and Womack, 1984, p. 38). Even these small exports had problems due to their low quality in the West, resulting in a deterioration of the regional car industry in the late
1970s and early 1980s (EIU, 1989, pp. 28-30).
Since 1989, the development of the former Soviet Union and East Central European car industry has fundamentally changed. The initial impact of the transition from a planned economy to a market system in these countries was a fall in production. The most significant problem was the chronic shortage of hard currency that restricted opportunities to import advanced Western technology (EIU, 1991, pp. 31-4).
Moreover, the process of transformation of large State automotive enterprises in these countries has been seen as problematic because they are too large to enjoy full transformation based on only the free market system, but not large enough to compete with Western car manufacturers in the open economies of the region. The governments in the region have thus promoted the car industry by attracting foreign car manufacturers through investment incentives, privatisation, and liberalisation programmes since 1991.
Coinciding with the concerns of regional governments, foreign car manufacturers have shown interest in the regional car industry. Many leading car manufacturers, such as Fiat and Mercedes-Benz, have considered direct investment in Russia, but due to political and economic difficulties, have not become involved in Russian production
{M otor Business International, 1st quarter, 1996, pp. 44-45).
In the former Czechoslovakia, VW obtained a majority stake in both the Skoda and in the Bratislava (Baz)15 factories in 1990. VW plans to manufacture 450,000 units annually and assemble its Passat and Golf models from semi-knocked down (SKD) kits
in Baz (Business Central Europe, March 1995, p. 7 and W ard’s Autom otive International, August 1995, p. 13). Skoda has undergone a transformation with new models and facilities since VW ’s involvement began and even plans to establish an assembly plant in Russia in 1995 (Financial Time, October 6, 1995). However, the company’s production has not increased (in 1994 its production decreased to about
173,000 units) and its export performance is very limited {M otor Business International,
3rd quarter, 1996, pp. 173-4). It seems that although Skoda has ambitious plans to be a major car producer in the world auto industry, it has not yet shown significant performance.
In Poland, Fiat has a long history of co-operation with Polish car manufacturers. Fiat acquired a 90 per cent stake in the FSM plant in 1992 and became fully operational in 1993 {European M otor Business, 1st quarter, 1994, pp. 55-58). Unlike the case of the FSM company, which focuses on the domestic market and exports to Fiat for sale in the W est, the largest Polish car manufacturer, FSO, chose Daewoo M otor as a joint venture partner to become an exporter in 199516 {Financial Times, October 27, 1995).
The Romanian company that has produced the Oltcit, also established a joint venture company, Rodae Automobile, with Daewoo M otor to innovate its technology and production facility in 1994 {International M otor Business, 3rd quarter, 1995, p. 111). The largest car manufacturer, Pitesti, which manufactured the Dacia, still seems to be waiting for a transformation, which would require foreign capital and technology.
In general, despite the fact that most car manufacturers in the former Soviet Union and East Central Europe began restructuring their production operations and modernising manufacturing technology in the form of joint ventures with foreign car producers in the early 1990s, they have shown little capacity to develop new designs and
16 Daewoo Motor also decided to invest $350 million in the FSL to assemble 50,000 cars and 40,000 vans per year in 1995 (Financial Times, September 6, 1995).
production systems in order to increase competitiveness in the world market. In addition, current performance in production and exports of the car manufacturers in the region has been modest. However, the potential to participate in the world car industry in the future should not be ruled out.
Among Latin American countries, the Brazilian car industry already began assembling cars by Ford and GM from the 1920s, but the development of a national car industry was launched in the 1950s by national decree (Mukherjee and Sastry, 1996, p. 76). The car industry basically began as part of the government’s goal of import substitution. Foreign auto manufacturers, such as VW, GM, and Ford, participated in Brazilian car manufacturing with full management control and favourable government investment incentives under a totally protected growth market, and continued to expand production facilities.
Due to the government’s import substitute policy, the average car sold in Brazil had over 90 per cent local content on the basis of manufacturing value added by 1962 (Altsheler, Anderson, Jones, Roos and Womack, 1984, p. 39). During this period, however, it was found that Brazilian cars were not competitive due to the high production costs per unit. This was largely attributed to the lack of a scale-economy exploitation, resulting from a small market shared by a large number of car manufacturers, excess plant capacity as well as low labour productivity. In 1967, the cost of the Brazilian car was 60 per cent more than similar models manufactured in the United States and Europe with much lower wages (in fact, labour costs in car manufacturing does not have any important merit as these costs are a small proportion of total costs) (Altsheler, Anderson, Jones, Roos and Womack, 1984, p. 38). Brazilian labour productivity also lagged behind the United States and Western European annual
average of 11.6 vehicles per worker, at Ford-U.S., and 14 at GM-Opel in 1970 (Flink, 1988, p. 352).
However, the government adopted policies to create a demand for expensive domestic cars by: (1) establishing a nation - wide financing system for car purchases at lower interest rates; (2) imposing low taxes on cars; and (3) prohibiting imports of motor vehicles produced elsewhere. Owing to these policies, car production rapidly increased in the early 1970s. Car production was 343,700 units in 1970, and increased to 600,100 units in 1973.
In 1972, the government also endeavoured to export cars by initiating the Special Fiscal Benefits Program for Exports, a programme which included granting MNEs that operated in the Brazilian auto industry large tax breaks on domestic sales, and the right to add new product lines or total capacity for domestic market with agreements for exporting a pre-determined number of finished units and components over the next decade (Altsheler, Anderson, Jones, Roos and Womack, 1984, p. 40).