BULGARIA CIS CZECH REPUBLIC HUNGARY CENTRAL ROMANIA RUSSIA SLOVAK REPUBLIC SLOVENIA Since 1996 The Source For Automotive Information On ™ AUTOMOTIVE June 1998 REPORT™ On The Web at http://www.cear.com™ Volume III, Issue 6 ISSN 1088-1123

Regional Market Poland Profile Ford Bank Financing Highlights Standard Products Building In Poland Summary The Standard Products Co. announced in Polish Consumers’ late April that it plans to start producing Thirst for Cars • Standard Products Building in Poland automotive sealing products in Poland by • Hyundai Polish Factory Proposal the end of 1998. The company has Submitted established a subsidiary in Poland and has Car financing in Poland is a fast growing • Cornerstone Laid for $450 million acquired land and a partially completed market, and Ford Bank Polska is racing Daewoo Truck Factory in Poland building in the Polish city of Bielsko-Biala. to keep up with it. The percentage of new • Skoda Auto Sales up 27%; Awards vehicle sales involving financing has Best Suppliers The 55,000 square foot plant will supply jumped from about 35% in 1995 to some • Finally: Czech Government to Offer sealing products for all Palio vehicles 60% in 1997. Investment Incentives assembled in ’s facilities in • Suzuki Hungary May Invest in More Bielsko-Biala, Poland. Standard Financing companies Capacity Products intends to expand its such as Ford Bank • GM To Build $130 presence in Poland in the future Polska must contend Facility in Hungary; Astra Phased Out as customer demand increases. with a non-existent • Big Car Sales Jump in Hungary credit checking system, • VW/Siemens Cabling Systems JV in “The expansion of our strict Polish banking Slovakia Boosting Production production capabilities into regulations, and tough • Revoz/Renault Replacing Clio with Poland fits perfectly with our price competition from Clio II Production global strategy,” said Theodore local deposit banks. K. Zampetis, Standard Products In This Issue president and chief operating Ford Bank Polska officer. “Poland is a low-cost started operations in Feature Country: Poland producing country located in the Poland in September • Who Supplies Whom?: p. 5 midst of the emerging East 1997 when it was • Optimize Exports to Poland: p. 6 European market.” • Intellectual Capital — Increasing awarded a banking Competitiveness: p. 9 The Poland plant will be the fifth Dr. Olaf Neitzsch license and • Poland’s Economic Zones: p. 10 new automotive sealing plant operational approval • Today’s Quality Expectations: p. 11 Standard Products has added in by the National Bank • IPP Project Funds Russian R&D for the past five years. Since 1993, the of Poland. The new bank, a subsidiary of Auto Companies: p. 14 company has opened new plants in the Ford Credit Europe, specializes in • Tax Benefits Offered in Poland’s U.S., Brazil, and Mexico and is currently offering financing for new and used Special Economic Zones: p. 15 constructing a new factory in that vehicles through Ford dealerships. • Investment Opportunities: p. 17 • Distribution of Asian Brands in will replace an older facility. Central & : p. 20 Dr Olaf Neitzsch is president of Ford Bank • Hungarian Supplier List: p. 21 Standard Products manufactures sealing, Polska S.A. Dr. Neitzsch has worked in • New Reverse Flow Catalytic trim, and vibration control systems for the Poland for over three years. Prior to his Converter Cuts Emissions: p. 22 automotive original equipment industry in current position with Ford Bank, he was • Daewoo Slovakia Builds New Distribution & Service Center: p. 24 Continued on Page 2 Continued on Page 12

Visit the CEAR Central Europe Automotive Forum™ at http://www.cear.com/autoforum or click here CEAR.COM ™ Highlights Continued from Page 1 CENTRAL producing Korean cars was laid on April 30 at Daewoo Motor Polska EUROPE North and South America and Europe. in Lublin. The planned outlays to AUTOMOTIVE start up production of delivery REPORT™ Hyundai Factory in Starachowice vehicles in the new factory amount to $450 million. Of this, $150 June 1998 According to Sobieslaw Zasada million will be spent on research and Volume III, Issue 6, ISSN 1088-1123 Centrum (SZC), the annexes to an development work, and the rest on agreement for the production of Hyundai other investments. cars in Poland were sent to the Ministry of the Economy on April 28. The In October 1997, Daewoo Motor documents contain a declaration on the Poland bought 23 hectares of land construction of a welding and paint shop, next to its current facility. New halls the scope of “Polonization” of the cars in for a welding shop, paint shop, and successive years (i.e. increasing the final-assembly facility for the LD- amount of Polish produced parts), and 100 delivery vehicle will be built by planned outlays together with an 2000. The total built-over area will Ronald F. Suponcic, Jr. Jeffrey A. Jones, Esq. investment schedule. be 93,220 sq. meters. Publisher Editor-in-Chief SZC has agreed with Hyundai that the The LD-100 is a new-generation Editorial Assistant factory will be located in Starachowice in delivery vehicle with a total mass of Barbora Grossmannova a special economic zone. According to up to 3.5 tons, designed by Daewoo Research Assistant Marcin Trzaska, SZC press spokesman, to replace the current Lublin II. The Katarina Trginova from the moment the final agreement is LD-100 was designed from scratch signed, the factory, which will be housed and the technical documentation Design Big Sky Creative in a hall already owned by SZC, will be prepared at the Daewoo Worthing Caroline Bond, started up within 18 months. The cost of Technical Center in the UK by a [email protected] the project is estimated at about DM 120 team of engineers, designers, and million ($66 million). The Ministry of the managers from England, Korea, and Web Site Design Big Sky Creative Economy has until May 28 to approve Poland. The Polish group includes Ron St Clair the annexes. 150 engineers, 15 of whom work [email protected] permanently in England. Eaton in Tczew? Reporters Catalin Dimofte, Bucharest The LD-100 van has a load capacity Magda Sowinska, The Polish press has been speculating from 1 to 1.8 tons, and versions Pavol Varga, Bratislava about negotiations between the Car offering two axle bases and three Bostjan Okorn, Ljubljana Transmission Factory in Tczew, roof heights will be available. The Columnists Poland’s main manufacturer of gearboxes basic LD-100 family also includes, Ray Barker, Avon Rubber for trucks, and Eaton Corp. As part of apart from a van, 8-15 person Dr. Johan Roos, Intl. Istit. for Management composition proceedings, the factory was microbuses, as well as chassis for Development taken over by Sobieslaw Zasada single or double cabs. Available The CENTRAL EUROPE AUTOMOTIVE REPORT™, Centrum (SZC) in 1995. engines include two turbo-charged 4800 Baseline Rd., Suite E104-340, Boulder, CO direct injection diesel engines, with 80303, USA, is published monthly, except August, by Central European Trade & Marketing, L.L.C. in Boulder, Speaking with the CEAR, Ryszard 90 hp and 100 hp. The engines will Colorado. Bartnik, chairman of the board at the be compatible with ECE regulations Tczew factory, denied the rumors. on exhaust purity. The entire contents of this magazine in print and However, Marcin Trzaska, press electronic formats are copyrighted 1998 by Central European Trade & Marketing, L.L.C. with all rights spokesman for SZC, confirmed that Daewoo plans to cooperate with over reserved. Reproduction or use in any form, without Tczew is holding commercial and 100 component manufacturers, permission, is prohibited. Annual subscriptions are technological talks with Eaton. including 20 top foreign companies, USD$500 for the Standard Print and Email Edition and some of which have declared their USD$900 for the Analyst Edition. “Yes, Eaton representatives did visit us,” plans to invest in Poland. Business, Editorial, Subscription, Advertising, said Trzaska. “Certain talks are being Market Research, Delivery Problem Inquiries to: held on cooperation and on the possible The project will create about 30,000 CENTRAL EUROPE AUTOMOTIVE REPORT™ purchase of a license from that new jobs in all the companies Business and Circulation Office company.” involved, including the future 4800 Baseline Rd., Suite E104-340 suppliers of over 15,000 parts and Boulder, CO 80303 USA New Daewoo Delivery Vehicle Factory components. Tel: +1-440-843-9658 Fax: +1-206-374-5282 Under Construction Email: [email protected] More Market Highlights Bratislava • Bucharest • Budapest • Cleveland The cornerstone for a new factory Ljubljana • Prague • Warsaw on Page 4

2 June 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 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

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Bratislava • Bucharest • Budapest • Cleveland • Ljubljana • Prague • Warsaw Highlights Continued from Page 2 according to figures released by Samar. them with driving. The equipment will be available at all Fiat sales outlets. A representative of Centrum Daewoo in Tiremaker T.C. Debica Increases Warsaw, who requested anonymity, told Petroleum Sector Privatization Could Exports and Investments the CEAR that sales of the Nexia were Hurt Car Accessory Makers In its annual report for 1997, T.C. Debica high last year because the company informs that it holds a 57% share in the resorted to substantial discounts in the The Polish government is preparing for Polish market for first-time tires for second half of the year. Nexias the restructuring and privatization of the passenger cars, 31% in the market for manufactured in 1997 offered for sale petroleum sector. Treasury Minister Emil replacement tires for delivery vehicles, this year were also sold at promotional Wasacz’s announced in late March that and 22% in the market for replacement prices, which led to a sudden drop in an oil concern would be established by steel-belted tires for trucks. Debica has a demand for the Polonez. combining the assets of CPN SA, the 2% share in the European market for fuel distribution organization, and passenger car tires. “In some months, the Nexia was cheaper Petrochemia Plock SA. than the Polonez by as much as 5,000 According to Zdzislaw Chabowski, zlotys ($1,500),” said the source. He This could be bad news for Debica’s president, export sales, which admitted that Polonez sales will continue manufacturers of car accessories. The accounted for 45% of the company’s to decrease because the difference in new concern would dominate the retail sales in 1997, will grow faster than technical and technological features market with the 1,350 filling stations domestic sales. He believes that exports between the Nexia, for instance, and the owned by CPN and the 252 stations built to Eastern European markets will grow Polonez can span up to 30 years. over the past four years by Petrochemia. the quickest. Last year, the company The powerful company would be in a reported sales of 756.1 million zlotys The Daewoo FSO press office in Warsaw position to exert harmful control over ($222 million), of which 101 million told the CEAR that the Koreans do not prices for accessories and could favor zlotys ($30 million) was sales to intend to stop manufacturing the Polonez Polish producers over foreign accessory Goodyear, the company’s strategic in the Zeran factory. makers. investor. “We are doing our best to modernize the Czech Republic Over the next two years, Debica plans to Polonez, one recent addition being multi- invest $50 million into its operations. point injection,” said Krystyna Skoda Auto’s First Quarter Sales Rise The construction of a hall for steel-belted Danilczyk, Daewoo-FSO Motor press tire production is nearly finished, and spokeswoman. “After all, this is the Skoda Auto’s sales were up 27.5% production lines are being modernized. cheapest family car in the market.” during the first quarter of 1998, totaling 86,720 vehicles. Sales of the new Berlingo To Be Assembled By Daewoo Daewoo Cuts Prices on Polonez Spare Octavia model accounted for 21,853 in Nysa Parts units of Skoda’s total sales.

At the Daewoo-FSO branch in Nysa, As Krystyna Danilczyk, press Sales in the Czech Republic were up negotiations are underway for the start of spokeswoman of Daewoo-FSO Motor, 8.5% to 20,817 units. Skoda’s largest assembly of Citroen Berlingo delivery told CEAR on April 28, a 10% price export market during the first quarter vehicles. Annual output is planned at decrease has been introduced for some was Italy, where 9,879 units were sold, 5,000 assembled cars. The C-15 model spare parts for the Polonez model, up 126%. Sales in Germany hit 9,737 has been assembled in Nysa since 1995. including body parts, bumpers, units, Poland 7,421 units, and Slovakia suspension and gearbox elements, and 5,836 units. Daewoo — End of Nexia Assembly fuel tanks. Skoda expects to sell 410,000 vehicles in Daewoo Motor Polska in Lublin Parts for the Polonez truck are also 1998, a 22% increase from last year’s stopped assembling its Nexia model in cheaper, including load-carrying body sales. early April. Last year, the factory sides and floors. According to assembled 18,000 Nexias, and nearly Danilczyk, Daewoo FSO Motors Hella & Behr Establishing Joint 22,000 units two years ago. The Nexia’s Autoparts, which distributes spare parts, Venture In Czech Republic popularity decreased after Daewoo is negotiating price decreases with the started offering the Lanos. manufacturers of other parts. In March of 1998, the German automotive systems suppliers Hella KG This does not mean, however, that the Fiat for the Handicapped Hueck & Co. and Behr GmbH & Nexia will no longer be available in Co., established an agreement regarding Daewoo showrooms. The model is still Fiat Auto Poland has introduced an the development and production of front- offered and can be imported if interest Autonomy Program, through which end modules. The two companies will grows. The Nexia is the second Daewoo physically challenged people who have first set up a joint venture to supply the model, after the Polonez, that is losing dysfunctional lower limbs will be able to Czech carmaker Skoda Auto with front- popularity in Poland the most rapidly, purchase certified equipment to assist Continued on Page 18

4 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 The supply industry in Central Europe continues to blossom, sprouting new Who Supplies Whom? producers, new alliances, and new opportunities. Foreign manufacturers are swarming to the region to supply the local OEMs and Western European based Regional Special Report customers.

Domestic suppliers who’ve invested in quality and technology, often with the help of a foreign partner, are also getting into the action. They’re finding business opportunities with the big OEMs in Central Europe, and a few are even breaking into the bigger Western European market. The list below provides a quick snapshot of some of the supplier activity in this ever changing market.

Supplier Products Key Customers Allied Signal, Poland Braking systems Fiat Audi Hungaria Motor, Hungary Engines Audi Autoliv, Romania Seat belts Daewoo Automobile Romania Autoliv, Hungary Seat belts Autoliv group companies Autopal/Ford, Czech Republic Lighting systems Ford (Germany, Spain) Barum Continental, Czech Republic Tires Skoda Auto Brano, Czech Republic Locks & other components Skoda, VW, Volvo, Iveco, DAF CZ Strakonice, Czech Republic Turbo chargers & transmissions Skoda Delphi Poland Wiring harnesses Fiat Auto Poland, Ford (Germany) Delphi Poland Heat exchangers Daewoo FSO, Daewoo Motor Poland, Fiat Auto Poland, Opel Delphi/Packard Electric, Hungary Wiring harnesses BMW, Opel Donit Filter/Filtrauto Filters BMW, Audi, Skoda Draftex-Optimit, Czech Republic Rubber car body sealing systems Skoda, GM Electroprecizia, Romania Alternators Dacia FA Krosno/Delphi, Poland Struts and shocks Daewoo FSO, Daewoo Motor Poland, Fiat Auto Poland, GM Poland Ford Hungaria, Hungary Air-fuel charging assemblies, ignition coils, fuel pumps, starters Ford plants in Europe and South America GKN Automotive Polska, Poland Driveline and transmission products Fiat Poland Hayes Wheels Autokola, Czech Republic Steel wheels Skoda, Audi, VW, Opel Heiland, Slovak Republic Seat covers Johnson Controls Hella Autotechnik Mohelnice, Czech Republic Lights Skoda Huta im Tadeusza Sendzimira, Poland Steel products Fiat Auto Poland, Daewoo, Jelcz Isuzu, Poland* Engines Opel ITT Automotive, Czech Republic Brakes, wipers, motors, shocks Western European companies ITT Automotive, Hungary Windscreen wipers, switches, sensors, Ford, Opel, VW, Fiat, Mercedes, Citroen, Volvo, electric motors, cables Jaguar Johnson Controls, Czech Republic Seats Skoda Kosciuszko Steel Mill, Poland Steel products Fiat Poland, Daewoo Poland Lear/Emptek, Czech Republic Overhead systems VW Group Lucas Autobrzdy, Czech Republic Braking systems Skoda Magna, Czech Republic Suspension, seat, & brake parts BMW Magneti Marelli Poland Instrument panels, thermal systems, intake manifolds, exhaust systems Fiat Matador Puchov, Slovak Republic Tires Skoda, Lada Mezogep Linamar Air pumps Steyr-Daimler-Puch, Transgear, ZF MGM/Daewoo, Hungary Ball bearings Daewoo worldwide MMG Automatika, Hungary Instruments Lada, Magyar Suzuki Opel Hungary Engines Opel Pal-Inalfa, Slovak Republic Pre-formed metal components Skoda, Mercedes, Valeo, Suzuki Perion Battery Factory, Hungary Batteries Magyar Suzuki, GM (Hungary) Pilkington Automotive Windshield glass GM Poland Presskam, Slovak Republic Pressed parts Skoda Rockwell LVS Liberec, Czech Republic Door & window components Skoda, Rockwell Sachs Trnava, Slovak Republic Clutches VW, Skoda, Volvo, ZF Saturnus/Hella, Slovenia Lighting systems Hella, Opel, VW Group Showa Aluminum, Czech Republic* A/C condensers Volvo, Audi Siemens, Czech Republic Wire harnesses BMW T.C. Debica, Poland Tires GM Poland, Skoda Timken, Poland Tapered rollerbearings GM, Ford, Daewoo, VW, Fiat Tofan Grup, Romania Tires Daewoo TRW Autoelektronika, Czech Republic Electric components & switches Audi, Ford, Fiat, Opel, BMW Tungsram/GE Lamps Peugeot, Citroen, Renault, Opel, VW, BMW, Toyota, Nissan UBP-Csepel Iron Foundry, Hungary Truck tire hubs Raba, Hungary Continued on Page 19

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 5 necessary to use up valuable quota on How to Reduce Polish Import Duties on Parts them. Poland Streamlines Customs Procedures Simplified Customs Procedures Export/Import Help Desk Andrew Davis, Senior Tax Manager, Price Waterhouse, Warsaw The process of clearing imported goods through Polish Customs has traditionally Minimizing Duties on Imported quarterly basis through a system of been extremely ponderous and Automotive Parts import permits. It is extremely important bureaucratic, involving numerous delays. to make sure that applications are New legislation was introduced at the Amongst the incentives provided for submitted on time. If as sometimes beginning of this year which has partially automotive companies to locate in happens, a company does not get overcome this problem by introducing Poland are the tariff concessions offered sufficient, or indeed any, quota the possibility of importers using by the government on imported materials allocation, then they have to start paying simplified customs clearance procedures. needed to feed manufacturing operations. duty on their supplies Many car parts and sub-assemblies can usually at rates of up The essence of be imported duty free into Poland to 10%, but “New legislation will these procedures is provided they are used in manufacturing sometimes more. that authorized operations, while others may be imported allow authorized importers should duty free under tariff quotas administered Other Options importers to effect be able to effect by the Ministry of Economy. customs clearance For the remainder of customs clearance at at their own At the top of an automotive company’s parts which may be their own premises and premises and use list of import priorities, therefore, is potentially liable to use their internal their internal always the import classification of the duty, the importer systems as much as parts which they receive. These then has two main systems to produce the possible to produce classifications will identify those parts possibilities to information required by the information that fall within a duty free category. explore: required by Poland uses the same basic classification Customs.” Customs. For the system as other WTO countries — the • Sourcing — importer, use of “Harmonized System” — and the parts Poland has a simplified falling into the duty free category network of trade agreements in clearance procedures reduces border primarily fall within Chapter 87 of the place, notably with the countries of delays, allows more streamlined Tariff. Western and Central Europe, which production operations, cuts out many of provide for preferential rates of duty the costly impediments involved in the Duty Free Parts on products originating in those traditional clearance system, and allows countries. For example, European a more controlled and integrated As many of you may know, the Union origin car parts normally will approach to customs planning to be classification rules can be complex and be subject to duty in the range of 0% pursued. the distinction between a car part falling to 3%, compared to 9% to 15% for within Chapter 87 and a part which has parts originating in North America Since the introduction of the legislation, to be classified elsewhere is not always or the Far East. the practical requirements of a simplified well defined. As a general rule, clearance scheme have been under however, identifiable sub-assemblies • Duty relief schemes — Dutiable development with one of the leading car such as steering units will go under components incorporated into producers in Poland acting as the pilot. Chapter 87, while engine parts and finished products sent for export In March 1998, this company became the bearings typically are classified in qualify for duty relief under the first company in Poland to be authorized separate specific areas of the Tariff. It is Inward Processing scheme. The to operate simplified clearance usually necessary to have classifications duty payable on the imported procedures, and now the way is open for assessed by an expert familiar with the components can either be suspended other companies to follow suit and take Tariff rules and good practice to have pending export, or reclaimed after advantage of the scheme. In order to do classifications confirmed by the Main export, of the finished product. this, it is necessary to apply to Customs Customs Office. for authorization. The most duty efficient importer of Parts Quotas automotive parts in Poland is the one If the application is allowed to progress, who can pull together these four it then becomes a process of developing For other key parts that don’t fall into the fundamental strands into a single duty a customs clearance system that duty free category, a company must minimization plan. For example, if accommodates simplification without make sure that applications are submitted certain parts can be traced into export compromising the integrity of Customs’ to the Ministry for quota allocations. production and thus qualify for duty ability to control the flow of imports and The quota pool is allocated on a reduction on this basis, it may not be exports and to protect the revenuen

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Sales of New Cars and Commercial Vehicles in Poland

Sales (Units) YTD March 1992 1993 1994 1995 1996 1997 1998 % Change vs ‘97 ————— Passenger Cars ————— Local Production 144,748 170,549 199,724 206,284 260,265 337,467 100,229 24.62% Import 54,531 71,059 50,558 58,754 114,347 140,493 37,296 -25.72% Total 199,279 241,608 250,282 265,038 374,612 477,960 137,525 5.27% ————— Commercial Vehicles ————— Local Production 19,665 18,475 21,413 28,076 43,207 43,086 9,988 -11.23% Import 3,250 5,497 2,542 3,870 7,586 12,217 2,378 25.09% Total 22,915 23,972 23,955 31,946 50,793 55,303 12,366 -5.98% Source: SAMAR, s.c.

Best Selling Models in Poland (YTD March 1998)

Passenger Cars Light Commercial Vehicles Medium Commercial Vehicles Make Units % Change Make Units % Change Make Units % Change ’98 v ’97 ’98 v ’97 ’98 v ‘97 Daewoo Tico 13,171 89.37 FSO Polonez Truck 2,585 -18.69 Daewoo Lublin 2,675 1.06 PF 126 11,136 -19.09 Citroen C15 712 -23.61 Mercedes Vito 804 118.48 10,380 - Skoda Pick up 672 111.99 VW Transporter 559 115.00 Fiat Cinquecento 9,902 -35.22 Citroen Berlingo 417 13800.00 FSC - Zuk 446 -49.38 Fiat Siena 9,681 - Fiat Uno Van 414 -18.34 Ford Transit 370 -35.76 Opel Astra 6,198 32.86 GM - Opel Combo 220 -19.12 Iveco Daily 332 114.19 FSO - Polonez 5,938 -51.40 Peugeot Partner 166 -25.23 Mercedes Sprinter 207 100.97 Skoda Felicia 5,723 21.15 Fiat Cinquecento Van 125 -89.80 Peugeot Boxer 206 171.05 Fiat Punto 4,638 0.41 VW Caddy 83 -44.83 Kia Ceres 163 94.05 Fiat Uno 4,474 -32.16 FSO Polonez Cargo 77 -25.96 Fiat Ducato 157 -48.86 Source: SAMAR, s.c.

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 7 Tips For Success In Central Europe Improving Worker Mobility

he lack of worker mobility in Central Europe is a big problem for many companies operating in the region. Companies that I’ve spoken with employ a number of different tactics to overcome Tthe problem, from busing to home loans. Ford Hungaria, for instance, operates a factory in Szekesfehervar, 63 kilometers outside of Budapest. To attract engineers and finance people (positions in high demand) at universities in Budapest, the company has a special home loan program. According to management, its works out well. The fact that such a program is necessary to attract people that are only 63 kilometers away, should give you an idea of the magnitude of the problem.

This issue was recently addressed in the CEAR Central Europe Automotive Forum (http:// www.cear/autoforum) by Elise Ginsburg of Personnel Select in Warsaw. Elise’s comments are quite Jeff Jones instructive and worthy of repeating:

“[The lack of mobility] has arisen primarily due to a severe lack of housing (especially affordable housing), and family ties (often several generations) to a particular town, city, or region. The situation is also complicated by the fact that in most families in Central Europe, both spouses are bread winners, so that if one spouse has to relocate, it could mean a huge cut in family income if the other spouse cannot find a job.

Add to this scenario the loss of the apartment, which was probably either in the family for years, or was a state apartment which means that the family is paying well-below the market rate for the space, and you can understand why there has been a lack of interest in relocation.

Recently, I have seen some innovation on the part of employers to encourage workers to relocate. This may include the company paying the rent on the apartment, providing subsidized loans for the purchase of a new flat, or paying for weekend flights/train trips home so that the entire family does not have to relocate. I have even seen employers, desperate to find highly skilled and trained employees (such as in Warsaw), double the salary that they would pay in Warsaw in order to entice that person to move to Poznan or Lodz. I predict in the next two years that this trend will reverse, and employees will simply look for the best overall offer, and then choose to relocate for the benefit of their career.” [email protected]

Visit the CEAR Central Europe Automotive Forum™ at http://www.cear.com/autoforum or click here CEAR.COM ™

Fastest Sales Climbers in Poland (YTD March 1998)

Passenger Cars Light Commercial Vehicles Medium Commercial Vehicles Make Units Change Make Units Change Make Units Change ’98 v. ’97 ’98 v. ’97 ’98 v. ’97 Units Units Units Daewoo Lanos 10,380 10380 Citroen Berlingo 417 414 Mercedes Vito 804 436 Fiat Siena 9,681 9681 Skoda Pick up 672 355 VW Transporter 559 299 Daewoo Tico 13,171 6216 Renault Kangoo Exp. 35 35 Iveco Daily 332 177 3,168 3168 Peugeot 306 XA 29 20 Peugeot Boxer 206 130 Toyota Corolla 2,643 2040 Peugeot 106XA 6 5 Mercedes Sprinter 207 104 Fiat Palio Wknd 1,794 1794 Seat Inca 33 1 Kia Preggio 83 83 Opel Astra 6,198 1533 Piaggio Porter 8 1 Kia Ceres 163 79 Citroen Xsara 1,489 1489 Hyundai H100 P/V 96 42 Toyota Avensis 1,131 1131 Daewoo Lublin 2,675 28 Honda Civic 3,950 1115 Citroen Jumpy 28 28

Source: SAMAR, s.c.

8 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 world. The final effect of these tight Managing for Excellence links between all the world economies is that more information is needed to act, Facing the Intellectual Capital Challenge — Part I but one action also generates more information than before. This new CEAR column will bring you coverage of cutting edge issues, ideas, It is clear that knowledge, brands, Third, the level of sophistication of both and strategies to help you achieve innovation projects, and other ‘invisible’ consumers and strategists has increased. excellence in the management of your assets enable more wealth creation than For consumers, this means that they want enterprise. For the next three months, the classical production factors, and more for what they buy (and this “more” Dr. Johan Roos, Professor of General often much quicker. The reason for in most cases translates into additional Management and Strategy at the Caterpillar to be valued almost five services, i.e. information and knowledge) International Institute for Management times its hard assets is all of the and they want to know more about what Development, will discuss how to ‘invisible’ value, and potential for new they buy. Also, the increased experience maximize the value of your company’s value creation stemming from its well- of consumers with the products can help intellectual capital. known Cat brand, its unique dealership the same consumers to understand their network, and the knowledge and skills of needs better, and pinpoint their Intellectual capital, which includes its employees. preferences to companies. knowledge, customer relations, supply- on-demand, and micromanagement, is The main message of this article series is The mirror side of this phenomenon is one of the most important and that in the modern business world you that more sophisticated strategies are sustainable sources of competitive have to be even better at managing the required to reach consumers, which, advantage for today’s modern intellectual capital of your organization. once again, require more information to companies. Most companies, however, Good management has become much prepare and implement. Just think of the don’t even know how to measure their more than management of hard assets many options offered to a car buyer. The intellectual capital. This month, Dr. and “human resources”. This is why competitive focus in many companies Roos will provide you with a foundation managers on different levels, across has already shifted towards the supply of for understanding the concept of industries, and from different countries additional information and services in intellectual capital and why it is are beginning to apply the thinking and conjunction with the products. important to your company. practice of intellectual capital. Intellectual capital has become the driver of future profits. Like your company, many of today’s best The Changing Economy companies have done their utmost to The conclusion is obvious: Your ability squeeze every penny out of their hard The global economy is changing. I am to understand growth or decline in your assets, physical and monetary. Cycle not talking about technological advances, company’s intellectual capital — and time has been reduced to the bare although these certainly had something take early action based on this — will minimum, inventory is virtually zero, to do with it. The information or become increasingly important. To help and investments are carefully selected in knowledge components of products of managers do this new tools have recently terms of a balance between short-term today have dramatically increased. But, been developed to better visualize and and long-term resources. why is there an increase in the amount of even measure IC, as well as integrating knowledge and information circulating in IC thinking and practice into existing On the competitive side, multi-million the business world? organizational processes. dollar ad campaigns are launched to conquer every last bit of the potential First, technological progress has What is Intellectual Capital? market, or to scrub away half a revolutionized the way information is In this article series I define IC as the percentage point of market share from processed and stored. Computers have sum of the “hidden” assets in an competitors. enabled data processing at low costs and organization. With hidden I mean that high speed, and made it possible for they do not typically show up in your But things are not always what they seem managers to use more information in company’s balance sheet. to be in the business world of today. their routines. Of course, the ability to Let’s switch around from a sales and use more information suddenly generated The knowledge (heads), skills (hands) hard asset perspective to one that instead a request for more information. and motivation (heart) of people are places value creation at the forefront. clearly at the core of what is meant by From the sales and asset perspective, Second, communication technology, intellectual capital. But, there is more to Microsoft’s is not very impressive. With together with improved transportation, it. Employees need a company only a fraction of the sales and assets of also caused a much closer connection infrastructure, “recipes” of how to do its industrial counterpart General among geographically separate countries things, conversations with colleagues to Motors, however, the market value of and regions. The closer connection in create value. Companies also own Microsoft was $200 billion in early turn increased the complexity of any intangible assets, like patents, 1998. This made Microsoft the second action, because now factors influencing trademarks, and brands. Although they most valuable company in the US. the action could come from all over the Continued on Page 16

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 9 BTR Automotive factory will be Automotive Companies Flock to Poland’s launched to make rubber hoses for Special Economic Zones cooling and air-conditioning systems. Will Zone Rules Change? mong Poland’s 17 special moving into the passenger cab of economic zones (SSEs), motor vehicles will begin at the Ieper Polska Zone officials note that investors sector investors have been plant in Tychy for the needs of Audi and A frequently ask about guarantees for the especially interested in two: the Volkswagen. This plant, financed with stability of legal regulations — primarily Katowice zone, spread over several German and Belgian capital, will employ tax regulations used in the zones — in different cities, and the Walbrzych zone. 180 workers. the context of Poland’s upcoming entry into the . In the Katowice zone, 827 hectares, or The Katowice zone was established in 24 percent of the total area, was the center of heavy industry — including “We act bona fide,” said Zak. “The first purchased by investors as of March 31, steel and coal — and its goal is to six zones established over the past 1998. Through the end of the first economically revive the region through several years, including our zone, have a quarter of 1998, permits granted to the development of other industries. better legal situation than the other ones, businesses for operation in the zone because they do not have a clause stating guarantee investments to the tune of “We sometimes come across an that some rules may change after Poland about PZ 2 billion ($590 million) and the accusation that the local economy will enters the EU,” he said. “That means the creation of 7,000 new jobs. again become dominated by a single rules for investors in SSE Katowice industry, this time by the motor industry, cannot change and are guaranteed by “Every day, we conduct talks with new and in the event of poorer market trends Polish law.” companies or their representatives,” in the sector, some extraordinary Wlodzimierz Zak, head of the services measures will have to be taken again to The Katowice zone, considered to be the department of SSE Katowice, told the guarantee work to people,” Zak said. most advanced as far as investment is CEAR. “Often during our first contact concerned, has been running a databank with a consulting firm or bank planning “It is true that in terms of investment on companies for several months now. to finance a given project, we don’t even spending in the zone, companies linked Included in the databank are construction know the name of their client seeking to with the car industry dominate, but in companies, legal advisors, consultancies, invest in the zone. This explains why terms of the number of companies, this is parts producers, and Polish companies press speculation about potential not the case. Construction companies and seeking cooperation. investors is a disturbing factor — it companies representing food processing, hardly helps finalize contracts.” furniture production, and household “Investors, especially foreign ones, often appliances are all interested in want someone to provide services and The Polish press has suggested that talks investment in the zone.” assistance to them during the investment have been held with Toyota and Mando process,” said Zak. “For this reason, we Machinery, but neither company has Zak believes that it is also necessary to have launched our databank, which confirmed that they are interested in remember that the car industry means exclusively covers companies that we investing in Katowice zone. modern technology and represents a can recommend.” major driving force behind advancement Katowice Attracts Big Names in the economy. Who To Contact: So far, big investors in the SSE Katowice Parts Makers Find Homes in Specjalna Strefa Ekonomiczna zone include General Motors, Isuzu, Walbrzych KATOWICE and Ieper Polska. GM is completing ul. Lompy 13 work on a new factory for the production In Walbrzych, no one wants to disclose 40-032 Katowice of the Opel Astra. This project will end which new investors are applying for Piotr Wojaczek—President ahead of schedule, with the first cars permits for operation in the zone. “This tel. (+48-32) 51-09-58, 51-07-36 rolling off its assembly lines as early as is required by the rules of the talks,” the fax (+48-32) 51-37-66 September. zone’s investment department told the CEAR. Specjalna Strefa Ekonomiczna In Tychy, on the other hand, Isuzu has WALBRZYCH started building an engine factory that — Among already-disclosed projects, Invest–Park Sp. z o.o. in keeping with a stipulation in the construction of a Petri factory for the ul. Uczniowska 21 company’s zone permit — should be production of plastic accessories is 58-306 Walbrzych completed by mid-1999 to start underway. The factory will be launched Miroslaw Greber—President production with a workforce of about in late June or early July. Grossman tel. (+48-74) 41-35-00, 41-35-63 400. Polska’s facility for the production car fax (+48-74) 41-01-77 interior parts — in keeping with its As early as October, production of permit — should start production by the Magda Sowinska (Warsaw) special nets for keeping shipments from end of the year. And at the same time, a

10 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Quality Expectations of the Global Automotive Industry QS-9000 states, “Suppliers shall perform Building Supplier Quality: Lesson 3 sub-contractor quality system With Ray Barker, Group Director, New Feature development, using Sections I and II of Business Excellence Strategy, Avon Rubber QS-9000 as the fundamental quality system requirement.” This month’s column focuses on what and Experimentation to ensure the automotive manufacturers expect of their robustness of design. This is obviously a very demanding suppliers in today’s global automotive requirement when suppliers are in the industry. Feasibility reviews to investigate and midst of applying the stringent QS-9000 confirm manufacturing feasibility of (and other customer expectations) within The essence of the customer require- proposed products then follow, prior to their own organization. ments are embodied within the QS-9000 contracting to produce those products “Quality System Requirements” Stan- together with process design and Preliminary Process Capability dard. But beware. The expectations will experimentation for process robustness. Requirements; On-going Process not be satisfied if the supplier simply Performance Requirements achieves 3rd party registration through the Potential Failure Mode and Effects diligence of its Management Representa- Analysis for both product and process is For customer-designated special tive for Quality and the company’s required, as is action to eliminate characteristics for new processes, the traditional quality department. potential concerns or the identification of capability indices shall meet customer parameters which need to be controlled requirements. Traditional quality departments have and documented in a Control Plan, which their roots in inspection related functions covers all aspects from prototype, For unspecified requirements, the (i.e. check after the event). The expecta- through pre-launch, and during preliminary process capability (Ppk tions of the new global automotive production. value), should be > 1.67. industry demand that the supplier be focused on the prevention of concerns Cross function teams are demanded for For on-going processes, process and problems. This requires the Total these activities, which cover not only capability requirements (Cpk value) Quality approach of all management as different departments in a company, but should be > 1.33. explained in last month’s column. could also involve personnel external to the company. Regardless of the capability requirement To achieve the expectations discussed or the demonstrated process capability, below, it is essential to prepare the Design Skills continuous improvement is required, ground for the seeds to mature, blossom, with the highest priority on special and have sustainable growth. Preparing QS-9000 states, “The supplier’s design characteristics. the grounds means creating the right activity should be qualified in the management and company-wide attitude following skills, as appropriate: Many automotive customers are now to create and develop competencies that demanding the achievement of published will allow the seeds to grow — i.e. the • Geometric Dimensioning and process capability goals against time, and effective and sustained use of appropriate Tolerance (GD&T) endeavoring to support these demands by systems, tools, and techniques. Training • Quality Function Deployment providing training for suppliers to in the techniques is simply not enough. (GFD) achieve competency in process Competencies must be developed, as • Design Manufacturing (DFM)/ improvement. The expectation is clearly must an environment of support, Design for Assembly (DFA) that suppliers must develop such mentoring, and leadership. • Value Engineering (VE) improvement action plans. • Design of Experiments (DOE; QS-9000 Quality System Taguchi and Classical) Continued on Page 16 Requirements • Failure Mode and Effects Analysis (DFMEA/PFMEA) QS-9000 Quality System Requirements • Finite Element Analysis (FEA) Quality in Action that are often met “in principle” but • Solid Modeling which demand in-depth knowledge to • Simulation Techniques Skoda Auto’s Supplier meet customer expectations include the • Computer Aided Design (CAD/ following: Computer Aided Engineering (CAE) Development Task Force and • Reliability Engineering Plans” Skoda’s active involvement in Quality Planning partnering local suppliers with It should be noted that “qualified” means Western companies has enabled it If there is a responsibility for Product competent, not only trained. to source nearly 75% by value of its Design, then this process of planning purchasing volume from 279 Czech starts with the “Voice of the Customer”, Evaluation of Sub-Contractors; Sub- and Slovak suppliers. i.e. Quality Function Deployment (QFD) Contractor Development

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 11 Profile Continued from Page 1 slowdown seen this year make it very years for the credit checking system to difficult for finance companies to predict build up the database of customers. So it head of Ford Credit Poland SA. the level of demand for vehicle will take some time. financing. CEAR: How are Ford’s financial CEAR: So how is credit checking services activities organized in CEAR: Is loan defaulting a major done now? Poland? problem in Poland? Neitzsch: It takes longer than it does in Neitzsch: Ford has two financial service Neitzsch: So far, we have not the rest of Europe and is less precise. operations in Poland. The first one set experienced any bad debt yet, but we Mainly, credit companies have to rely on up, Ford Credit Poland SA, started in income statements signed by employers. 1995 and offers operational leasing for Inevitably, this is far more labor commercial vehicles. My organization, intensive than in , where Ford Bank Polska, provides retail “In 1997, it’s estimated that it can be done over the telephone or via finance for both private customers and 60% of all new vehicle sales an on-line search. commercial organizations. These companies are run in Poland as two had some form of financing CEAR: What are the specific separate operational and legal entities. involved. This has grown advantages that Ford Bank Polska can from about 35% in 1995.” offer its customers? CEAR: How is the sales and Dr Neitzsch: We work with the dealers marketing function organized? and through them we can offer “one-stop Neitzsch: All the sales and marketing is have only just started. Generally in shopping”. Prior to our arrival, directed through the Ford dealer Poland, debt defaulting is very good with customers had to shop around for network. The dealer acts as an agent for private customers — only around 1% of finance. Now, the dealer can supply both Ford Bank and Ford Credit. There all loans is defaulted, which is very low. much better levels of service by are currently 50 Ford dealers across The attitude here is positive towards providing financing as well. Again, this Poland and these are the exclusive agents repayment. is becoming the same as in Western for Ford’s financial services. With the Europe, where we offer the best levels of dealer network, we have near saturation Customers seem to regard it as an service and quality to our customers. coverage of the country. obligation to repay debt. Perhaps this is because consumer financing of this sort CEAR: Who are your major CEAR: How important is financing is very new and customers feel they competitors? for vehicle purchases in Poland? should meet their obligations. This is Neitzsch: The main competition comes Neitzsch: Very important. Exact different from the rest of Western Europe from the Polish deposit banks who numbers are difficult to get, though. In where people are very used to credit and compete on price, but not necessarily on 1997, it’s estimated that 60% of all new there often seems to be a far more service. The Polish banks vary vehicle sales had some form of financing relaxed attitude about repayment enormously in the levels of service that involved, either a loan or a lease. This defaulting. they provide. has grown from an estimated 35% in 1995. This is much higher than in CEAR: How difficult is credit We aim to be competitive on price, but Western Europe. checking in Poland? we are not necessarily the cheapest. We Neitzsch:. It is very different [compared] do have much faster response rates than But it is expected that the levels of to Western Europe. There is no company these banks. We also have standardized financing seen in this country will move such as HPI-Equifax doing this. People levels of service across our dealer to be more in line with those seen in and companies here do not have any networks that they cannot match. Western Europe, where the norm is credit history and obviously this makes it around 30-40%. I have no doubt that a much longer process to assess a Opel has also started its own bank to over the next five years this will happen, customer’s credit worthiness. provide financing through its dealer as it has with most aspects of commercial network. In addition to the major life. A credit checking system is under companies with their captive leasing development by the Polish banking companies, other providers of financing We inevitably are very dependent on new association and according to them, it will include numerous small and financially car sales. The high growth rate in new be running within the next twelve weak companies. vehicle sales seems to have slowed down months. But it will be several, maybe a lot this year, largely due to the new five years before it is active and virtually CEAR: Where do you see Ford Bank import quota regulations. New car sales all customers are in the database. in 5 years time? will probably grow again in 1998, but Neitzsch: I see Ford Bank as having definitely not at the levels seen in 1996 I saw how long it took in East Germany exactly the same range of financial and 1997. The recent growth rates seen when I worked at Ford Bank in Leipzig products and levels of service as over the past few years and the in the early 1990’s. It took over three provided by Ford throughout the rest of

12 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Western Europe. I also envisage on-line we have employed. They show a lot of financing in Poland is far higher than in credit checking and connections between commitment. Admittedly, many of our the rest of Europe. We depend on staff all the dealers and Ford Bank, which will staff had limited experience when they who are motivated and trained. We greatly speed up the service levels we joined us, but they are highly motivated spend a lot of time and money on can provide to customers. to learn, especially in the new markets training staff in this country and at Ford that we are developing. Credit training centers internationally. CEAR: What is Ford personnel also receive a lot of on your expected the job training. market share? “Generally in Poland, debt defaulting is Neitzsch: Again, I very good with private customers — only CEAR: What is the most difficult envisage that the around 1% of all loans are defaulted. aspect of your job in Poland. market share we Customers seem to regard it as an Neitzsch: I find my role here very obtain in Poland will obligation to repay debt.” interesting and challenging. The situation be comparable to that in Poland is quite different from that in which is achieved Western Europe. In Poland, we have to throughout Western Europe and we will be registered as a bank, complying with be providing financing for 30-40% of all CEAR: How do you find staff? This the regulations laid down under Polish vehicles sold by Ford. can be a difficult and time consuming banking laws. Whereas in the rest of process in Poland? Europe, it is not always necessary to be We now have the necessary Neitzsch: We mainly use newspaper registered as a bank to provide the range infrastructure, systems, and key people in advertisements. When we started, we of services that we offer. Complying place for the business to develop. There used head-hunters, but for the level of with Polish banking laws creates a lot are now 40 employees and we will staff we are now recruiting, advertising more administrative requirements for us probably have 50 in two years time; it works fine. Ford has a very good name to adhere to. will obviously depend on the level of and we can attract quality candidates business. who want to work for us. We have strict CEAR: What will be the key to Ford selection criteria. Bank’s success in the future? CEAR: Many companies have found Neitzsch: Without a doubt, the key will it difficult to recruit suitably qualified CEAR: How important is training to be to ensure service and quality. This staff in Poland. Have you had similar Ford Bank? will be [achieved with a] well trained experiences? Neitzsch: Essential. The key to our staff. We also aim to have more efficient Neitzsch: We are very satisfied with the business is a willing and able staff. The systems that ensure the best levels of dedication and abilities of the staff that workload in processing applications for service for customersn

Poland’s Special Economic Zones New Car Registrations Growth in Europe (YTD March)

Country 1998 1997 % Change • Kracow 1 Germany** 971,900 869,320 11.8 • Mazovia 2 Italy** 716,500 617,672 16.0 • Mielec 3 U.K. 622,600 550,486 13.1 • Katowice 4 France 460,200 406,897 13.1 • Suwalki 5 Spain** 272,000 239,016 13.8 6 Netherlands** 167,800 159,052 5.5 • Legnica • 7 Poland* 137,525 130,635 5.3 Walbrzych 8 Belgium 136,500 122,862 11.1 • Lodz 9 Austria** 80,000 75,472 6.0 • Zarnowiec 10 Switzerland** 69,100 68,688 0.6 • Tczew (Gdansk province) 11 Portugal** 58,800 55,577 5.8 • Kamienna Gora (Jelenia Gora province) 12 Sweden 58,300 51,411 13.4 • Kostrzyn-Slubice (Gorzow province) 13 Ireland** 56,400 51,180 10.2 • Starachowice (Kielce province) 14 Greece** 44,900 41,005 9.5 • Slupsk 15 Denmark** 40,400 39,300 2.8 16 Finland 34,200 30,292 12.9 • Tarnobrzeg • 17 Norway 27,000 29,703 -9.1 Olsztyn 18 Luxembourg 9,900 9,602 3.1 • Czestochowa *Grey import not included ** Provisional figures Source: SAMAR, s.c.

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© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 13 Russia & CIS IPP Program Funds Russian R&D Projects Watch Battery-Maker Secures Funding For Russian JV he U.S. Department of Energy’s The project, however, is still in the Russian institutes or other entities to (“DOE”) Initiatives for technology feasibility stage. fund technical work under a subcontract TProliferation Prevention (“IPP”) mechanism. program is a unique opportunity for US Two other automotive related IPP automotive companies seeking to take projects have reached the second stage of Under this mechanism, payment is made advantage of the abundant raw materials development. They both involve the only when agreed-upon deliverables are and under-employed skilled labor pool in Lawrence Livermore National received by the DOE National the former Soviet Union. Laboratory and the Russian center at Laboratory from the foreign institute. Snezhinsk (Chelyabinsk-70). The Part of the role of the DOE National The IPP funds projects at the 10 largest projects involve the development of Laboratory is to evaluate the deliverables DOE National Laboratories, which in superplastic roll forming technology for and see if they meet the contractual turn subcontract with institutes in Russia, the production of automotive standard. Deliverables can be hardware, Belarus, Kazakhstan, and Ukraine that components using various metal alloys. data, reports, software, or other products formerly had connections with nuclear, of scientific or engineering work. chemical, or biological defense work. IPP Funds Electric Vehicle Battery The emphasis is on commercialization of Production in Siberia According to ECD, the IPP funding will technology from these institutes. be used to: Energy Conversion Devices, Inc. The IPP helps to compensate for (“ECD”) is involved in an IPP funded • employ scientists and engineers dramatic drops in budgets at these project to further develop ECD’s formerly engaged in the institutes and the lack of meaningful proprietary clean energy technologies for production of metal alloys for alternate employment, which represent a the Russian market. The project nuclear weapons in the significant proliferation concern for the provides a good example of how an production of metal alloys and world. automotive company can tangibly benefit components for nickel metal from the IPP program. hydride (NiMH) batteries Two Stage Procedure • employ scientists formerly Proposals for the project were made by engaged in the design and The first project stage is a technical Sovlux, ECD’s Russian-American joint production of nuclear weapons feasibility stage. If the project produces venture with Scientific and Industrial chambers in the design and the desired results, then there is a second Enterprise KVANT and the Russian production of manufacturing stage which involves a US industry Ministry of Atomic Energy. Sovlux equipment for photovoltaic partner in a three way relationship. To Battery, a branch of Sovlux, is 50% roofing materials to be participate, however, the company must owned by ECD and 50% by the produced by Sovlux put up its own money. It must match, in Chepetsky Mechanical Plant in Glazov, • employ scientists formerly terms of work in its own R&D Siberia. Sovlux Battery will produce engaged in uranium enrichment establishment, the dollar amount that the NiMH battery materials and batteries for to recycle imported gases used DOE puts into the DOE national the emerging two- and three- wheeled in production of photovoltaic laboratory (half of which in turn goes to electric vehicle market in Europe and cells produced by Sovlux the foreign institute under a subcontract). Asia.

Current Projects “This comes at a very important time in For more information about how your the development of our battery business company can get involved in the IPP The IPP program has spawned several in the emerging electric vehicle market,” program, please contact: projects that have automotive said Stanford R. Ovshinsky, President applications. In one first stage project, and CEO of ECD. “Sovlux Battery will William J. Desmond Los Alamos scientists and engineers will help us provide [NiMH] batteries at a Program Director, IPP work with the Institute for Electro reduced cost.” Office of Arms Control and Physics to investigate the use of intense Nonproliferation ion beams to produce surface coatings How was the project set up? US Department of Energy for manufactured goods, a process that tel: 202-586-6439 dramatically hardens metal surfaces to DOE National Laboratories involved in fax: 202-586-2164 reduce wear. the project received funding in order to e-mail: [email protected] enter into cooperative R&D Agreements General Motors, DuPont, and ISM with ECD, which matched, dollar-for- Corporation have all expressed interest dollar, the DOE funding. Of the DOE in future cooperation on this project. funding to the labs, at least half went to

14 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Many automotive companies who Tax Advantages Behind Poland’s Special decided to invest in SSEs established Economic Zones assembling units that do not use goods Katarzyna Sawicka-Hughes & Anna Strzelecka, produced locally to manufacture the final Tax Advisors, Arthur Andersen Warsaw & Katowice offices product. As a result, they are not able to satisfy “the local content” condition. The only locally incurred costs are Due to the rapid development of Poland, cases another 10-year period); and usually the labor force and depreciation and the Silesian region in particular, • possibility to increase the rate of which together often do not constitute many international companies have depreciation. 30% of the sales price. Thus, it is very decided to do business in this market. In important for companies to determine in order to attract investors, the Polish In order to be granted special tax advance whether they will be able to government issued a special regulation allowances, companies must satisfy satisfy all conditions, especially the local that allows the Minister of Finance to certain conditions. The most important content requirement. establish Special Economic Zones and also the most often misunderstood (SSEs). One such zone was created in It should also be noted that companies 1996 in the Katowice region. The “The law states that at least may lose the right to tax allowances if creation of this zone caused a massive during the performance of economic amount of automotive related 30% of the sales price of activities in SSEs they have unpaid tax investment to flow into the south of goods produced in the liabilities exceeding a certain level. Poland, especially after the news that Considering that the VAT system in General Motors had decided to build zones must be connected Poland is still very complicated, a new factory in Gliwice. with services and goods automotive companies must be very diligent with their VAT settlements. If Special Economic Zones produced and rendered in tax allowance rights are lost because of the zones.” unpaid tax liabilities, the company must Entities investing in SSEs may be reverse the effect of the incentives and granted very attractive tax allowances add to their income the amount of the such as: condition is “a local content” income previously exempt from tax. requirement. The law states that at least • full exemption of income tax for half 30% of the sales price of goods produced As the Polish legal system and tax of the period for which the zone is in the zones (i.e. materials and services regulations are still prone to frequent established (in most cases 10 years); used to manufacture goods in SSEs) changes, it is of utmost importance to • exemption of 50% of income from must be connected with services and stay on top of all regulations in order to taxation during the remaining years goods produced and rendered in the prevent any loss of tax incentives or of the zone’s existence (in most zones. exemptionsn

New Car Registrations in Slovenia by Brand SOURCE: REVOZ

Brand YTD April ‘97 Market Share YTD April ‘98 Market Share Units Change Share Change RENAULT 4,943 20.66% 4,387 18.83% -11.25% -8.87% VOLKSWAGEN 2,961 12.38% 2,887 12.39% -2.50% 0.12% DAEWOO 841 3.51% 2,032 8.72% 141.62% 148.10% FIAT 2,280 9.53% 1,915 8.22% -16.01% -13.76% CITROEN 1,192 4.98% 1,743 7.48% 46.22% 50.15% OPEL 1,254 5.24% 1,354 5.81% 7.97% 10.87% SKODA 1,630 6.81% 1,174 5.04% -27.98% -26.04% HYUNDAI 1,629 6.81% 1,018 4.37% -37.51% -35.83% FORD 1,307 5.46% 968 4.15% -25.94% -23.95% KIA 343 1.43% 821 3.52% 139.36% 145.78% SEAT 810 3.39% 768 3.30% -5.19% -2.64% AUDI 557 2.33% 686 2.94% 23.16% 26.46% PEUGEOT 673 2.81% 593 2.54% -11.89% -9.52% HONDA 469 1.96% 476 2.04% 1.49% 4.21% ROVER 455 1.90% 393 1.69% -13.63% -11.31% MITSUBISHI 109 0.46% 272 1.17% 149.54% 156.23% ALFA ROMEO 154 0.64% 246 1.06% 59.74% 64.02% SUZUKI 561 2.34% 243 1.04% -56.68% -55.52% LADA 362 1.51% 186 0.80% -48.62% -47.24% BMW 189 0.79% 179 0.77% -5.29% -2.75% VOLVO 126 0.53% 109 0.47% -13.49% -11.17% OTHER 1,082 4.52% 852 3.66% -21.26% -19.14% TOTAL 23,927 100.00% 23,302 100.00% -2.61%

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 15 1997 Skoda Quality Quality Continued from Page 11 Excellence Continued from Page 9 Award Winners Measurement System Analysis (MSA) do not exist physically, these assets are increasingly very important to the Evidence is required that appropriate company. Just think of the value of car COMPANY statistical studies have been conducted to brands or the extreme case of the analyze the variation in the results of tremendous value of the Coca-Cola Delphi Packard Electric, Ceska Lipa each type of measuring and test system, brand. Finally, IC also includes the value (1) utilizing gauge repeatability and created by customers (and supplier’s) reproducibility studies (R&R studies). loyalty. SAS Autosystemtechnik, Mlada Boleslav (1) It is expected that process capability These basic categories, and the flow variation resulting from standard between them, make up the IC of Blaimer International, Bela pod deviations in measurement capability companies. This is why IC is a much Bezdezem (1) will be controlled within a very tight better predictor of future profits than limit. This is an often forgotten source most other measures used in companies Perovna Hostivar, Prague (1) of variation. today. Thus, IC offers clear guidelines for what is good management practice. ITT Automotive CZ, Kolomuty (1) Corrective and Preventive Action — Problem Solving Methods The Management Challenge Pronovia, Velka Bites (1) Disciplined problem solving methods for Having become lean manufacturers, TOS Kurim, Kurim (1) corrective and preventive actions shall reduced your costs by setting up in be used when an internal or external Central Europe, and moving towards a ZVL Tribometal, Kolny Kubin (2) non-conformance specification or zero defect environment, the next requirement occurs. challenge lies in IC. The concepts behind VDO Instruments, Prague (2) IC are helping managers view strategic For problem solving using a team and operational issues in a new way and Temac, Zverinek (2) approach, it is essential to ensure that are spreading quickly across industries positive team dynamics are developed to and countries. Metals, Nejdek (2) create and benefit from the synergy arriving from team membership skills. The management challenge from this Avon-Rubena, Rudnik (2) This and the teaching/understanding and perspective is to nurture, and leverage application of a disciplined problem growth in your company’s intellectual AKUMA, Mlada Boleslav (4) solving methodology generally requires capital, and pick up on early warning specialist support for success. signs of declining IC. This is how you Sluzba VDI, Nitra (4) can get a better grip on what will drive Next Month: Quality Expectations in the profits tomorrow. But first you need to PEKM Knobloch, Liberec (5) Global Automotive Industry Part II develop a tool to visualize IC and that will be the topic of next month’s article. ( ) indicates the number of years the company has won the award Next Month: Developing Tools for Measuring Intellectual Capital

Central European Purchasing Executives

COMPANY NAME/TITLE CONTACT Daewoo Motor Polska Yeon-Seob Jeong, Purchasing Director Tel: 48-81-749-3301; Fax: 48-81-749-3309 Fiat Auto Poland Giovanni Patelli, Purchasing Manager Tel: 48-33-132-542; Fax: 48-33-126-988 Ford (Czech Republic) Stefan Tyrpak, Purchasing Manager Tel: 420-2-2481-1727; Fax: 420-2-2481-2488 Ford Hungaria Zsolt Marton, Purchasing Manager Tel: 36-1-250-9865; Fax: 36-1-250-9866 GM Poland Achim Kuehne, Purchasing Director Tel: 48-22-676-3100; Fax: 48-22-676-2803 Isuzu Motors Polska Ichiro Murai, Gen. Manager Purchasing Tel: 48-32-217-7307; Fax: 48-32-217-7308 Magyar Suzuki Mrs. Eva Klujber, Purchasing Director Tel: 36-33-414-311; Fax: 36-33-412-014 Opel Czech & Slovak Josef Dolezal, Purchasing Manager Tel: 420-2-2438-400; Fax: 420-2-6121-1259 Renault/Revoz (Slovenia) Pierre Couillerot, Director of Purchasing Tel: 386-61-1723-301; Fax: 386-61-1723-320 Skoda Auto a.s. Guenter Becker, Head of Purchasing Tel: 420-32-681-1153; Fax: 420-32-681-1173 VW (Czech Republic) Hana Cejnarova Tel: 420-32-681-1002; Fax: 420-32-681-1179

16 June 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 fax: 48-22-826-7341 venture partner for ships, & stationary Hungary shafts, steering shafts, Poland production, financial, and aggregates. 1996 turnover steering gears, and spare distribution cooperation. expected to be $20 million. Battery manufacturer seeks parts seeks foreign investor Manufacturer of hydraulic Monthly air filter capacity Jan Vesely IESC joint venture partner for Wieslaw Kosieradzki cylinders, up to 32 bars for cars of 60,000, and tel: 420-2-2499-3170 processing used vehicle PIAST pressure, 25-160 piston 6,000 for trucks fax: 420-2-2499-3176 starter batteries tel: 48-22-827-8700 diameter, up to 4,000 mm Jorgen Varkonda Czech Republic $2.1 million fax: 48-22-826-7341 length, seeks Slovak SNAZIR Csaba Kilian, ITDH Poland Republic commercial re: Sandrik a.s. Partner sought for producer re: Perion cooperation, offers tel: 421-7-5335-175 of diesel injection tel: 36-1-118-0051 Manufacturer of centrifugal production to order fax: 421-7-5335-022 equipment for development, fax: 36-1-118-3732 oil separators, heaters, water Jorgen Varkonda Slovak Republic production, & sale of single Hungary and oil coolers for cars & SNAZIR and multi-cylinder in-line trucks, water pumps for re:Rerosa s.r.o. Manufacturer of pressed injection pumps for all types Russian bus company seeks vans, trucks, and ships seeks tel: 421-7-5335-175 parts for cars, press units, of diesel engines, as well as American joint venture foreign investor fax: 421-7-5335-022 electric carriages, and for injection systems, partner to manufacture new Wieslaw Kosieradzki Slovak Republic machine tools seeks testing, measuring, & bus models. Business plan PIAST commercial or production adjustment equipment. available in English tel: 48-22-827-8700 Manufacturer of exhaust cooperation 1995 turnover was $40 Victor Sergeyevich fax: 48-22-826-7341 flanges, light welded steel Jorgen Varkonda million. Kostromin Poland constructions, agricultural SNAZIR Jan Vesely IESC General Director machines, and hydraulic re: BAZ a.s. tel: 420-2-2499-3170 Pavlovo Bus Co. Manufacturer of fuel supply components under Sauer tel: 421-7-5335-175 fax: 420-2-2499-3176 tel: 7-83171-6-81-14 systems for car & van Co. license seeks joint fax: 421-7-5335-022 Czech Republic fax: 7-83171-6-03-18 engines, compressors for venture partner Slovak Republic Russia pneumatic braking systems Jorgen Varkonda Manufacturer of plastic for cars, buses, & farm SNAZIR U.S. partner sought for parts for Opel, Mercedes, Russian company seeks a tractors, compressor units & re: Topolcianske Strojarne Czech producer of VW, & Suzuki seeks equity joint venture partner to re- pneumatic fittings, & spare tel: 421-7-5335-175 crankshafts (various sizes partner who is engaged in build car and truck tires and parts for compressors seeks fax: 421-7-5335-022 up to 2500 mm lengths) for plastic processing business recycle tires and other foreign investor Slovak Republic purpose of contract $5 million rubber products into pellets. Wieslaw Kosieradzki manufacturing. Company is Csaba Kilian, ITDH Alexander Nikolayevich PIAST Manufacturer of car & truck supplier to producers of re: Pemu Kalin tel: 48-22-827-8700 air and oil filters seeks joint engines for trucks, tractors, tel: 36-1-118-0051 General Director fax: 36-1-118-3732 Kstovo Tire Repair & Hungary Recyling Plant Get the Word Out, Send Us Your News! Tel: 7-8312-38-12-75 Make Sure Your PR & Marketing People See This Supplier of seats for Suzuki Fax: 7-8312-38-12-75 cars & Spare parts for Make sure the auto industry hears about your company’s activities in Ikarus seeks purchaser. Central Europe. Send the CEAR™ your news about: Company undergoing privatization process. • recent and projected sales and production figures Csaba Kilian, ITDH • new joint ventures or cooperation agreements re: 02/Aut/96 • facility expansion plans (e.g. new equipment, new buildings) tel: 36-1-118-0051 • business expansion plans (e.g. new markets, new products, new supply contracts) fax: 36-1-118-3732 • personnel changes, recent awards, licenses, certifications • new product news Sell Your Product, Service, or • upcoming company events (e.g. supplier conferences) Opportunity with a CEAR™ 50 Word Classified for USD$100. Fax, email, or mail press releases to the CEAR™: Including an Internet Listing Email: [email protected] Fax: +1-206-374-5282 at http://www.cear.com Toll Free inside US Fax: (800) 684-3393 Fax or Email Your Classified. Slovak Republic Fax: +421-7-361-085 Include your name, phone, and fax. Post: 4800 Baseline Rd. Suite E104-340, Boulder, CO 80303 USA Tel: +1-440-843-9658 Fax: +1-206-374-5282 Email: [email protected] Highlights Continued from Page 4 Back in March, Daewoo Avia introduced GM Opening New Transmission end modules and air conditioning the new light commercial vehicle Lublin Operation In Hungary; Opel systems from a joint production plant in 3.5. The Lublin 3.5 will be assembled at Assembly Phased Out the Czech Republic. Hella brings to the Daewoo Avia’s factory in the Czech venture its car lighting systems and Republic from kits delivered by Daewoo General Motors Corp. plans to increase electronics manufacturing expertise, Motor Poland in Lublin, Poland. its investment in Hungary by pumping while Behr contributes its skill as a another $128 million into a transmission producer of air conditioning and engine The assembled Lublin 3.5 will be sold in plant in Szentgotthard in Western cooling systems. the Czech Republic through Daewoo Hungary. The new plant will have an Avia’s sales network. More than 1,100 annual capacity of 250,000 units and is Skoda Auto Awards its Best Suppliers Lublin trucks of various modification expected to employ 500 people. have been sold in the Czech market since Operations are slated to begin in the year In April, Skoda Auto presented its 15 early 1997 when Daewoo Avia started 2001. best suppliers with the 1997 Skoda assembling the trucks. Quality Award. Skoda purchased CK According to company officials, by the 54.8 billion ($1.6 billion) worth of Czech Government To Offer end of this year GM will discontinue its supplies in 1997, with almost 70% of this Unprecedented Investment Incentives Opel Astra assembly operation in amount coming from Czech based Szentgotthard to free up resources for the suppliers. Czech suppliers delivered In late April 1998, the Czech new project. Officials have also supplies to other VW group companies government approved the country’s first indicated that a new engine facility is not valued at CK 7.6 billion ($223 million). formal package of national investment likely to be built in Hungary, but instead incentives since the fall of communism will probably go to Germany. “VW and Skoda Auto support those in 1989. All new manufacturing suppliers who are capable of taking over investments in the Czech Republic of GM currently assembles the Opel Astra the results of our parts and products over $25 million will be eligible for and produces engines and cylinder heads engineering quickly, in prime quality and benefits under the 6-point package. in Szentgotthard. The new investment in an innovative manner,” said Francisco brings GM’s total investment in Hungary Garcia Sanz, member of the VW brand The package covers corporate taxation to over $500 million. board responsible for purchasing. (see deferrals and bonuses, customs duty chart of award winners on page 16) waivers and beneficial VAT New Car Sales in Hungary Up 50% arrangements on imported equipment, During First Quarter Daewoo Avia’s First Quarter Results the provision of low-cost development — Car & Truck Sales Drop land, job training grants, special job New car sales in Hungary jumped over creation benefits for firms locating in 50% during the first quarter of 1998. During the first quarter of 1998, Daewoo under-developed regions, and special First quarter sales totaled 21,688 units, Avia sold 661 Avia trucks, down about customs zones for major investors. compared to 14,374 units sold during the 30% from the 939 units sold during the first quarter of 1997. Reasons cited for same period in 1997. First quarter sales Hungary the big increase are an improving of Daewoo Lublin trucks totaled 132, Hungarian economy, the availability of down slightly from 137 units a year ago. Suzuki Willing To Expand In Hungary better car financing programs, and — Wants Help From Government unattractive bank savings rates. Daewoo Avia’s first quarter sales of Daewoo cars in the Czech Republic Suzuki may invest another $75 million or Local manufacturer Magyar Suzuki saw decreased by over 43% compared to the more into its Hungarian car plant — its sales rise over 50% to 4,704 vehicles, same period last year. First quarter 1998 Magyar Suzuki — if the Hungarian compared to sales of 3,122 units during sales totaled 669 units, compared to government provides more support, the same period last year. The 1,181 units sold during the same period Osamu Suzuki, president of Suzuki company’s market share held steady at last year. Motors Corp., said at a recent press almost 22%. Opel’s sales also rose conference. Mr. Suzuki indicated that sharply to 3,362 units, compared to The big drop was primarily due to the the capacity of the plant might be 2,165 units sold in Q1 1997. Opel’s end of Tico sales in the Czech Republic. increased to 100,000 units. Current market share rose slightly from 15.06% In mid 1997, sales of the popular Tico production capacity is 70,000 units. to 15.50%. were stopped due to strict emission regulations in the Czech Republic. The Magyar Suzuki’s revenues in 1997 Ford took over the third position from Tico will be replaced by the new Matiz, totaled 77 billion forints ($366 million), Volkswagen with sales of 1,953 units launched in Korea in late March. Sales up 36% compared to 1996. Net income and a market share of 9%. of the Matiz in the Czech Republic will rose to 1.65 billion forints ($7.8 million), Volkswagen’s sales totaled 1,820 units, begin in the second half of 1998. an 86% increase over 1996’s results. giving it a market share of 8.4%. At this time last year VW’s market share was New Light Commercial Vehicle almost 13%.

18 June 1998 • CENTRAL EUROPE AUTOMOTIVE REPORT™ http://www.cear.com™ © Central European Trade & Marketing, L.L.C. 1998 Fiat’s sales rose over 140%, from 668 economic director Hermann Krueder. harnesses were produced by the joint units during Q1 1997 to 1,608 units in venture in June 1996. Q1 1998. The company saw its market VW Elektricke’s customers include VW share jump from 4.6% to 7.4%. Bratislava, Audi Hungary, and Skoda Slovenia Daewoo’s sales were slightly off at 1,338 Auto in the Czech Republic. In May units. The Korean carmaker’s market 1998, the company plans to start Revoz/Renault Replacing Clio share slid from 9.6% to 6.4%. supplying harnesses just-in-time to VW Production with Clio II Bratislava. The harnesses will be Slovak Republic installed by VW Elektricke employees Slovenia’s only car producer, Revoz working directly on the VW Bratislava d.d.’s (54% owned by Renault S.A., VW/Siemens JV To Boost Wire assembly line. France) production plan for 1998 is for Harness Production more than 90,000 cars, with the Clio VW Elektricke’s turnover in 1998 should being gradually replaced by the Clio II. Volkswagen Elektricke Systemy is reach DM 80 million ($44 million). Net In late 1998, the Clio II will be the sole boosting its wire harness production to profit in 1997 was DM 800,000 model produced in Slovenia. keep up with increased demand for VW ($444,444) and turnover reached DM Group models. The company, a joint 28.9 million ($16 million). The capital Installed capacity at the Slovenian venture between Volkswagen AG and stock of the company is just over DM 4 factory is 100,000 units, using two shifts Siemens AG, is moving from two shift million. and a five day working week. Last year, to three shift production, and by the end the company achieved a record of May expects to increase the number of The average monthly salary of the production of 95,951 Renault Clio its employees from 1,330 to 1,500-1,600. company’s workers in Slovakia is SK models. Exports totaling 89,404 cars 10,500 ($300), which does not include were made mostly to Italy, Germany, VW Elektricke’s current production area salaries paid to the German top France, and Austria. As of December management. in Nitra, Slovakia is 40,000 sq. meters, 31, 1997, Revoz had 2,560 employeesn of which production halls cover 14,510 VW Elektricke is a daughter company of sq. meters. Soon, this will be not VW Bordnetze AG, Berlin, Germany. enough, reported the company’s Established in January of 1996, the first

Who Continued from Page 5 Supplier Products Key Customers UT Automotive, Hungary Wiring harnesses GM, Ford, Land Rover VAB Tychy, Poland Stampings GM Poland* VDO Instruments, Czech Republic Instrument panels, fuel management systems Skoda, GM Poland,* Daewoo Avia (1999) Volkswagen Elektricke Systemy, Slovak Republic Cabling systems VW Bratislava, Skoda, Audi Hungary VSZ, Slovak Republic Steel products Skoda, VAZ Togliatti, Daewoo, Dacia, Fiat, Mercedes, Ford Wix-Filtron, Poland Filters Fiat, Daewoo FSO, Daewoo Lublin Yazaki Debnar, Slovakia Wiring harnesses Ford ZK Kuznicze Ltd, Poland Metal forgings Rockwell International, Dana, Fiat Auto Poland, Daewoo FSO, GM, TRW Steering Systems Poland

*Under construction

1998 CEAR™ Central European Automotive Excellence Award

The CENTRAL EUROPE AUTOMOTIVE REPORT is accepting nominations for the 1998 CEAR™ Central European Automotive Excellence Award. This award will be presented to the Central European automotive manufacturer or supplier that has best demonstrated market leadership through its use of innovative manufacturing and marketing systems. The award is given to recognize the positive influence such exemplary leadership has on the development of the Central European automotive sector. We would greatly appreciate your input in nominating candidates for this award. You may nominate your own company or others. The deadline for nominations is August 15, 1998.

Nominee Reasons

Fax to: +1-206-374-5282 Email to: [email protected]

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 19 Poland, constitute 75% of the region’s average for Western European volume Distribution of Asian vehicle market. Hyundai owns its makes. Cars in Eastern Europe importer in the region’s dominant Elaine Hardy, Project Director, market, Poland, which contributes over Amongst the Japanese makes, Suzuki Harbour Wade Brown 40% of the overall regional volume. has the largest network — 200 main dealers — the second largest of any National Sales Companies Dealer Networks Asian make. Sixty-percent of Suzuki’s network is located in Hungary where it In 1997, all Asian makes in Eastern Average dealer network size and has its vehicle manufacturing operation Europe (including Central Europe, The structure for each of the make groupings and where it is the second leading seller Balkans and The Baltics), except in 1997 are outlined in the nearby chart. behind Opel. Daihatsu and Subaru, enjoyed effective 95-100% coverage. Daihatsu is absent The network data clearly reflects the Excluding Suzuki, the smaller Japanese from ten countries (reaching only 37% of early lead enjoyed by the Korean makes, makes’ average network falls to only 25 potential buyers) and Subaru is absent with Daewoo taking the lion’s share not main dealers. Proton is also an Asian from six. only of the Korean makes, but all other make (albeit Malaysian) and has groupings as well. Hyundai and Kia’s captured a small market, mainly in Only three of the makes own any networks are very similar in size to the Croatia and Slovenia. importers or sales organizations in these regions: Daewoo has six, including Average Dealer Network Size and Structure (1997) three linked with its manufacturing Main Secondary Total activities in the Czech Republic, Poland, Koreans: Daewoo 531 0 531 and Romania. It also owns its importers Hyundai/Kia 173 0 173 in the other Central European countries: Overall Avg. of the 3 makes 292 0 292 Hungary, Slovakia, and Slovenia. These Major Japanese Avg. 125 11 136 six countries are the highest volume Medium Japanese Avg. 106 2 108 markets in the region. Smaller Japanese Avg. 83 0 83 Proton Avg. 16 0 16 Honda owns its importers in four of the Western European Volume Makes Avg. 171 38 209 five most advanced markets (i.e. those of Central Europe). These four countries: Note: Daewoo’s total includes 420 dealers in the three markets in which it has vehicle Czech Republic, Hungary, Slovakia, and manufacturing facilities. Source: Harbour Wade Brown

Exhibitions, Conferences, and Shows in 1998 & 1999

1998 Oct. 29-Nov. 1 Istanbul, Turkey Commercial Vehicles ’98 June 2-5 Dusseldorf, Germany Int’l Symposium on Oct. 29-Nov. 8 Sao Paulo, Brazil Brazil Int’l Automobile Trade Automotive Technology & Automation Show June 3-14 Buenos Aires, Argentina Auto Show Nov. 4-7 , Asia Automotive ’98 June 6-11 Brno, Czech Republic AutoTec Nov. 4-8 St. Petersburg, Russia St. Petersburg Auto & June 18-20 Beijing, Automotive Sourcing in China Service Show June 22-27 Kiev, Ukraine Auto Show Nov. 5-8 Istanbul, Turkey Auto Show June 23-30 Beijing, China Auto China ’98 Nov. 12-15 , , Cairo Motor Show June 24-25 Vienna, Austria Commercial Opportunities in Nov. 14-22 Suntec City, Singapore Singapore Motor Show CIS Auto Industry Conference Nov. 17-21 Sofia, Bulgaria Bulgaria Int’l Specialized Trade June 24-28 Rio de Janeiro, Brazil Auto Brazil 98 Show August 26-30 Moscow, Russia Moscow Int’l Motor Show Nov. 26-Dec. 6 Montevideo, Uruguay Montevideo Motor Show Sept. 3-10 Hanover, Germany Auto Show Nov. 27-Dec. 6 Essen, Germany Essen Motor Show Sept. 14-16 Nagaya, Japan Int’l Symposium on Advanced Nov. 30-Dec. 2 Graz, Austria SAE Total Life Cycle Conference Vehicle Controls & Exposition Sept. 15-20 Nitra, Slovakia Autosalon Nitra Dec. 2-5 Jakarta, Indonesia Indonesia Auto Show Sept. 15-20 Frankfurt, Germany Automechanika Dec. Detroit, MI SAE Global Vehicle Development Sept. 18-27 Bucharest, Romania Bucharest Motor Show Conference Sept. 27-Oct. 1 Paris, France FISITA World Congress 1999 Sept. 29-Oct. 1 Detroit, MI Int’l body Engineering Conference Jan. 16-24 Brussels, Belgium Brussels Int’l Motor Show Sept. 29-Oct. 4 Budapest, Hungary Autotechnika Feb. 4-14 Amsterdam, The Netherlands Int’l Motor Show Oct. 1-3 Brussels, Belgium Int’l Electric Vehicle March 11-21 Geneva, Switzerland Geneva Int’l Motor Show Symposium April 8-16 Stockholm, Sweden Stockholm Int’l Motor Show Oct. 1-11 Paris, France Int’l Road Transport Exhibition May 22-30 Barcelona, Spain Barcelona Int’l Motor Show Oct. 1-11 Paris, France Int’l Paris Motor Show May 27-June 1 Poznan, Poland Int’l Automotive Show Oct. 6-8 Detroit, MI Global Powertrain Congress Nov. 13-21 Athens, Greece Athens Int’l Motor Show Oct. 8-12 Ho Chi Minh City, Vietnam Auto Vietnam 98 Oct. 13-15 Amsterdam, The Netherlands InterAuto ’98 Oct. 16-25 Sydney, Australia Int’l Motor Show Visit Trade Events under the Expert Directories at http://www.cear.com Oct. 16-25 Panama City, Panama Panama Auto Expo To list Contact Information for your show contact Oct. 23-Nov. 1 Birmingham, UK British Int’l Motor Show Tel: +1-440-843-9658, Fax: +1-206-374-5282, Email: [email protected]

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

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© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 21 Reverse Flow Catalytic Converter & Fuel Injection AFS personnel to present technical Systems Cut Emissions papers this year at various automotive conferences, including the Society of Automotive Engineers (SAE) New Product Review International Congress in Detroit, the International Conference and Exhibition The Canadian-based Alternative Fuel for Natural Gas Vehicles in Cologne, the Systems has introduced a patented Dr. Matros was experienced in FISITA World Automotive Congress in reverse flow catalytic converter with converting low heat, high volume Paris, and conferences on catalysis in applications for all internal combustion exhaust gas streams from chemical Russia and Italy. engines, including gasoline. The plants using a reverse flow concept company has also developed a fuel involving immense catalysts and AFS has also developed fuel injection injection system for converting gasoline reversing valves. By modeling these systems for converting gasoline and and diesel engines to burn cleaner fuels. reactions, he was confident he could diesel engines to cleaner burning Both products are especially suitable for adapt the process for treating low heat, compressed natural gas (CNG) and use in regions plagued by high pollution low volume exhaust gases from engines. propane (LPG) — the AFS Eagle, a levels. multi-point diesel dual fuel management Dr. Matros and Mr. Mirosh began a system, and the AFS Sparrow, used for The revolutionary catalytic converter dialogue that resulted in a program of converting gasoline engines to CNG or has been jointly developed by AFS and testing and mathematical modeling that LPG. Both are simple to install, do not the US company Matros Technologies. lead to a patent application in 1996. Dr. reduce engine power, and increase It uses a unique process for increasing Mirosh and AFS engineer Dr. Ming operational efficiency. the temperature within the converter, Zheng fine-tuned the concept. Further which significantly reduces emissions to testing was conducted by a University of The AFS Eagle dual-fuel system has been acceptable levels or lower by greatly Alberta team of research scientists and tested in pilot projects in cities such as enhancing the catalytic process. A U.S. partially funded by the National Tokyo, Sao Paulo, Osaka, Seoul, and patent has been accepted and a global Research Council of Canada. Pusan. In Mexico City a project was patent application has been submitted launched in late December 1997 to for targeting certain countries. No hydrocarbon fuel is completely convert microbuses and other vehicles emissions free, but the AFS reverse flow from gasoline to CNG using the AFS The development of the reverse flow catalytic converter comes close to Sparrow. Some10,000 vehicles per year converter began back in 1995 when a eliminating methane and carbon over a 10-year period will be converted at technical presentation given by AFS monoxide from the exhaust of a cost of $2,000 each. The Mexico City vice president Ed Mirosh on diesel dual- hydrocarbon fueled vehicles. project will provide a model for other fuel technology was heard by Dr. Yuri cities around the world facing similar Matros, an expatriate Russian scientist The unique character of the reverse flow pollution problems who had emigrated to the United States. converter has brought invitations for n

Best Selling Brands in Poland (YTD March 1998) Ranking By Retail Volume FUTURE ISSUES Passenger Cars Commercial Vehicles

Make Volume Market Share Make Volume Market Share • Powertrain Review FIAT 44,223 32.16% DAEWOO MTR. 3,121 25.24% • Skoda’s Detlef Wittig DAEWOO 38,126 27.72% DAEWOO 2,662 21.53% • Slovak Car Park Analysis GM - OPEL 10,558 7.68% CITROEN 1,252 10.12% • More Supplier Lists SKODA 6,658 4.84% MERCEDES 1,011 8.18% RENAULT 5,344 3.89% VW 807 6.53% • Hungary Tax/Customs Update FORD 5,134 3.73% FIAT 696 5.63% • Poland Sales Statistics VW 4,339 3.16% SKODA 672 5.43% • Quality Lesson 4 TOYOTA 4,308 3.13% FORD 448 3.62% •Bulgarian Sales & Production HONDA 4,284 3.12% PEUGEOT 428 3.46% Review SEAT 3,394 2.47% IVECO 332 2.68% • Exporting to Central Europe • How to Measure Your Source: SAMAR, s.c. Intellectual Capital

22 June 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 Included With The CEAR™ Analyst Edition

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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] Halgas. “In accordance with the Daewoo Sinks $4 million Into New Operation structure of sales preferences, we will & Service Center in Slovakia keep some cars [in inventory in Company Spotlight Piestany] and then we’ll continuously resupply.”

Company: Daewoo Motor Slovakia technicians. Daewoo Motor Slovakia is gearing up Location: Bratislava, Slovak Republic for the addition of new models to its Contact: Peter Halgas, Marketing Daewoo currently operates out of a current line-up that includes the Lanos, Manager rented facility in Piestany. Construction Nubira, and Leganza. The replacement Business: Distribution & Sales of the new center began in June of 1997 for Daewoo’s popular Tico model — the and operations are expected to begin in Matiz — will go on sale in Slovakia in Daewoo Motor Slovakia has chosen early May. “The spare parts stocking August or September. Having taken Piestany, Slovakia as the site for its new facility is already completely over Ssang Yong Motors in January SK 140 million ($4 million) operation operational,” said Halgas. By the end of 1998, Daewoo is also preparing to start and service center. “Due to the big sales April, Daewoo plans to move from its old sales of Ssang Yong Motors models. volume [of Daewoo cars] in 1996 and facility in Piestany to the new center. 1997, we need to satisfy our customers,” Daewoo Motor Slovakia will also begin Peter Halgas, Marketing Manager for Piestany was chosen by Daewoo selling light commercial vehicles from Daewoo Motor Slovakia told the CEAR. primarily because the previous Daewoo regional Daewoo operations, including “We feel it’s our obligation.” importer had established a stocking the FSO and Lublin II models from facility and bonded area in Piestany. “It Poland, and Daewoo Avia trucks from The 17,000 square meter center will was very useful to use these facilities, the Czech Republic. have multiple functions. For the public, very convenient,” said Halgas. “And for it will be used for sales and service. the dealers, it’s more convenient than Piestany, of course, is happy to have Cars will be sold and serviced at the Bratislava. And the operational expenses Daewoo as a neighbor. “The new center, and spare parts will be available are lower in Piestany, than, for example, Daewoo facility will make Piestany for purchase. in Bratislava.” more attractive and will provide more employment opportunities,” said The facility will also serve Daewoo’s Passenger cars find their way to Slovakia Antonia Vitekova, Director of the Slovak dealer network as a wholesale car through the port of Koper in Slovenia, Piestany mayor’s office. and spare parts center. A spare parts where they’re loaded onto railwagons stock area will store parts bound for and then pulled into Piestany. “Due to And last year, Daewoo Group Daewoo’s Slovak service centers. legislative conditions that require Chairman Kim Woo-Choong donated Storage space for some 300 cars will be payment of customs duties and VAT in SK 5 million to Piestany to develop available for vehicle inventory. And a advance, in the future it will be more social programs in the city. Most of the new education center will provide advantageous for us to bring the cars money has been earmarked for training for dealers and dealer’s from Koper according to needs,” said reconstructing and repairing churches and religious schools in Piestanyn

Polish Vehicle Market Segmentation (YTD March 1998)

Segment YTD SALES (Units) CHANGE (%) MARKET SHARE (%) SALES IN MARCH 1998 1997 1998 1997 1998 1997 1. Segment A 34,457 36,094 -4.54 25.06 27.63 13,794 12,010 2. Segment B 27,487 33,141 -17.06 19.99 25.37 11,276 11,035 3. Segment C 58,371 41,753 39.80 42.44 31.96 21,060 16,896 4. Segment C/D 14,290 17,458 -18.15 10.39 13.36 5,629 4,532 5. Segment D/E 1,733 635 172.91 1.26 0.49 806 262 6. Segment F 31 29 6.90 0.02 0.02 21 15 7. Segment S 298 586 0.00 0.00 0.00 142 195 8. Segment MPV 695 778 0.00 0.00 0.00 264 388 9. Segment 4WD 163 161 1.24 0.12 0.12 86 50 Total Passenger Cars 137,525 130,635 5.27 99.28 98.96 53,078 45,383 10. Light Comm. Segment 5,714 7,243 -21.11 46.21 55.07 2,261 2,671 11. Medium Comm. Segment 6,652 5,910 12.55 53.79 44.93 2,498 2,172 Total Commercial Vehicles 12,366 13,153 -5.98 100.00 100.00 4,759 4,843

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

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

Sales Loss Leaders in Poland (YTD March 1998)

Passenger Cars Light Commercial Vehicles Medium Commercial Vehicles Make Units Change Make Units Change Make Units Change ’98 v. ’97 ’98 v. ’97 ’98 v. ’97 Units Units Units FSO - Polonez 5,938 -6281 Fiat Cinquecento Van 125 -1100 FSC - Zuk 55 -162 Fiat Cinquecento 9,902 -5383 FSO Polonez Truck 2,585 -594 Ford Transit 121 -125 PF 126 11,136 -2627 Citroen C15 712 -220 Fiat Ducato 54 -60 Daewoo Nexia 4,251 -2492 Ford Courier Van 66 -101 Citroen Jumper 33 -23 Fiat Uno 4,474 -2121 Fiat Uno Van 414 -93 Toyota Hiace 18 -14 632 -2067 Peugeot Partner 166 -56 Renault Trafic 21 -5 Renault Megane 2,729 -1853 GM - Opel Combo 220 -52 Nissan Vanette 4 -5 Toyota Carina E 372 -1627 VW Caddy 83 -33 Peugeot 406 831 -1492 Renault Express 15 -32 Citroen AX 199 -1370 FSO Polonez Cargo 77 -27

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

Slovenian Labor Market Indicators (1997)

LABOR FORCE Number Growth (%)1 •Paid Employment 651,225 0.2 —In Enterprises & Companies 593,086 -0.7 —By Self-Employed Persons 58,139 10.3 •Self-Employment 92,204 0.9 •Unemployment (registered) 125,188 4.5 •Registered Unemployment Rate (%) 14.4 - •ILO Unemployment Rate (%) (Spring ’97) 7.1 - •Paid Employment By Sector of Activity December 1997 Share (%) —Agriculture 8,919 1.4 —Industry (includes construction) 290,524 44.7 —Services 350,248 53.9

WAGES & LABOR COST Dec. 1997 (SIT)3 Growth %4 •Monthly Avg. Labor Cost Per Employee2 209,543 9.8 —Manufacturing 175,047 9.7 •Average Hourly Labor Cost Per Employee 1,197 9.7 —Manufacturing 1,000 9.6 •Real Labor Cost Growth (%) - 0.9% —Manufacturing (%) - 0.8 •Monthly Average Net Wage Per Employee 99,073 11.4 —Manufacturing 83,301 11.7 •Real Net Wage Growth (%) - 2.4 —Manufacturing (%) - 2.7

1) January-December 1997 compared to January-December 1996 2) Including employers and employees social contributions, additional labor costs (annual holiday bonus, meal reimbursement, traveling reimbursement) and payroll tax. 3) Avg. Slovenian Tolar Exchange Rate, December 1997: 1 US = 167.65 SIT 4) December 1997 compared to December 1996

Source: Chamber of Commerce & Industry of Slovenia

© Central European Trade & Marketing, L.L.C. 1998 http://www.cear.com™ CENTRAL EUROPE AUTOMOTIVE REPORT™ • June 1998 25