Question: What could be the consequences of the VW emissions scandal for the broader Eastern European Region (due to the presence of VW suppliers and strong integration of the region into German automotive suplly chains)? In a worst case scenario, would it be enough to brake the strongfooted recovery?
Answers: Within Eastern Europe, the greatest impact of the Volkswagen emissions scandal is expected to be on Slovakia, where the German automaker has operations, and the Czech Republic where it owns the country’s largest car maker Skoda Auto. In Poland, which also has a Volkswagen plant, the response to the revelations has been very mild.In Slovakia, the scandal could impact not only Volkswagen’s own operations in the country, where it is one of the largest employers, but local economy which is heavily reliant on car exports.
Outside Slovakia, the auto industry is also the traditional driving force of the Czech economy and makes up more than 20% of industrial output. The Czech automotive sector’s production totalled CZK853bn in 2014, making up 19% of GDP at current prices.As Volkswagen is owner of the country’s largest car maker Skoda Auto, the implications of the Volkswagen scandal have strongly resonated throughout the Czech Republic so far. The Czech transport ministry launched on September 23 an investigation to estimate the number of Volkswagen cars in the country that could be affected by the scandal involving falsified emissions tests. Skoda Auto has said it no longer uses Volkswagen diesel engines of the type involved in the scandal. It did, however, use the engines in older versions of its models. The ministry said it is ready to call in owners of affected vehicles for free checks and potential fixes. The scandal will likely take its toll on Skoda, which has already started to feel the effects of a slowdown in China, its largest single market. Still, the impact on Skoda and the whole Czech auto industry is expected to be rather low, since Skoda is not expected to be directly accused of cheating. Relatively little fallout is expected in Poland too, where car production is responsible for around 8% of GDP (2014 data). This year in January-July, over 400,000 cars were produced in Poland, with the July growth coming in at 13.6% y/y. Volkswagen has slightly over 23% share in the market, behind GM at over 28% and Fiat Chrysler Automobiles Poland at 43%. Volkswagen is set to expand production in Poland in its new factory in Wrzesnia, near the western city of Poznan, to 100,000 vehicles annually starting in 2016.Poland's institutional response to the Volkswagen problems has been very mild. As of the end of last week, there were no official signals from the consumer protection watchdog UOKiK or the environmental watchdog GIOS about any moves against Volkswagen. It has been quiet from the prosecution as well. In Hungary the automotive industry accounts for up a third of the country’s industrial production. As a percentage of GDP the sector makes up around 5%-6%, so any negative effect from the VW scandal will likely hurt Hungary’s economic growth. Still, of the car manufacturers present in Hungary, Audi is the only one associated with Volkswagen. Hungary is also home to car plants run by Opel, Daimler and Suzuki Motor Corp. If Audi has to reduce its output, Hungarian industrial production, and thus the GDP growth outlook, should only marginally deteriorate, Erste said in a report. “However, if the scandal spreads systematically and other car manufacturers are also forced to revise their presence and strategies, Hungary may have to face challenges, as a third of manufacturing output is delivered by the automotive industry”, the analysts note. So far only Janos Lazar, Prime Minister Viktor Orban's chief of staff, commented on the Volkswagen scandal saying he has no plans to carry out any kinds of probes against car manufacturers present in Hungary. Relatively little impact is expected in Southeast Europe, although the region is home to a number of plants that supply Volkswagen. As export oriented country, Slovenia closely cooperates with almost all the European auto giants. Some 600 Slovenian companies currently do business for or with Volkswagen, Fiat, Peugeot and other companies. However, production at these plants is competitive, and they would most likely be able to find new partners if necessary. A decline in Volkswagen’s sales would have no major impact on the Croatian economy as it only hosts a number of relatively small-scale enterprises that supply automotive parts to foreign manufacturers. The country’s automotive industry accounts for only 1.8% of total exports, while around 90% of the revenue in the sector is generated through exports, according to Croatia’s Agency for Investments and Competitiveness. Car parts manufacturing is also important in both Bulgaria and Macedonia, however, even in the unlikely event of a complete Volkswagen, a lot of substitution would most probably will take place in the car parts sector, as each of the companies there typically supplies many carmakers, so any problems would be mostly short-term. On the consumer side, there is speculation that citizens of Serbia and other non-EU member states could be interested in buying the problematic cars second-hand if their price goes down significantly. The Volkswagen brand is one of the most popular in Serbia, and since Serbian citizens are in general not well informed about air and environmental pollution, the scandal is not expected to significantly affect the local market when it comes to end-users. It is a similar situation in Bosnia and Herzegovina and Montenegro, where the Volkswagen brand is a status symbol, while the pollution is something that is not in a focus of the majority of the population.