Europe: go east young man...: with the west stagnant, look east for growth in '97

While the world watched this year's numerous political skirmishes in Central and Eastern Europe, automakers set their sights on the region's opening market, growing wealth and production possibilities as they laid the groundwork for current and future investment in the area.

But as they expand east, the automakers will look back to the west to see a surprisingly successful 1996, and little hope for

For 1996, Central and Eastern Europe saw rapidly increasing sales and production while Western European automakers watched as sales grew only slightly and production remained relatively flat.

For the first nine months of 1996, sales grew 216% in the central European countries of Slovenia, Slovakia, the Czech Republic, Poland and Hungary. The residents of these countries are seeing sustained increases in disposable income, and that is fueling the growth in the automotive market, says Jeffrey Glover, automotive analyst with PlanEcon Inc.

Much of that regional growth, in both sales and production, is taking place in Poland, Estimates peg purchases by the country's 40 million residents at more than 220.000 cars by the end of 1996. up 40.5% from 1995.

Part of that growth comes from General Motors Corp.'s Adam Opel AG subsidiary's plans to construct a $311-million factory in Poland, with plans calling for the production of 72,000 medium-sized cars each year starting in 1998.

David Herman, Opel chairman, man, admits GM and its subsidiaries are more interested in Eastern Europe rope then many of their competitors, even with the political and economic risks. "The question is whether one has the necessary means," he says. "We do, while most of our competitors have financial problems."

The Daewoo Group will soon be the largest foreign investor in Poland after promising to invest $1.1 billion in Fabryka Samochodow Osobowych (FSO), Poland's failing state automaker, where it plans to make 200,000 passenger cars and 20,000 commercial vehicles a year.

Foreign companies like Daewoo are hoping to use Poland as a stepping in stone into both Eastern and Western Europe. Already 10 countries - including Hungary, Poland, the Czech Republic, Slovakia, Estonia, Latvia, Lithuania, Bulgaria, Romania and Slovenia - have applied for admission to the European Union

Investments in Eastern Europe also place automakers in a closer position to the former Soviet Union, which will have an automotive explosion within the next two or three years, says Carol Thomas, automotive analyst with DRI/McGraw Hill.

"The former Soviet Union has the potential to be a much bigger market than Eastern Europe," Ms. Thomas says. An estimated 760,000 vehicles will be sold in the former Soviet Union in 1996, with that number jumping to 1.2 million by 2001.

While GM is looking toward growth in Eastern Europe, things are not going as well in the West. Louis R. Hughes, president of GM International Operations, says he wouldn't look to the Western European industry for much growth during the next year.

"I look at 1997 without a great deal of optimism." he says. "We had to work hard to get what we want to achieve."

This year's unexpected sales increase of about 6% just won't carry over to next year, says Nigel Griffiths, automotive analyst for DRI/McGRAW Hill in London. Little to no growth is expected throughout the year. A small decline is not out of the question, Mr. Griffiths says.

Individually, the year was better for some automakers than others. Mercedes-Benz AG had a 15.33% increase in sales for the first 10 months of 1996, while AB Volvo saw a 9% dip.

Profit results also were mixed in Western Europe for some of the world's top automakers. Volkswagen AG reported its after-tax profit for the first nine months of 1996 increased to $307.3 million from $122.2 million in 1995, while Ford of Europe had a third-quarter loss of $472 million.