After an extended period of investment by automotive OEMs and part suppliers in the Czech Republic, sector growth appears to have levelled out. This is according to Vit Svajcr, Head of Sourcing at CzechInvest, the investment promotion agency that acts as the administrator of infrastructure funding put forward by the national government.

Svajcr continues: “We could say that the Czech Republic is full in terms of automotive investment; we don’t have the workforce to support incoming (production) investors.

So we have changed strategy, focusing on more technical aspects. We are looking to attract technology investment, R&D centres, for example. We would like to attract investment in areas that support production, in fields that are much less labour intensive.”

While this approach might tap new revenue streams, companies already producing vehicles in the Czech Republic have been well-positioned to reap the benefits of scrappage incentives introduced by various national governments. As carmakers elsewhere have had to drastically cut production numbers in order to match declining market demand, the smaller models produced by Czech-based manufacturers have continued to sell.

Škoda Automotive operates three facilities in the Czech Republic, Mlada Boleslav (producing second-generation Octavia, Fabia), Kvasiny (Yeti, Roomster and Superb) and Vrchlabi (first-generation Octavia). In addition to the company’s aggressive expansion into new markets, with Australia marking the 100th country in which Škodas are now available, Pavel Radda, Production Director across all three Škoda plants, reports that scrappage incentives have helped the company achieve record production numbers.

“The demand for small, economical cars has been very high and that was to Škoda’s advantage,” says Radda. “This year, we achieved the largest daily production volumes in our history. We originally planned 1,150 units per day, and now we are at 1,200 Fabia units per day. This is a direct consequence of scrappage incentives.”

Radda goes on to say that Škoda will be well placed when the government-sponsored incentives expire. “We will fight for market share. We will strive to build customer interest so as not to let our production levels drop.” Are quality levels good enough to take on the competition? “The customer has the final word, but we have ranked very well in the JD Power (customer satisfaction) survey. I don’t want to boast, but JD Power is the relevant criteria, independent from VW Group.” Infrastructure improvements across all three plants, together with the implementation of lean production processes, will further benefit the company. As an example, Radda explains that in addition to the energy delivered by the national grid, Mlada Boleslav also receives power from Skoenergo, a private energy company formed in 1995 that is part-owned by Škoda, together with CEZ, RWE, E-on, and VW Kraftwerk. “We order energy of different types and in different quantities from Skoenergo, which is also in charge of energy distribution across the plant and production halls.”

In terms of lean production, Radda would like to cut vehicle build times. “In future, the manufacturing process should be less time intensive. We can achieve this through reductions in vehicle design complexity and by improving the feasibility of automation in assembly.” Radda points out that this would reduce cost across all production processes, reducing time in production, and could be enhanced with the implementation of technologies still under development.

All in order

Production sequencing is another area Pavel Radda is aiming to improve. “When we order cars for manufacture in the body shop, only 48% of the cars (supplied) are in sequence. By the time the cars reach final assembly, only 30% are still in sequence, due to order changes.” Fulfilling these sequence changes requires unnecessary component stock, which directly impacts logistics and lineside component supply. Radda notes that Škoda, in conjunction with VW Group, has developed a ‘new logistic concept’, but effective implementation of this plan will rely on maintaining a daily production schedule.

“We are currently meeting – or exceeding - customer delivery times 97% of the time,” says Radda. “A similar concept should be implemented in production. A more precise schedule would minimize stock in the production department, where cars have to follow or obey the hourly sequence. In Germany, they call it a ‘pearl chain’, where they aim to achieve 100% sequence.”

Radda explains that 100% sequence would be virtually impossible, taking into account the need for spot weld and chassis measurement tests, etc. With that in mind, his goal is to achieve 90% sequence fidelity, with an improved production turnaround time for units out of sequence. “The number of cars out of sequence doesn’t have to mean long delays in production. We want these cars completed not in one shift, but in one hour.”

Engine power

While the Czech Republic’s largest carmaker has had to marginally reduce production of the second-generation Octavia, down from a maximum of 1,000 cars per day to 800, production of the Fabia has reached record numbers.

Supporting this is one of the model's engine choices, an incentive-compliant 1.2-litre, three-cylinder engine, offered with either six or 12 valves, producing respectively 44 or 51kW. The engines have proven popular with customers, says Vladimir Mjasnikovic, assistant to Pavel Radda. “Before the scrappage incentive, 50% of Fabia models had the threecylinder engine. Now, it’s between 80 and 90%.”

“This year, we achieved the largest daily production volumes in our history” – Pavel Radda, Škoda


The engine production facility is operating at full capacity to keep pace with Fabia production. “The engine plant operates twenty-one shifts per week, producing 3,000 gearboxes and 1,800 engine per day,” says Mjasnikovic. “We are producing engines in record volumes. We have not been affected by the downturn.”

Mlada Boleslav is the only plant in the VW Group to produce the three-cylinder engine. So while Octavia production uses engines supplied by Volkswagen, the small motor used in the Fabia range is distributed across the VW Group for use in the VW Polo and Fox (manufactured in Brazil) and also in the Seat Ibiza and Cordoba.

Unlike the engine, the gearbox is manufactured at three additional sites; in Spain (Seat), Argentina (Volkswagen Argentina), and China (Shanghai Volkswagen). With a torque rating of up to 200Nm, the gearbox is predominantly used in combination with petrol engines of up to 2.0 litres and with smaller diesel units. “Fifty per cent of gearbox production is for Škoda vehicles, 30-40% of engines are for Škoda,” says Mjasnikovic.

The engine production hall is the most recent addition the Mlada Boleslav complex. The 500m engine assembly line (laid out in an elongated ‘U’ shape) was brought in from another plant, but other operations, including cylinder head finishing, is completed on brand new equipment supplied by Grob. The line takes its raw product from the on-site foundry, one of only two in the VW Group, which also produces crankshafts, camshafts and cylinder blocks.

While finishing of the camshafts is fully automated (aside from end-of-line part inspection), the engine assembly line has few automated procedures. According to Mjasnikovic, this improves flexibility. “Having people on the line instead of robotics means that every change is cheaper and quicker, but then you have to have improved quality tests.” Mjasnikovic says that 100% of new-model engines are hot tested. As the assembly process beds in, this number is gradually reduced until it reaches about 4% of production.

Line automation is not avoided, but it must prove its worth before being permanently installed. On the gearbox line, a single manual lifter used to set housings on the conveyor has been complemented with the addition of a fully-automated Kuka robot. “This replaces one employee, which over 21 shifts is a considerable saving,” says Mjasnikovic.

The plant is due to start production of a new 1.2- litre, four-cylinder TSI petrol engine, with turbo and supercharged versions. This unit will replace the current 1.6-litre engine, offering similar performance characteristics. Mjasnikovic says that all engines will be assembled together. “Everything that is possible gets done on the same line.”

TPCA Toyota Peugeot Citroen Automotive

TPCA is the result of a joint-venture by Toyota and the PSA Group started in 2001. The product of this JV was a new plant, located in Kolín, approximately 60km outside Prague, which started series production in February 2005. The plant itself, including tooling, represents an investment of €600m.

“We produce the Toyota Aygo, Peugeot 107 and Citroen C1, all for the European market,” says Radek Kñava, TPCA Communications Director. “Production is evenly split between the three brands.” The body and suspension of all three models is very similar, the main differences being the front end, front and rear lights and interior. All cars are fitted with either a 1.0-litre petrol engine, sourced from Toyota Motor Manufacturing Poland, or a 1.4 diesel, from PSA’s Valenciennes, France facility.

“Annual production is about 330,000 units, about 1,050 per day,” explains Kñava. He goes on to say that while market demand dictates which models are built and when, blocking on the line is largely dependent on transmission and model style. “We have a takt time of 57 seconds, but the auto transmission takes longer to install than the manual version, so we have to block the assembly of those models.” A similar strategy is also applied to production of three- and five-door models.

Division of labour

Up to 80% of parts used in assembly are sourced in the Czech Republic, with the remainder coming from Poland, Slovakia and Germany. Germany is also the primary source for the steel coil used in the plant’s two press lines. “The H&F presses are from Japan, each with four presses exerting between 800 and 1,600 tonnes of pressure. Fifty-one large car parts are pressed here, with smaller parts delivered from suppliers.” Kñava goes on to say that the press shop uses about 180 tonnes of steel per day over two shifts, the sheet measuring between 0.6 and 0.9mm. The press dies are made in Japan, and can be switched in less than six minutes.

In combining Toyota and PSA, TPCA brings together two companies that would appear unlikely partners. Though while the two OEMs have radically different backgrounds, both are acknowledged experts in small-car production, while also marketing proprietary technology to a variety of manufacturers.

Radek Kñava says that from the outset, both companies assumed well-defined areas of responsibility within TPCA. “Toyota was responsible for site selection and construction, and also for the supply of production machinery. Toyota was responsible for development of the car, which is manufactured using the well-known TPS (Toyota Production System). PSA is responsible for supplier selection, homologation and production process quality.”

Cost was a mitigating factor in the decision to launch the joint venture. Kñava: “Both companies realized that small cars would become increasingly popular and wanted to prepare for that demand. The Aygo was a completely new model. It’s not built anywhere else and it’s not sold in Japan.”

Although the plant was based on foreign investment, Kñava is keen to point out the role played by Czech nationals. “We evolved with parts of French and Japanese culture. But we are a Czech company, with a predominance of Czech staff. We have a Japanese president, and the vice president is from PSA, but the vice-president of production (also VP of human resources) is Czech.”

Suppliers have followed TPCA into the area. Lear, for example, delivers seats just-in-time and just-in-sequence to the production line from a new plant located next to TPCA.

Wheels are produced by MC Syncro, also in Kolín, and front and rear mouldings are delivered by Cadence Innovation, from a facility about 15km outside the city.

Logistics company Gefco has also opened a facility adjacent to the Kolín plant. “When cars are finished, Gefco puts keys in the cars,” says Kñava. “We ship half our production by train, half by truck.” Finished vehicles are delivered to most European countries, the strongest current markets being Germany and the UK due to scrappage incentives.

Asked about the recent downturn and whether production at TPCA has been cut to meet demand, Kñava puts forward a statement of quiet confidence. “The crisis has had no impact on us. We have been at full capacity since we started.


Vit Svajcr of CzechInvest says that the organization can negotiate investment incentives, offer support for feasibility studies, collect data, and find the correct people to talk with for companies looking to make automotive investment in the country. In addition to these services, CzechInvest can deliver a choice of possible factory sites to potential investors, which in the Czech Republic are predominantly located in ‘industrial zones’, parcelled areas of land owned by local municipalities. As an example, Svajcr points to the TPCA plant, located on a site made available by the city of Kolín. Hyundai’s new plant in Nošovice, North Moravia, was built in a similarly zoned area.

“TPCA was also considering sites in Slovakia and Poland,” says Svajcr. “Both governments could offer between 45 and 55% of total investment, but I think they chose the Czech Republic because our municipal sites were ready to go, they were at a more advanced stage. We also put forward the money to develop transport infrastructure, connect the plant with the nearest highway and develop rail links.”

Investment plateau

The automotive sector in the Czech Republic has enjoyed a sustained period of growth, but Svajcr says that he has seen a considerable decline in new venture investment inquiries. “We have not opened a new automotive plant in 2009,” says Svajcr. “It’s the first time in 20 years this has happened.

Hyundai had its ground-breaking ceremony in 2007, and in 2008 we had a series of Tier One suppliers opening around the Kia plant (located in Zilina, Slovakia, close to the Czech Republic border), but there has been nothing in 2009.”

Already home to 46 of the top 100 automotive suppliers, including Federal Mogul, Arcelor Mittal and Continental, Svajcr attributes the change to the country’s shortage of labour.

All in the numbers

Recent economic predictions for the Czech Republic have been wildly optimistic. In 2008, the forecasted gross domestic product (GDP) for 2009 stood at 4.6%. By the end of the second quarter this year the actual figure stood at –5.5%. “We anticipate the GDP for 2009 to be about –4.0%,” says Svajcr. Rising unemployment figures reinforce the declining growth rate. In December 2008, unemployment stood at 5.2% of the population; by August this year, that had increased to 8.5%.

The unemployment rate flies in the face of a claimed labour shortage. “Many of those can’t or will not work,” says Pavel Chovanec, Senior Project Manger in CzechInvest’s Sourcing Section. “The perception is that anything under 9% is an acceptable unemployment number. We have special programmes to allow foreign workers to come in and work; they were offered air tickets home, with an additional €500 in spending money.”

Chovanec believes that carmakers could help attract the out-of-work back into employment. “We would like to see a significant increase in the wages paid to automotive workers.

The average monthly wage for an autoworker is about CZK23,000, a little over $1,000. It’s less than the average Czech salary. The wages could be higher, but then the cost of the product would be higher.”

Euro goal

The Czech Republic is already a member of the European Union, but Vit Svajcr considers it vital that the country also joins the euro currency. As the Czech government is currently dealing with a budget gap of CZK250 billion ($14bn), it does not yet meet Maastricht Treaty guidelines for entry into the so-called common currency, but Svajcr believes joining the euro will help promote further investment.

“Only a small percentage of completed parts are made of entirely Czech-produced product. In many cases, you must import something and this affects the final price. If you make injection mouldings, you purchase raw material from Italy in euro, using Czech crowns, and it hurts the final part price.”

The Czech government has announced that it anticipates meeting euro application criteria in 2011, but as fiscal guidelines must be maintained for three years before full entry, the earliest the country could join the common currency would be 2014.

According to Svajcr, 20% of all jobs in the Czech Republic are related to the automotive industry. Suppliers were badly affected when GM and Ford cut production numbers as a result of falling sales, as both companies had been purchasing parts in the Czech Republic. Svajcr says it would help these companies compete for new contracts if they were dealing in euros.

“We could say that the Czech Republic is full in terms of automotive investment” –Vit Svajcr, CzechInvest Matter of perspective Upon examination, it appears that there are two sides to the automotive industry in the Czech Republic. On the one hand, OEMs are doing well. The vehicles being delivered to market match the current consumer appetite and, supported by incentives, sales remain comparatively strong. There could still be a backlash when incentives are withdrawn, but these companies should be better placed in having had additional time to address production flexibility issues. In the Škoda bodyshop, 400 of the 1,300 employees are agency workers.

Meanwhile, CzechInvest’s Vit Svajcr says he does not expect any major new automotive investment in the Czech Republic for the next five years. Targeting technology-based operations is a wise choice, but it’s unlikely this sector alone will match the potential benefit represented by the construction of any new OEM or Tier supplier plants.