General Motors Cuts a Deal to Assemble Autos in Poland : * Vehicles: Europe is a bright spot for the company. It earned $1 billion there last year.
General Motors Corp. and the Republic of Poland announced a $75-million project to assemble GM’s Opel-designed cars at a plant near Warsaw, one of the biggest investments by a U.S. company in that Eastern European nation.
The project--GM’s fourth manufacturing venture in Eastern Europe--reflects the stark contrast between the fortunes of the auto maker’s GM Europe unit, which is gaining market share and making profits, and GM’s shrinking, money-losing U.S. vehicle business. GM Europe earned $1 billion last year.
Already, GM has invested more than $800 million in Eastern Europe, even as it carries out plans to shut down 21 North American factories and eliminate 74,000 domestic jobs in the next three years.
GM and the Polish ministries of privatization, industry and finance said negotiations are also under way on more ambitious projects that could boost investment beyond $300 million by 1996.
“What needs to be pointed out is that this has absolutely nothing to do with the United States,” said Ronald Theis, a Detroit-based spokesman for GM’s international operations. “It is funded entirely by European borrowings and earnings, and is a step in ensuring a viable position in the growing European market. None of the vehicles will be exported to North America.”
Volkswagen and Fiat have been the most aggressive European auto companies to move into Eastern Europe. The only other U.S. auto firm to venture there so far has been Ford Motor Co., which is building an $80-million fuel pump plant in Hungary for export to its Western Europe assembly operations.
Ford officials and executives of Japanese auto makers have expressed doubts about the immediate value of investing heavily in Eastern Europe, questioning whether consumers will have enough money to buy cars and pointing out that other areas of the world are growing faster. Americans have also complained of bureaucratic red tape; GM abandoned a transmission plant in Czechoslovakia last year because of political problems.
GM’s Poland project is more modest than Polish officials had been hinting at and is smaller than Italian auto maker Fiat’s Polish undertakings. But government leaders attach great importance to GM’s involvement, hoping it will attract more Western investors.
The deal is sketched out in a memorandum of agreement between GM and Fabryka Samochodow Osobowych (FSO), a Polish auto firm, that calls for assembly of 35,000 Opel Astra cars annually with components imported from Western Europe. FSO’s initials in Polish stand for Passenger Car Factory.
Opel is GM Europe’s main vehicle nameplate. Most of the Opels assembled in the FSO plant will be sold in Poland, but could eventually be exported to Western Europe, where the all-new Astra is already on the market.
GM will be majority partner in the joint venture, but the percentage of ownership hasn’t been determined. The up to $75 million would include existing FSO facilities, equipment and land, whose value hasn’t been decided either.
The agreement points toward broader aspirations, including a joint study team to explore a replacement for FSO’s 1970s-vintage Polonez model, GM help in upgrading FSO’s operations and links between Polish auto supply firms and GM’s automotive components group.
GM said it is already negotiating the joint production of auto suspension components with FA Krasnow, a Polish firm, in the town of Krosno.
“The $75 million is an initial step, but there will be a multiplier effect,” said Robert Eaton, president of GM Europe. “I think if our project with FSO materializes, our investment will exceed the amount invested in Hungary.”
Eaton was referring to two Hungarian projects valued at $300 million. A $200-million engine and car assembly complex in Szentgotthard will begin production for export in two weeks in a joint venture with a Hungarian firm, and GM’s Packard Electric division has begun making wiring harnesses in another joint venture in western Hungary.
GM’s AC Spark Plug Division, meanwhile, has become the exclusive customer of a spark plug factory in Veszprem, Hungary, and is negotiating to establish a joint venture there.
The U.S. company’s biggest investment to date is a $650-million assembly plant under construction in Eisenach, in the former East Germany. It is to begin car production this fall.
GM’s scramble in Eastern Europe is part of a longer-term expansion across Europe that doesn’t seem to have lost momentum in the face of the parent company’s loss of $4.5 billion last year, the worst ever by an American corporation.
GM Europe is moving quickly in hopes of blunting the entry into Europe of Japanese auto makers, whose U.S. successes have had so much to do with GM’s woes at home.
