The automotive industry is by far the biggest beacon of hope for the Hungarian economy. It generates growth, represents one fifth of export performance, namely almost EUR 15 billion annually, and provides 115,000 jobs in about 700 companies. In this Budapest Times series we look behind the scenes at the three largest automotive producers, which completed 450,000 cars this year, as never before in the history of Hungary. Following the articles about Audi Hungaria Motor Kft. (BT Nr. 48) and Mercedes-Benz Manufacturing Hungary Kft. (BT Nr. 49) we turn to Magyar Suzuki Zrt. in Esztergom, the first complete automotive production plant built in Hungary after the change of regime.
Hungary, or the “happiest barrack“ as it was popularly called at that time, contributed a great deal in 1989/90 to the fact that the political system could change in the former Eastern bloc. Hardly any other country within the socialist area was directed towards the West to such an extent. However, the arrival of complex automotive production did not come from that direction, as it was carried out with the help of an investor from the Far East.
The Japanese Suzuki Corp. first set foot on the European continent in 1993 – their choice of scenery was the small town of Esztergom in the curve of the Danube to the north-west of the Hungarian capital. At that time there were absolutely no Japanese factories in the Eastern part of the old continent, but what was even more important for Hungary was that thanks to Suzuki this territory with no industrial tradition could develop such a complex process as vehicle production.
This was the foundation on which the German automobile concerns could lay their own investments, first Mercedes with a greenfield investment in Kecskemét and then Audi with its site development in Győr. Still today Magyar Suzuki Zrt. is the company with the largest capacity in the automobile industry in Hungary, employing about 3,100 people directly and, through more than 80 domestic suppliers, providing the means of living to about ten times as many more indirectly.
2008: close to the capacity limit
However, production is running in a single shift at present because the model palette is being modified. The global economic crisis severely messed up the turnover plans of the Japanese company.
Looking back, even if the first generation of the Suzuki Swift sold with only moderate success in the 1990s, the second generation of the compact car proved to be a real hit.
Already in the first full year of selling in 2005, the producer in Esztergom delivered around 85,000 Swift models, practically twice as many that they could sell of its predecessors on average in the previous decade. In 2007 they recorded the high score of almost 110,000 Suzuki Swifts built in Hungary.
The second model line, which was introduced around the turn of the century, had a similar career. Together with Wagon R+ and Ignis they have been producing about 40,000 units on average each year; however, the SX4 presented in 2005 sold twice as well.
Even if the Hungarian Suzuki plant still had difficulties in 2004 to reach the limit of 100,000 compact cars a year, in the next year they surpassed it with ease. In 2006 they doubled the total production of year 2000 and one year later they even tripled the same number, before reaching the absolute high of delivering 280,000 compact cars in 2008.
In the meantime the Japanese investors raised the capacity to 300,000 units during their “European Renaissance Program“, investing more than EUR 1.5 billion in Hungary since 1991. They sold more than 120,000 units from the newly launched mini vehicle Splash alone in the last “year of peace” – this was the most successful introduction of a series in the history of a Hungarian automotive production plant.
However, for the Swift and the SX4 the growth trend was over, the approaching crisis already cast its shadow on them. Within a single year, 2009, 100,000 units were lost from the sales results and the level sank back to the modest performance of 2006.
“Our car” is not a budget model
The Suzuki Swift managed to become and remain “our car“ for as long as two decades, thanks to clever marketing supported by a good coverage of distributors, affordable pricing and excellent financing offers. In the best years 40,000 Suzukis built in Esztergom received a Hungarian licence plate. However, the crisis hit the compact car market the hardest, when foreign-exchange loans turned from a dream to a nightmare.
In the middle of this crisis the Japanese tried to apply a new profile: the third generation of Suzuki erased the worldwide perception according to which everything that is built in Hungary must consequently be cheap. Besides that, the company broadened its profile with the SX4 in the direction of off-road vehicles. These are the categories – namely compact cars and off-road vehicles (SUV models) – that are known worldwide as the major strength of the Japanese.
There were some steps taken last year that give Esztergom the promise of a better future. The production of the compact car Splash was launched, just like the cooperation with Fiat and Opel (who have contracted the Hungarian Suzuki plant with the production of Sedici and Agila, providing a proper load at the factory for a considerable amount of time). In the meantime Magyar Suzuki Zrt. started towards new horizons with the new SX4 S-Cross, which belongs to the category of leisure cars with a higher quality.
We have to add that Hungary provides the same standard of production quality as the plants in Japan. Esztergom ranked number three for the second time on the top list of international Suzuki factories, so it looks like it is there to stay in the winners’ circle. In addition, the suppliers are involved in the development process, which means that a closer business relationship is maintained right from the design planning.
This is the Japanese continuous improvement philosophy of “Kaizen“, meaning “good change”, which, when used in the business sense and applied to the workplace, refers to activities that continually improve all functions and involve all employees from the CEO to the assembly-line workers. It also applies to processes, such as purchasing and logistics, that cross organisational boundaries into the supply chain.
Taking this business philosophy into account it can be considered even more important that the new SX4 S-Cross will be the first subject of a so-called pilot production in Hungary, meaning that the model will be entrusted to the skills of the local workforce right from the beginning.
Suzuki presented the new Vitara just a few weeks ago in the auto salons in Paris – you have surely guessed already that this SUV will also be produced in Esztergom in the future. This is great news for the Hungarian location, which can only profit from the higher value of the model series manufactured locally.
Thanks to their sophisticated product mix Magyar Suzuki Zrt. managed to increase its turnover by 12% last year compared to 2012, almost EUR 1.6 billion, even if the number of cars that rolled off the production lines hardly increased. When the Hungarian supply range will be complemented with the SX4 S-Cross and Vitara in 2015 next to the established basic model, the Swift, and switching the operation back into two shifts will be necessary once again, then the turnover and profits will finally also start in the upwards direction in northern Hungary again.