Why truck manufacturers flock to eastern Europe

If you take the numbers at face value, and accept the hyperbole, then you have to conclude that the 'East' - Eastern Europe, the CIS (comprising 11 former soviet republics) et al - represents a Klondike-like boom for European truck manufacturers.  On one level, this should give us all a feeling of warmth. After all, it's nice to see people getting on, and with figures for the first half of 2007 showing registration increases of 20.2% in the Czech Republic, and a mind boggling 85.1% in Poland, anyone selling trucks in either of these markets will have nothing to complain about.

The UK's truck operators have certainly noticed this trend. Lead times for new tractor units now stretch out some way beyond the horizon on current form if you order from certain manufacturers today it will be 2009 before you take delivery. No manufacturer is going to pass up the opportunity presented by Eastern European/CIS growth, but there has been a marked impact on their ability to supply customers in their traditional Western European markets.

The economics of truck manufacturing preclude turning capacity on and off at the drop of a hat, so if that same capacity is maxed out, lead times will inevitably lengthen. At some point, a decision has to be taken about the sustainability of demand. Ultimately, you either write a cheque for additional capacity, or you don't. And the chequebooks have been dusted off during 2007. This year alone, AB Volvo has started work on an £80m truck plant in the Russian region of Kaluga, south-west of Moscow. This is due to bear fruit in 2009 with an annual capacity of 10,000 Volvo and 5,000 Renault trucks.

Earlier this year, Knorr-Bremse signed a declaration of intent that will lead to a joint venture (JV) with Russian manufacturer Kamaz also in Russia, Iveco has recently added to its existing heavy truck-oriented JV with UralAZ, and has struck a similar deal with Samotlor-NN for the production of the Daily range. Parent company Fiat has signed a similar deal with Russian manufacturer Severstal that appears to include its range of light CVs.

Russian site

The newly renamed Daimler Trucks is believed to be looking for a Russian site - in fact according to recent press reports it might be looking to establish the Freightliner and Sterling brands within the CIS. Scania has long been rumoured to be looking to establish a truck plant in Eastern Europe, adding to its two bus body factories in Poland, and earlier this year it struck a supply deal with Hungarian supplier Rába Axle.

Paccar was, apparently erroneously, reported to be contemplating adding a plant to its newly unveiled parts distribution site in Hungary. In Serbia, Iveco holds a 46% stake in Zastava Kamioni, and just for good measure India's second biggest truck manufacturer Ashok Leyland - in which Iveco used to hold a 15% stake - acquired the Czech manu-facturer Avia in 2006. In sum, Eastern Europe is where it's at.

It's definitely where MAN is at: last month it officially opened a 250,000m² plant at Niepolomice near Cracow in Southern Poland. It's on a 142-hectare site, and represents an investment just shy of £70m. At present, 400 staff are employed at the site, the workforce is scheduled to rise to 650 by the end of 2010.

Annual capacity

Trial production started in July. When it's running at full tilt Niepolomice will have an annual capacity of 15,000 units from a single shift. Production will centre around the TGA-WW (World Wide) range, which is a toughened variant of the outgoing TGA designed to cope with the tough operating conditions in Eastern Europe, the CIS and the Middle East - markets MAN expect to grow fast.

Why locate here? After all, labour rates in Poland will inevitably rise, eventually getting close to parity with Western Europe, so the short-term saving on labour costs is bound to diminish. Similarly, while the Eastern European and CIS markets are currently rocketing upwards, over time this too will settle down, and demand patterns will shift towards those seen in Western Europe. MAN's view is rather more bullish. The Niepolomice plant is not just about reducing pressure on its Western European manu-facturing capacity it's also about meeting what it expects to be long-term and sustained demand from non-traditional markets.

While it is forecasting that the overall European market above six tonnes will rise by 6% during 2007, its predictions for the Polish market suggest that business here will increase by 60%. In fact MAN chairman Anton Weinmann believes more MAN trucks will be sold in Poland next year than in the UK. Further East and demand for MANs in the CIS has risen by no less than 800% since 2005.

That said, the site has considerable room for expansion. Of its 142 hectares, only 25 are currently in use. In part, this is because 80% cent of components are shipped direct to the line - the building is surrounded by loading bays - with major assemblies such as cabs and axles unloaded from trucks and taken almost immediately to the vehicle for which they are destined. In any case there's plenty of room to develop a supplier park on site. MAN's management seems keen to do this, so Niepolomice is set to become a components centre as well as an assembly plant.

Additional capacity

Demand from Eastern Europe seems to have taken most of the European manufacturers by surprise, but they're reacting fast: the Niepolomice plant has gone from its ground breaking ceremony to full production in little over a year. MAN must be hoping that its forecasts for Eastern Europe and the CIS come true. But in the meantime this additional capacity will ease the pressure on MAN's other factories around Europe and, crucially for operators in search of a truck, it may allow lead times to be reduced. We're used to seeing trucks leaving Western European factories and heading east - it looks like that flow is about to go into reverse.