Besides Germany and China, Hungary is the only country in the world where all three German premium car manufacturers (Audi, BMW and Mercedes-Benz) are present.[1] Audi alone employs approximately 13,000 people in Hungary and it is one of Hungary’s top exporter and revenue producers. Since 1993, Audi has invested around 11.5 billion euros in Hungary. Audi’s plant at Győr produces around 2 million engines per year.[2] Overall, the German automotive industry employs around 50, 000 people in the country and generates 2.5 per cent of the Hungarian GDP. The production value of the industry rose by 165 per cent between 2010-2019, so the influence and significance of the auto manufacturing industry is on the rise in Hungary.[3]
According to the Hungarian Investment Promotion Agency (HIPA), around 92 per cent of the industry’s output is exported which means that 20 per cent of Hungary’s exports are coming from the automotive industry. 29 per cent of Hungary’s manufacturing output was produced by the automotive industry, and around 4 per cent of Hungary’s total labour force depends on these companies.[4] There are 740 Hungarian companies connected to the automobile industry which are directly dependent on German auto manufacturers.[5] On the European level it means that 3 per cent of the EU’s total car manufacturing happens in Hungary.[6]
Due to these favourable conditions, BMW has recently picked Hungary for its newest major investment to build a production line in Europe for the first time in decades
The general investment environment made Hungary a very favourable place for German FDI. Hungarian corporate tax rates at 9 per cent are the lowest in the European Union, and labour unions are in a very weak position in the country.[7] Due to these favourable conditions, BMW has recently picked Hungary for its newest major investment to build a production line in Europe for the first time in decades. The $1.15 billion deal with BMW will bring 1 000 jobs to the city of Debrecen[8]. Debrecen was a favourable choice for BMW both for the availability of high skilled workers and for its good logistical location. The 400-hectare plant in Debrecen plan to produce 150 000 cars annually, thereby, increasing the country’s domestic output by 32 per cent.[9]
While the automotive industry’s increasing contribution to the Hungarian economy is a positive development for all who find jobs in these companies, there are drawbacks to the dependence on German investment. First, the dependence on the industry makes the country somewhat economically vulnerable. Fears were deep in Hungary in 2015 when it turned out that from 11 million vehicles which were designed to cheat on emission tests, around 2.5 million were produced in Hungary. The emission scandal which shook German auto manufacturing could have had very major adverse effects on the Hungarian economy. Fears were similarly growing in 2020 when, due to the COVID-19 pandemic, manufacturing had to be closed down and German companies started to lay off people. So far, neither of these shocks were unbearable for the Hungarian economy, but the fear is always there: that the adverse effects of such a huge dependency on German auto manufacturing will one day reveal themselves.
Hungary’s dependency on German manufacturing is addictive – that is, the Hungarian government goes out of its way to keep these companies here
An additional problem with Hungary’s dependency on German manufacturing is that it is addictive – that is, the Hungarian government goes out of its way to keep these companies here. To keep the companies in the country, Hungary offered generous state subsidies to these companies. According to the Direkt36 over the last 10 years, Audi received 100 million euros in government support, and Opel got 15.3 million euros in 2011 alone.[10] The BMW plant which is being built will receive 34.4 million euros in direct support, however, including all the planned infrastructural development in the region, the actual government support the investment receives will be around 361 million euros. Hungary has “returned to them [to German auto manufacturers] as direct subsidy 44 billion forints (122 million euros) of a total of 303 billion forints (840 million euros) which was collected in corporate tax last year” wrote the Direkt36. Audi receives four times as much financial support per job in Hungary then in Germany. Beyond state subsidies, the Hungarian government is also investing in industry specific research and development so that these companies are incentivised to stay, even if the wages of low skilled workers are driven up. The government has invested in building a €124 million track for testing conventional vehicle prototypes as well as autonomous and electric vehicles in Zalaegerszeg.[11]
[1] ‘BMW GROUP TAKES OFFICIAL POSSESSION OF THE SITE IN DEBRECEN’, HIPA (video report) (2020); https://hipa.hu/bmw-group-takes-official-possession-of-the-site-in-debrecen
[2] Krisztina Than and Gergely Szakacs, ‘Hungary ready to help Audi plant return to full capacity’ (2020);https://europe.autonews.com/automakers/hungary-ready-help-audi-plant-return-full-capacity
[3] Sebastian Shehadi, “How German automotive investment in Hungary exposes the dark reality of globalisation” (2021); https://www.investmentmonitor.ai/analysis/german-automotive-investment-hungary-orban
[4] ‘AUTOMOTIVE INDUSTRY’, HIPA (image) (2018); https://hipa.hu/images/publications/hipa-automotive-industry-in-hungary_2018_09_20.pdf
[5]“ Fears grow in Hungary, Poland, Czechia, and Slovakia as German auto industry faces major trouble”, RMX (2020);https://rmx.news/article/fears-grow-in-hungary-poland-czechia-and-slovakia-as-german-auto-industry-faces-major-trouble/
[6] Peter Virovacz, ‘German carmakers still in love with Hungary’, Think.ing (2018), https://think.ing.com/articles/german-car-makers-still-in-love-with-hungary
[7] Stephan Ozsvath, ‘Hungary rolls out red carpet for German carmakers’, dw.com (2018); https://www.dw.com/en/hungary-rolls-out-red-carpet-for-german-carmakers/a-44983495
[8] Sebastian Shehadi, ‘How German automotive investment in Hungary exposes the dark reality of globalisation’, investmentmonitor.ai (2021); https://www.investmentmonitor.ai/analysis/german-automotive-investment-hungary-orban
[9] Peter Virovacz, ‘German carmakers still in love with Hungary’, Think (2018); https://think.ing.com/articles/german-car-makers-still-in-love-with-hungary
[10] Panyi Szabolcs, ‘How Orbán played Germany, Europe’s great power’, Direkt36 (2020); https://www.direkt36.hu/en/a-magyar-nemet-kapcsolatok-rejtett-tortenete/
[11] Valerie Hopkins, ‘Hungary ties growth to bumper of German carmakers’, Financial Times (2018); https://www.ft.com/content/d5f4115e-e8bb-11e8-8a85-04b8afea6ea3
