ROAD TO IABM INTERVIEWS

Interview with Jakub Faryś  for ROAD to International Automotive Business Meeting 2020.

Building business relations in the automotive sector is the main goal of the International Automotive Business Meeting, during which experts and representatives of the industry from all over the world will meet online on October 20th.

Jakub Faryś is the President of the Polish Automotive Industry Association. This is an organization that dates back to 1992, when a group of car importers established the Association of Official Car Importers (SOIS). In 2003, the organization was transformed, so that both importers and vehicle manufacturers in Poland could belong to it. The union has significantly expanded the scope and type of activity, being a strong representation of the automotive industry before the media, government, parliament and other non-governmental organizations. In 2004, ZM SOIS became a member of ACEA, an organization of European vehicle manufacturers, as well as 21 organizations representing the automotive industry in the Member States of the European Union. He is also a member of ACEM – an association of European motorcycle manufacturers and is an active member of CLCCR – the European Association of Body, Trailer and Semitrailer Manufacturers. The Polish Automotive Industry Association has been the binding name of the organization since 2006. The organization currently has 53 members.

 

What is the atmosphere in Poland around the investments into the automotive market?

Jakub Faryś: Poland is the 5th-6th country in Europe when it comes to the production of parts and vehicles. In value terms, the production of parts and components weighs more than the production of vehicles.

In 2018, the revenues of automotive manufacturers in Poland reached EUR 38.5 billion, while revenues of companies dealing in the sale of motor vehicles, parts and accessories and repairs related to motorization amounted to EUR 49.1 billion. As indicated by Eurostat, 213.7 thous. people worked in the production segment in Poland. For comparison, in the Czech Republic it was 181.4 thousand. (KPMG)

This situation has been stabilized for years. It is worth emphasizing here that the contribution to Polish GDP or participation in exports is so significant that it is perceived and supported, but it is not at a too high, risky level as e.g. in Slovakia. In Poland, this share remains at the level of 15 – 17%, while in Slovakia, around-motor production accounts for about 40% of the total industrial production of the country. Any problems of the automotive industry there mean serious problems of the country.

In terms of the value of sold production, the automotive industry ranks second after the food industry, ahead of all other segments of the processing industry, as well as such important industries as mining and quarrying, energy, the petroleum sector and municipal services. (Automotive Industry Report 2019/2020)

Automotive is changing and the approach to motoring is changing. People are increasingly louder and visibly expecting a reduction in the number of cars. 40 years ago, bicycle as a means of transport was identified with poverty. Currently, more and more people want to move, but not necessarily by car. There will be a review over the next years of perceiving mobility; other drives and other forms of communication. You will probably need fewer cars for individual transport. Another phenomenon – “driven” by Coronavirus – is the popularization of remote work, which was an exception recently, and now it has become widespread. It was very sharply shown that it could be different than before. Maybe this will not be the need for daily home-work-home trips. Production capacity will probably have to be reduced. And this is an opportunity for Poland, which has lower labor costs, but very well-educated staff. Current analyzes show that Poland will take about 40-60 years to have a standard of living as in Germany. This means that only then will the level of earnings in Poland reach that of our western neighbors. It can therefore be safely assumed that for the next 20-30 years Poland will be competitive when it comes to labor costs.

 

Poland is not in the Eurozone, we have our own currency “Polish zloty”, whose rate is dynamically shaping against the European currency. Is this a disadvantage or an advantage for a potential investor?

 

Jakub Faryś: Of course there are minuses. Exchange rate fluctuations are inherent in this situation. In worse times of recession, the rate of such a local currency usually goes down. And this may be beneficial from the investors’ point of view, but if the investor’s strategy is to fully stabilize the business and avoid any risk, then it will be more important for him to operate in the Euro zone. Remember that there are financial mechanisms – a kind of insurance – that will protect us against adverse fluctuations. So it’s not a carousel or roulette. You can buy fixed rate guarantees. When investing, we take into account the entire range of components and then the issue of currency is one of many elements. With the current crisis, the zloty weakened by approx. 8%. Producing goods in Poland, we have it “cheaper” by 8%. Salaries in Central and Eastern Europe are comparable. Slovakia, which has adopted the Euro, has similar salaries as Poland, and this is a stable situation. To sum up, the fact that the Euro is not adopted is neither a great advantage nor a disadvantage.

And electromobility? Is this an opportunity or a threat from the point of view of the production base in Poland?

Jakub Faryś: Investors, government and all other players on the market must understand that you have to start thinking about production “for” a new reality. About half of current production of parts and components is set up for “old” mobility. These are the factories that produce parts and components for engines, transmissions, transmission systems and exhaust systems.

The fastest growing automotive subcategories within exports in 2018 included, among others, mechanical parts of engines (20.7%) as well as braking systems and their parts (11.5%). (Automotive Industry Report 2019/2020)

The other half – I can’t say that it has switched to new tracks – produces something that will still be useful. These will be, for example, plants manufacturing car seats. Half of the companies will have to change dramatically, and the other half will have to adapt to the market situation. An electric car may require slightly different seats, slightly different brake pads, but this product category will not disappear. If someone makes silencers, the future is not here. That is why it is worth to interest locally operating companies to take advantage of the possibility of producing elements unique for electric, gas or hybrid cars. On the other hand, do not fool ourselves that the conversion of combustion cars into electric cars will happen overnight. The European Commission assumes – this is an extremely optimistic scenario – that in 10 years, in 2030, we will have about 30% of electric car registrations. You need to think more smoothly about this change, but it doesn’t change the fact that you need to think about change.

ACEA has taken note of the agreement between the European Parliament and the EU Council on new CO2 emission limits for 2025 and 2030 for passenger cars and light commercial vehicles. The association believes that setting reduction targets of 37.5 percent in 2030 for passenger cars and 31 percent for light vans it is commendable, but completely unrealistic, given where the industry is located. Currently, from the beginning of 2020, manufacturers must meet the limit of 95 grams CO2 / km for passenger cars. (Automotive Industry Report 2019/2020).

Have there been any new amenities for investors recently?

Jakub Faryś: I would prefer to look at it a bit wider. You should not make decisions based on any one element that has just appeared. I think that the Polish Investment and Trade Agency is working well.

The intensity of public support for investment projects depends on the location and size of the company and can range from 10% for large companies (employing over 250 employees) in Warsaw to 70% for small companies (up to 50 employees) in 4 voivodships of eastern and north-eastern Poland .

When I try to look at the eyes of a potential investor on our country, I want to emphasize a structural difference between Poland and some other countries. I believe that Polish trade unions are definitely more focused on dialogue than in some other Western European countries. Of course, they fulfill their role as employee defense, but if the employer acts “fair”, he can count on good cooperation with crew representatives. Sometimes you can even talk about a model relationship on the line investor – trade unions and constructive dialogue, and actions are taken for the sake of jobs. Poland’s advantage should not be built on one-off moves, such as tax exemptions or special economic zones. I would prefer to have a look at business as a long-term activity, building a business position.

The tax credit pool, i.e. the amount of unpaid CIT / PIT tax, is calculated as the product of the aid intensity (the maximum amount depends on the location and size of the entrepreneur) and eligible costs (investment expenditure or two-year labor costs of new employees employed in connection with the investment). (Automotive Industry Report 2019/2020)

 

Don’t you think that in some regions of Central and Eastern Europe there is a situation of overinvestment, there is too much investment from the same industry and there is a problem with the availability of employees? Consequently, one factory has to bribe the workers of another? Does this also apply to Poland?

Jakub Faryś: There is a problem with the “workforce”. Once, employee “supply” was not a problem. The employee market has been gradually changing and the number of employees has been decreasing. The fact that borders were opened in Europe meant that many young Poles willing to work and full of energy went abroad. These people were set to develop and, after all, it took a lot of courage to pack and go to another country. The second group consists of people who often studied abroad, had an established position as high-class professionals and decided to stay there for a long time. At the same time, a mistake was made in the country related to the cessation of the development of vocational education. Again, on the other hand, there is much greater mobility of the young generation, readiness to change their place of residence inside the country. Not everyone wants or can go abroad. Please note that the “automotive basin” in Poland is Lower and Upper Silesia, Krakow and Poznan. To a much lesser extent, it is Łódź and the Tri-City (Gdańsk, Gdynia and Sopot). But Warmia and Mazury – apart from Olsztyn – cannot boast about their investments. It’s a logistics issue – there is one airport that is not well connected to Europe, and the express road network also leaves a lot to be desired.

The budget for 2014-2023 assumes the construction of  additional 253 km of highways, 2,569 km of expressways and 43 bypasses with a length of approx. 446 km. (Automotive Industry Report 2019/2020)

Don’t you think that workers from Ukraine fill the void of Poles who left to the west?

Jakub Faryś: It can be, but we should answer the basic question. First of all, it is a large group and it is said to be 2-3 million people. How much is the staff who want to get connected with Poland and create their professional path here? However, these trips are intended to be temporary and not forever. So if such an employee is to invest in training for a new job a month, then such investment, after several months of work, pays off. But if someone is 3 – 4 years old in a given area, when they think about returning to their home country, they simply do not calculate it. A large staff fluctuation must be assumed if we want to build our business plan on employees from across the eastern border.

Can the fact that the supply chain broke during the Covid epidemic – I am particularly talking about China – could affect the relocation of production here on the Old Continent under the so-called ‘Re-industrializing’ Europe?

Jakub Faryś: It depends. While some of our human behaviour will change, business rituals will not necessarily change again. One such ritual is “buy the cheapest”. This can still be China’s advantage, unless we are talking about products with a large margin, such as medicines. Moving production to Europe does not have to cause an increase in their prices, because they are offered at slightly lower margins. Remember that even though the car is a low-margin product, it consists of many parts. Production of some of them, probably the most advanced ones, could move to Europe. Another issue is that at the beginning of the epidemic it seemed that only some regions of the world would be affected, but the epidemic spread throughout the world. China and its production facilities were first marked by the effects of a pandemic, but they were also the first to return to work when the wave of disease turned westwards. Nevertheless, the difficulties caused by the closure of factories in China may have resulted in producers being more inclined to diversify their supply, as in the current situation, producers dependent on individual suppliers of parts and materials were the worst affected. They must think about having a real “back-up” in another part of the world If such decisions were made, the CEE region would probably be one of the beneficiaries of such actions, due to the already developed potential and competences in the automotive industry. Our region is a location appreciated by global corporations, including recently those associated with electromobility. According to Eurostat data, Poland in 2019 was the largest exporter of lithium-ion batteries in the entire Union, and the European Commission’s plans for the development of electric cars have not been halted, so the prospects for this market are bright.

Thank you for the interview.

About International Automotive Business Meeting

International Automotive Business Meeting (IABM) is an elite meeting of the automotive sector, which brings together industry leaders and experts, car manufacturers, the largest Tier 1 and 2 suppliers, representatives of European, Polish and local authorities, institutions and industry associations. The event is attended by over 300 representatives of companies from Poland, Europe and the largest global automotive markets such as China, Japan, India and the United States.

IABM provides independent, professional and reliable knowledge on the situation on the automotive market in Poland and worldwide. The objective of IABM is to provide a clear vision of the changes in the automotive sector in the near future and its impact on the supply chain and to determine how electromobility and advanced driver assistance systems will affect the development of the automotive sector in Poland and worldwide. IABM is a unique opportunity to gain a detailed insight into the automotive industry and new technologies associated with it, as well as build a network of contacts in the industry and acquire business partners.

During this year’s online edition of IABM each participant will have many networking opportunities . 

In the previous edition of IABM, representatives of 270 companies took part in 5 Speed Business Mixer sessions and hundreds of B2B meetings. Many of the conducted talks resulted in later cooperation between companies.

 

Detailed program and registration for the online edition will be available soon: www.iabmevent.com

Organizers: Italian Chamber of Commerce and Industry in Poland, Katowice Special Economic Zone (KSEZ) and Silesia Automotive & Advanced Manufacturing Cluster, City of Dąbrowa Górnicza.

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