Car manufacturing: good news and bad news

HUNGARY - In Brief 30 Jul 2016 by Istvan Racz

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Yesterday, the local media was flooded by news and instant analysis on Mercedes' freshly announced plans to build a €1bn worth of new production complex at Kecskemét (South-Eastern Hungary). The new factory is intended to include car body production and painting units, in addition to an assembly plant to produce up to 150,000 cars per year. It will very substantially extend the existing capacities of Mercedes at the Kecskemét site, where 180,000 cars were produced in 2015, a 20% increase in that year over 2014. The new complex is planned to create 2500 new jobs, and is to be completed by 2018.Needless to say, the government is receiving the news with loud fanfares and much of proudness, to an extent presenting the story as a justification of its economic policies. Indeed, Mercedes plans were announced at a joint press conference held by the company's management and the minister of foreign affairs and economic relations, Mr. Péter Szíjjártó. And yes, the news is great, as the government, which has been making forceful attempts over the last few years to squeeze private foreign capital out of the domestic service sectors, has remained always very positive about foreign investment in the domestic manufacturing sector. But given its stubbornly poor reputation regarding the regulatory treatment of incoming FDI overall, foreign investment inflows were quite poor in recent years, and private sector fixed investment actually fell by an estimated 6% in 2015.But the new Mercedes plan is now hoped officially to mark a kind of a turnaround in FDI flows, and is estimated to raise GDP by over 1% by 2020, when the initial run-up of production by the new capacities has taken place. Mo...