 tions Growth in Technical rubberware, metal/ Horvath Jozsef fax: 36-268-1245 rubber compositions, mixtures tel: 36-27-341-442 MAGYARMET Finomontode Europe/Poland - Data Gulyas Bela fax: 36-27-341-442 K es K 95 Bt. Bt. Table tel: 36-76-449-155 Brake air conduits, small cut High-accuracy castings (steel, fax: 36-76-449-100 IKARUS FONIX Kft. parts aluminum, bronze), machine 3. Sales of New Cars Cut vehicle structure elements, Kunszt Zsolt parts and vacuum engineering and Commercial ELCOMETAL Kft. coupling rods, primarily for tel: 36-53-312-673 Gyori Imre Vehicles in Poland - Special connectors for the coaches and other load-vehicles fax: 36-53-312-673 tel: 36-22-350-717 Data Table vehicle industry (rivets to brake Katona Vendel fax: 36-22-350-625 linings in accordance with tel: 36-66-371-441 KALOPLASZTIK 4. Top 10 Best Selling DIN7338B) fax: 36-66-371-656 Muanyag - es Gumiipari Kft. MECHANIKAI MUVEK RT. Horvath Czako Technical rubberware, extruded Telephone instruments, plastic Cars & Commercial tel: 36-62-324-333 IKARUS Mori rubber bands and metal parts, electronic and Vehicles in Poland - fax: 36-62-474-333 Alkatreszgyarto Kft. IMAG Bakos Janosne electric equipment, condensers Data Table Kft. tel: 36-78-461-200 Kasza Karoly ELTEC Elektrotechnikai Kft. Passengers car seats, uphol- fax: 36-78-461-752 tel: 36-227-3819 5. This issue including Magnet coils, electronic units stery, cable strands, seats to fax: 36-227-3801 the extra information Trauner Jozsef coaches and railway cars, cable Klima Iparihuto -es listed above delivered tel: 36-265-0649 strands Legtechnikai Rt. to their desk on fax: 36-265-1207 Lakatos Rudolf Industrial coolers, air filters for January 28. tel: 36-22-407-367 the vehicle industry, first filters, The information contained in Ex Textiel Rt. fax: 36-22-407-806 water protections the above list was obtained Felt for the vehicle industry, Mosonyi Jozsef from the best available Get what you missed, upholstery fillings, insulation IKARUS Prestechnika Kft. tel: 36- 363-0600 sources. Omissions, and get it early by materials Bodies, body elements, pressed fax: 36-183-6116 typographical errors, and switching to the Email Revesz Piroska steelplate products number changes, however, Edition. Email us at tel: 36-260-7252 Horvath Bela may occur. Please send any [email protected] and fax: 36-260-7252 tel: 36-403-7880 corrections to CEAR™ at we will set you up. fax: 36-403-7458 the address listed on page 2.

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 21 New Product Review arrive ready for immediate use.

Corrosion Inhibiting Packaging The VCI technology is quite versatile and Benefits Suppliers can be applied to a number of different packaging forms, such as shrink and stretch film, bags, skin packaging film Corrosion is the bane of any metal and back. This corrosive effect of and treated board, vapor capsules, bubble products producer, especially makers electrolytes can be negated by VCIs. cushioning, injection and blow molded and users of sophisticated automotive products, and pipe and tube strips. components. The traditional methods Some VCI packaging products contain and materials for protecting parts and certain proprietary chemical systems Northern Technologies International components, such as the use of greases which emit a nontoxic vapor that is Corp. (NTI) of Lino Lakes, Minnesota and oils, are not particularly well suited diffused throughout the packaging’s manufactures such packaging materials for today’s just-in-time auto industry. enclosed space. VCI molecules con- under the name of Zerust. Through a Special equipment and an expenditure of dense in a microscopic layer on all network of international joint ventures, time and labor are necessary when these surfaces they can reach. including one in Russia, the company protective materials are used. makes its Zerust products as close as So long as the metal product remains in possible to customers. Modern packaging material technology the package, the corrosion inhibiting offers an alternative to these traditional layer is maintained. When the product is NTI has developed one VCI technology methods. Packaging treated with removed, the VCI layer revolatilizes that is especially useful for auto manufac- volatile corrosion inhibitors (VCIs) from the product surface, leaving a turers. The company’s Zerust Multimetal provides a dry, non-corrosive environ- clean, dry, and corrosion-free product. systems bring the advantages of dry VCI ment for parts and components and is protection to assemblages of mixed metal easy to use. Advantages for Auto Companies components, such as CKD shipments of galvanized clad automotive body parts How Does It Work? The advantage of such technology for and gas and diesel engines and compo- automotive companies is obvious. The nents n Corrosion is initiated when moisture sender or receiver of metal parts pack- (electrolyte) is present on the surface of aged in VCI treated materials doesn’t Send New Product Info to CEAR™at: metal. When an electrolyte forms, need any special equipment to remove Email: [email protected] electrons flow through the electrolyte the protective film — once the product is Fax: +1-206-374-5282 from high energy areas of the metal removed from the packaging, the VCI Post: 4800 Baseline Rd. Suite E104-340, (cathode) to low energy areas (anode) layer automatically removes itself. Parts Boulder, CO 80303 USA

Russia Continued from Page 19 of 2-3 liter diesel engines jointly with systems; the company “Shtaier” (AO “GAZ,” • Creation of highly efficient ignition projects have undergone expert examina- Nizhny Novgorod); systems for vehicles that use natural gas tion by Russia’s Ministry of Economics • Development of lighting equipment as a fuel; and have been deemed efficient. Auto production for automobiles (AO • Creation of exhaust gas neutralizers parts projects under this program include: “OSVAR,” Vyaznki); without using precious metals; • Creation and production of fuel • Development and organization of • Organization of the production of 16- injection systems (AO “PEKAR,” St. production of driving wheel hydraulic valve engines at the Zavolzhskiy Petersburg) servo-control units for passenger cars, Engine Plant; automatic gearboxes for trucks and • Creation of new types of electrical However, decisions on the actual cars, control systems micro-processors equipment (AO “Tarasov Plant,” allocation of preferential credit funds Samara); from the budget to implement these Note: • Creation of facilities to produce a projects have been deferred for the time multi-functional compact generator being due to a severe deficit in these OAO ASM-Holding, jointly with a range (AO “ATE-1,” Moscow); funds. of scientific organizations and by • Organization of production of fuel commission of the Russian government, injection electric petrol pumps More Solutions Needed For Problems is preparing a strategy for developing (Tyumen Plant ATE); Russian automobile construction, which • Creation of compact generators and Problems which have not yet found a involves interaction of state administra- electronic locking systems for car doors solution in Russia and other CIS coun- tive bodies, direct producers of auto (AO “ATE-2,” Moscow); tries include: equipment, and investors (including • Development and organization of fuel foreign investors), for the purpose of equipment with increased injection • Development and organization of ensuring a sharp rise in the standard of power for bus and auto diesel engines production of modern petrol and diesel domestic automobile construction over (“YAZTA,” Yaroslavl); engines and anti-locking units for the next few years n • Organization of production of a series pneumatic and hydraulic braking

22 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 On The Web at http//:www.cear.com™ THIS IS A SPECIAL NEWS BULLETIN FROM: AAutoNutoNewewsFsFaastst™ Special Central Europe Automotive Industry Email News Bulletin Service Teams Up With The CENTRAL EUROPE AUTOMOTIVE REPORT™

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Fax, Mail or Email Your Order and Mail Your Check To: CENTRAL EUROPE AUTOMOTIVE REPORT™ for AutoNewsFast™ 4800 Baseline Rd. Suite E104-340, Boulder, Colorado 80303 USA Tel: +1-440-843-9658 Fax: +1-206-374-5282 Email: [email protected] Hungarian Technical College Wants to Cooperate

Company Spotlight

Company: Szechenyi Istvan College find it a difficult area,” said Nagy. “Opel qualifying management system for 170 Location: Gyor, Hungary or Audi, for example, have their own buses produced by the Hungarian Contact: Dr. Vince Nagy R&D in Germany or the US.” Thus, the busmaker Ikarus. “We applied the ISO Business: R&D/Technical Assistance department is focused on suppliers. 9000 standards and qualified the “We’ve found that the suppliers are the planning, development, production, Szechenyi Istvan College in Gyor is best to get involved with,” he said. materials, and suppliers,” said Nagy. eager to be a part of the auto sector boom in Central Europe. “We’re waiting for Help for Suppliers to Understand Other Projects Completed by ARED: companies to come to the college and OEM Requirements cooperate with us,” said Dr. Vince Nagy, • Developed service and head of the college’s Automotive and In addition to R&D, the department can diagnostic system for an Railway Engineering Department help suppliers understand the qualifying electric motor test bench (“ARED”). According to Dr. Nagy, his systems used by the main vehicle manu- • Developed maintenance department can provide automotive facturers. “Renault, Suzuki, and Opel systems for Hungarian bus companies with research and develop- have quite different requirements for companies ment services, technical advice, and suppliers,” said Nagy. “We can share our • Stress analyses of vehicle quality management assistance. information [about those requirements] structures with the suppliers and help them meet • Developed computer The department focuses on four main those requirements.” simulation program to analyze areas of expertise: power steering and other • Combustion engines Service & Maintenance Assistance hydraulic equipment in cars • Vehicle structures and dynamics • Introduction of a computer • Vehicle electronics The department is also targeting the managing system for a railway • Vehicle repair and maintenance service and maintenance side of the auto carriage producer sector. “We think this is an important • Analyses of car and truck During each semester, the department has field to get involved in,” said Nagy. “We engine lubrication oils about 100 students for automotive can help new dealers and service stations • Measurement and analysis of engineering, 25 student technical who don’t have experience in car mainte- car and truck brake systems and teachers, 30 technical manager students, nance and service.” According to Nagy, antilock systems and about 20 mechanical engineers. students could help dealers and mainte- Some 20-30% of the students are nance companies understand new Student Internships With Vehicle involved in a sponsoring program which technologies used in the latest models, Manufacturers allows them to work on special R&D such as new engine, transmission, or projects. electronic control system technology. An important part of the educational experience for automotive engineering The department recently worked with Analysis for Cable Cover Producer students is to work at vehicle companies Audi to develop a continuously variable as interns for 3-5 months. A few valve timing system, and helped Audi The department is currently analyzing the students have trained at the Dutch DAF Hungary analyze and develop a solution market for car cable covers in Hungary. company for three months, and Dutch for black marks left on the Audi produc- According to Nagy, car cable producers in students came to Hungary to receive tion floor by work vehicles. In the area Hungary presently use French-made tubes training. of vehicle structure and dynamics, the to protect the cables. A Hungarian department analyzed the effect of speed manufacturer who wants to start produc- “This is important for our students,” said bumps on cars. ing such tubes has asked the department Nagy. “And we see it as very important to determine whether a large enough for the companies because they obtain R&D Focus on Suppliers market for the tubes exists in Hungary. information about our education. After This research is ongoing. such experiences they can have an Although the department has good influence on the education — it’s contacts with the big vehicle manufactur- ISO Qualifying Systems Developed for important for us to know what kinds of ers and has worked with Audi, it has Busmaker Ikarus experts and engineers they need.” n encountered trouble breaking into R&D projects with the manufacturers. “We The department produced an ISO

24 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 CEAR™ Extra Data For PDF Edition This Data did not fit in the Print Edition, but it is made available to PDF email subscribers

Fastest Sales Climbers in Poland

Passenger cars Light Commercials Medium Commercials Make Units Units Make Units Units Make Units Units ’97 v ‘96 ’97 v ‘96 ’97 v ‘96 Daewoo Tico 37,048 26287 Skoda Pick up 2,260 1895 FSC - Lublin 10,252 3845 Skoda Felicia 22,121 8283 Citroen C15 3,767 967 Mercedes Vito 2,539 2379 Opel Astra 20,469 6578 Citroen Berlingo 930 930 2,848 1372 Fiat Siena 6,500 6500 Peugeot Partner 950 811 Peugeot Boxer 694 528 Opel Corsa 14,092 6208 GM Opel Cmbo. 1,178 355 Fiat Ducato 1,223 476 Daew. Lanos 4,417 4417 Vn 446 269 Merc. Sprinter 3 801 239 VW Polo 9,946 4060 Renault Express 356 139 Citroen Jumper 608 232 Fiat Brava 7,241 3711 VW Caddy 385 120 Hyundai H100 P/V 350 221 Seat Cordoba 6,985 3679 Seat Inca 156 76 Toyota Dyna 190 188 Citroen Saxo 3,517 3517 Toyota Hilux 133 55 VW LT 189 157

Source: SAMAR, s.c.

Place Your Internet/Print Ad Here. This could be a direct link to your email address, web site, and new business. Your ad appears in the Print Edition, Email Edition and on CEAR.COM ™ It’s as easy as a mouse click [email protected]

Top 10 Best Selling Cars & Commercial Vehicles in Poland (YTD November ’97)

Passenger cars Light Commercials Medium Commercials

Make Units % Change Make Units % Change Make Units % Change ’97 v ‘96 ’97 v ‘96 ’97 v ‘96

Fiat Cinq. 51,658 6.96 FSO Polonez Truck 10,449 -20.94 FSC - Lublin 10,252 60.01 FSO - Polonez 46,256 -15.76 Citroen C15 3,767 34.54 Ford Transit 2,848 92.95 PF 126 45,907 -19.08 Skoda Pick up 2,260 519.18 Mercedes Vito 2,539 1486.88 Daewoo Tico 37,048 244.28 Fiat Cinquecento Van 1,538 -73.07 FSC - Zuk 2,405 -47.07 Skoda Felicia 22,121 59.86 GM - Opel Combo 1,178 43.13 Fiat Ducato 1,223 63.72 Fiat Uno 21,195 8.18 Peugeot Partner 950 583.45 VW Transporter 1,196 10.84 Opel Astra 20,469 47.35 Citroen Berlingo 930 100.00 Mercedes Sprinter 3 801 42.53 Fiat Punto 16,634 0.96 Fiat Uno Van 670 -32.66 Kia Ceres 769 11.94 Daewoo Nexia 16,253 -11.63 Ford Courier Van 446 151.98 Iveco Daily 746 -1.32 Opel Corsa 14,092 78.74 VW Caddy 385 45.28 Peugeot Boxer 694 318.07

Source: SAMAR, s.c.

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • February 1998 25 CEAR™ Extra Data For PDF Edition This Data did not fit in the Print Edition, but it is made available to PDF email subscribers

New Car Registrations Growth in Europe (YTD Nov. ’97) Place Your Internet/Print Ad Here.

Country 1997 1996 % Change Italy** 2,282,700 1,623,800 40.58 This could be a direct link Poland* 440,916 349,632 26.11 to your Sweden 205,600 166,200 23.71 Greece** 148,900 131,800 12.97 email address, Ireland** 129,100 114,300 12.95 web site, Spain** 916,300 824,600 11.12 Finland 99,200 91,700 8.18 and U.K. 2,086,100 1,947,300 7.13 new business. Denmark** 142,100 133,500 6.44 Luxembourg 29,700 28,600 3.85 Netherlands** 467,000 462,600 0.95 Your ad appears in the Norway 117,600 117,300 0.26 Print Edition, Germany** 3,267,500 3,263,300 0.13 Switzerland** 256,800 256,700 0.04 Email Edition Belgium 376,700 380,000 -0.87 and on Portugal** 192,900 197,800 -2.48 Austria** 264,800 296,200 -10.60 CEAR.COM ™ France 1,557,400 1,987,700 -21.65

*Grey import not included It’s as easy as a ** Provisional Figures mouse click.

Source: SAMAR, s.c. [email protected]

Sales of New Cars and Commercial Vehicles in Poland (YTD November ’97)

Sales (Units) Ytd November

1992 1993 1994 1995 1996 1997 1996 % Change

Passenger Cars

Local Production 144,748 170,549 199,724 206,284 260,265 306,384 239,923 27.70 Import 54,531 71,059 50,558 58,754 114,347 134,532 109,709 22.63 Total 199,279 241,608 250,282 265,038 374,612 440,916 349,632 26.11

Commercial Vehicles

Local Production 19,665 18,475 21,413 27,984 43,015 39,203 37,838 3.61 Import 3,250 5,497 2,542 3,962 7,775 10,925 6,686 63.40 Total 22,915 23,972 23,955 31,946 50,790 50,128 44,524 12.59

Source: SAMAR, s.c.

26 February 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998