Audi Project IB

ITM Business School,
Navi Mumbai
A Project Report
A PROJECT ON “STUDY OF EUROPEAN

CAR INDUSTRY” WITH MAIN FOCUS ON
AUDI
Submitted by:
ABHISHEK JAIN (06)
Submitted to
PRASHANT CHAUHAN
Prof. B.V.R. Murty
(37)
SAURABH BOSE (41)
PANKAJ KHATRI (58)
PGDM IB 09-11
[AUDI HUNGARY] Page 2
CERTIFICATE
I hereby declare that Mr. Abhishek Jain, Prashant Chauhan, Saurabh

Bose and Pankaj Khatri (PGDM-IB), of 2009-11 batch, have successfully
completed a project on “The study of European Car Market with focus
on AUDI” under my supervision. I also declare that the project entitled is a
secondary data research work.
……………………………………..
Prof. B.V.R Murty
(Facu
lty Guide)
ITM Business School
Navi Mumbai

DECLARATION
To whomsoever it may concern
We hereby declare that the project entitled “The study of European Car
market with focus on AUDI” is based on the secondary information and
the first hand information provided by the company itself. It is done under
the guidance of company attendant and my faculty guide Prof. B.V.R.
Murty.
………………………………
Abhishek Jain
Prashant Chauhan
Saurabh Bose
Pankaj Khatri
PGDM-IB 09-11
ITM Business School

Navi Mumbai

ACKNOWLEDGEMENT
We would like to express my deepest gratitude and appreciation to our

faculty guide Prof. B V R Murty whose support and guidance has
transcended our project to great levels.
We would like to thank Prof. Jozsal (ESSCA, Budapest). He continually and

convincingly conveyed the spirit of motivation and support in regard to this
project.
Without their guidance and persistent help, this project on “Study of

European Car Industry” would have been far from possible.
We would also like to lend our sincere gratitude to Mr. Olivér Gábor (AUDI,
Györ) who has helped us to pursue our project and whose continuous
guidance and support has helped us to successfully complete the project.
We would also like to express our sincere gratitude to Prof. Deepthy

Raghvendra for lending her support and guidance whenever we required.

EXECUTIVE SUMMARY
The objective of this research is to analyze the European Car Market and
who are the major players. This research also helps us to know the major
suppliers. The other main objective of this research is to understand the
manufacturing assembly process of cars and the corporate culture of AUDI,
Hungary. Our research is purely based on the secondary information and the
first hand information available to us from the company attendant. Through
this research we come to know that Europe is still ahead in the lead of
manufacturing of Cars. Hungary is becoming the favorite destination for an
auto manufacturing company to setup its assembly line. The environmental
and political factors are the keys to attract the major players. The project was
concluded with some recommendations to overcome the areas of concern
and to enhance the effectiveness of the scheme. The global downturn had an
adverse effect on the European Automobiles.
Our research has find out that the organization culture of AUDI, Hungary is
very vibrant and sound and it is backed by German culture. AUDI Hungary
is the largest exporter of the engines. It is also manufacturing only TT
model. The various technologies are emerging which will helps the car
makers to produce cars which are more eco-friendly. The marketing
opportunities are emerging day by day which is going to help the Indian car
market. India is also becoming the major destinations for these giants.
The project was concluded with some recommendations to overcome the
areas of concern and to enhance the business.

CONTENTS
1. Introduction………………………………………………………………6
2. Literature Survey
i. European Car Market………………………………………………..7
ii. Innovation and R&D……………………………………………….15
iii. Hungarian Car Market……………………………………………...20
iv. Reasons for the Decline…………………………………………….23
v. Investment scenario in Hungary……………………………………26
vi. Why to invest in Hungary…………………………………………..33
vii. Major Automotive suppliers in Hungary…………………………...41
3. Company Profile
i. Audi Hungary……………………………………………………....42
ii. AUDI TT (Sports Car division)…………………………………….44
4. Company Analysis……………………………………………………….45
5. Industry Analysis
i. Suzuki in Hungary………………………………………………….47
ii. Mercedes in Hungary………………………………………………48
iii. Recent investment in Hungary……………………………………..50
iv. Why India………………………………………………………….53
6. Conclusion………………………………………………………………55
7. Recommendations………………………………………………………58
8. References………………………………………………………………59

INTRODUCTION
Objectives Of The Report
• To study different car makers in Europe.
• To compare the European, Hungarian and Indian automobile market.
• To analyze the reasons for downturn in automobile market.
• To understand the organizational culture of AUDI, Hungary.
• To know the potential investment in Hungary.
• To understand the new technical designs.
• To know the major suppliers and dealers.
Research Methodology
We have collected information through secondary sources of data

collection. The study is based on the collection of data from internet
through e-journals, reports, etc.
• Hungary Autos Report.

• The Auto channel.
• Hungarian Investment & Trade Development Agency.
• Business week.

Limitations
• The research was purely based on secondary data and all the data
collection was done through internet.
• There was no first hand information by the investing companies in
Hungary.
• Time constraint.

EUROPEAN CAR MARKET
From its meager origins of only six Western European members in 1956, the
European Community has transformed into the European Union (EU), which
expanded again from 15 to 25 members on May 1, 2004, with the accession
of 10 Central and Eastern European and Mediterranean countries (Cyprus,
the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia, and Slovenia). Today, the EU is composed of 27
member states, with the addition of Bulgaria and Romania in 2007.
Moreover, additional countries are engaged in negotiations and waiting in
the wings for membership to include: Turkey, Serbia, and Croatia,
with Croatia possibly joining as early as next year, during 2011.
The top five CEE automotive markets in terms of sales and production are:
the Czech Republic, Hungary, Poland, Romania, and Slovakia. Over the past
few years, as Western Europe has stagnated, the new EU members from the
CEE have contributed what little growth there is in the overall European
automotive market. However, with the arrival of the world recession,
ACEA (the European Automobile Trade Association), reported that overall
European new passenger car registrations in 2008 recorded the sharpest
decline since 1993, by 7.8% to 14.7 million units. Specifically, Western
European demand contracted by 8.4%, while sales in new EU Member states
were down 10.7%; the sharpest decline since ACEA started reporting figures
for this region in 2004. In an effort to respond to this decline, incentive
programs were implemented across many of the Western European countries
during 2009, and ACEA reports that overall EU registrations improved to
15.8 million units. However, it was Western European sales that fared better
overall than CEE sales given the extensive national fleet renewal and
scrappage schemes introduced to counter these downward trends.

Production

MOTOR VEHICLE PRODUCTION IN EUROPE BY COUNTRY
The graph shows the production of passenger car vehicles.

If we compare the production of passenger car vehicle of EU with the world
we see that it is almost 30%.
Total Employment Generated:
The automotive sector in Europe is highly competitive. It supports 12

million jobs, contributing significantly to economic prosperity.

International Trade
In 2009, the automotive sector has experienced a positive trade balance of
28.6 billion euro, or 35.1% less than from previous year. This decrease is
note first time in last four years due to worldwide crisis. EU has exported
53.8 bn euro worth of motor vehicles, and imported 25.2 bn euro worth of
motor vehicles
The global framework in which vehicle manufacturers do business is
increasingly important. Export growth in emerging markets like China and
Russia, investment in resources abroad and the economic downturn at home
reinforce the goal of trade without barriers. Global trade agreements that
deliver free markets are most beneficial. The automotive sector fully
supports the gradual dismantling of EU import duties, but this concession
must be accompanied by equivalent opportunities abroad for European
manufacturers.

Innovation, Research & Development
Automotive sector is the largest private investor in R&D. Every year 20

billion euros is invested by the industry that is almost 4% of its turnover.
R & D develops technology that reduces the chances of road causalities and
improving vehicle and environmental performance. The another step is to
bring ready technologies to market cause it takes a long time to make R&D
potential a reality.

New Technologies
Safety
The new technical advancement is made in the direction of Cooperative
systems based on vehicle-to-vehicle and vehicle-to-infrastructure
communication. This is done to improve the safety on the roads.
Energy and Environment

A total of 15,244,416 cars are produced in the year 2009.
Overall, Europe is dominated by European manufacturers based throughout
the continent. The largest foreign companies are Ford, Toyota, and Opel
(which was owned by GM in 2008). The European market starkly contrasts
the US auto industry with over 80% of sales being cars, and the cars are
generally much smaller than the ones preferred by the US consumer. Europe
is also much more diverse in their number of auto companies, where most
auto companies have single digit market share. This mix prevents any single
company from suffering the losses of the US companies and the steady
consumer preference for cars allowed most companies to remain
competitive.
In the last three months Opel has been sold to European based Magna
company. Magna will be new to selling and designing new cars but is very
familiar to manufacturing them. Opel is expected to be reorganized under the
new ownership to increase profitability. Opel had been struggle years before
the economic crisis and had overcapacity and disagreements with unions in
Germany. It is yet to be seen how Magna will use the new Opel unit and its
effect on the European market.
Below is a brief description of Europe’s auto market by manufacturer:
Data as of January 2009:
%Market Share % Change

VW: 10.7 -3.8
Ford: 8.3 -4.1
Opel: 7.9 -14
Renault: 7.5 -8.8
Peugeot: 6.8 -9
Fiat: 6.5 -2
Citroen: 5.8 -9.2
Toyota: 5.3 -11.8
Source: Eurostat 2009

HUNGARY
Hungary is one of central eastern European country having its official name
as republic of Hungary. Its widespread over the area of 93030km2. It is a
landlocked country, strategic location astride main land routes between
Western Europe and Balkan Peninsula as well as between Ukraine and
Mediterranean basin. It is a rich country in terms of natural resources
like bauxite, coal, natural gas, fertile soils, arable land. Its per capita
GDP is EUR 15,700/ USD 20,230 (2008, wiiw, EIU) having its composition
as EUR 15,700/ USD 20,230 (2008, wiiw, EIU). GDP growth in Hungary
has been driven by the expansion of export and investments. Between 2001
and 2008 export growth was exceptionally high (11.5%) and the structure of
export showed a favourable trend: after 1998 the share of technology-
intensive and high value added sectors such as machinery, transportation
equipments, and ICT products grew significantly.

HUNGARIAN CAR MARKET
The automotive sector is one of Hungary's core industries and contributes 20

per cent of total exports. In 2007, vehicle sales outside Hungary were worth
EUR 8.2 billion and engines accounted for EUR 5.3 billion. Over 600
companies employing a total of 100,000 people are active in the sector. Of
these enterprises, 240 operate according to the ISO and/or TS 16949 quality
management standards. The export ratio of Hungarian made cars is 94 per
cent, a figure that stands at 88 per cent for engine and component
production.
The number of first- and second-tier equipment manufacturers is continually

rising. Since the early 1990s, several foreign car manufacturers, such as
Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier 1
suppliers, have set up production facilities in Hungary.
But currently, similar to US and Europe automobile market, a steep

downward trend in auto sales and production was happening in Hungary,
and is expected to persist through the rest of the 2009 as a widespread
contraction in Hungary’s economy. New car sales in Hungary fell by nearly

46% year-on-year (y-o-y) to 7,164 units in February 2009, according to the
Association des Constructeurs Européens d' Automobiles (ACEA).New car
sales in Hungary fell by 33.7% year-on-year to 26,372 units at the first
quarter. The chairman of the Hungarian Car Importers Association (MGE)
has said that new vehicle sales could plunge by nearly 50% this year to
85,000-90,000 units, while the group's earlier forecast had been for sales to
fall to 120,000 units. The commercial vehicle segment is also feeling the
effects of the sliming economy as business cut back on purchasing new
company cars. In the quarter of 2009, total sales of light commercial vehicles
(LCVs) dropped by 30.1% y-o-y, according to the ACEA.
To react to the hard situation, manufactures are making cost-cutting moves

and slowing down operations at their facilities. Germany’s Audi shut car
production and scaled back engine production at its Gyor plant before and
after the Easter holiday in April. The automaker made similar production
cuts during the Christmas holiday in 2008 and then again in February, with
further plans to close the plant for three weeks in August. General Motors
Powertrain (GM Powertrain), the Hungarian subsidiary of US group General
Motors (GM), moved to a four-day week from mid-April at its engine and
transmissions manufacturing plant in Szentgotthard, although later that
month, the plant' s CEO said that the cutback could be temporary. Since
January 2009, Suzuki Motor’s Hungarian plant has operated on a two-shift, 5
working days basis, resulting in the loss of 1.200 workers. The market
leader, which relies on export-driven growth, expects production to fall to
210,000 units in 2009, which is compared to 282,000 units in 2008.
However, compared to this dull trend, many suppliers still see Hungary as an
attractive location for investment over the long term. German parts supplier
Continental is looking to move one of its production units from Spain to
Hungary. ContiTech Fluid Automotive Hungary, the supplier’s fluid
technology division in the country, will be reportedly investing nearly EUR5
million for the installation of vulcanizing furnaces, the extruder lines and
assembling machines at its plants in Makó and Vac.
Part of the reason can be traced back to the special feature of Hungary
automotive investment market that the investment has been concentrated in
automobile component production, while the assembly and manufacture of
cars has played a secondary role. The form of this feature is influenced by
many factors, e.g. the price of labor is relatively low in Hungary compared
to other countries.
Generally, according to the Hungary Autos report Q2 2009, the car sales are
expected to fall by at least 8% y-o-y in 2009. With some economic recovery
expected in H210, the forecasted car sales to end that year is at almost the
same level as 2009, growing by a negligible 0.5%y-o-y in 2010. On the
whole the passenger car market is set for slow recovery, not reaching 2007
levers until 2013.
Here below are the figures of new passenger car registration in Hungary:

REASONS FOR THE DECLINE
The exploration of the US and European market show that the declines are
much more localized than general global recession. The US market suffered
deeper declines of 18% compared to Europe’s 7%, so the explanation must
be more than the general economy. The US auto market was considered to
have two difficult obstacles to overcome in 2008.
First, the recession started in December 2007 in the United States so the
entire year was plagued by a shrinking economy and poor consumer
confidence. Unemployment rates started to rise in the beginning of the year
and the housing market was in dire straights for a year already. These are
key indicators to new cars sales because individuals in America use home
equity loans to purchase cars and individuals cannot obtain the credit needed
to buy a car if they are not employed.
The second incident causing the decline of US auto sales was the rapid rise
in petrol prices in the spring and summer months. Barrels of crude oil nearly
doubled within 6 months in 2008 from 70 USD to 140 USD and caused
petrol prices to double as well. The high petrol prices caused consumers to
stop buying trucks and SUVs because their poor petrol efficiency and some
opted to purchasing a car instead. Some consumers that were put off by the
high petrol prices opted not to buy in hopes for cheaper petrol prices and
delayed a purchase for another year. The high petrol prices are the cause for
increase in car sales, loss of US manufacturers market share in 2008, and
decline in overall industry sales.
The US government has not done much action to stimulate the auto industry
for consumers. In the stimulus package passed by the Obama administration
in February 2009 the federal government allowed taxes paid on the purchase
of new vehicles to be deductible. This however, only amounts to be around
200 or 300 USD in savings for the consumer and will not be realized till the
taxes are filed in the first half of 2010. The government has performed
several emergency loans to help GM and Chrysler to remain in businesses
and several divisions have been sold off.
Europe’s decline can be mostly explained by the global recession. This is

evident in the disparities in the change in auto sales according to country.
The countries that saw the largest decline, like the UK, were the countries
that were hardest hit the recession with high unemployment and housing
declines. France, whom had the smallest decline in Europe, did not enter the
recession until the last month of 2008 and explains why sales remained fairly
stable. Germany was hit hard by the recession but strong government action
stimulated the consumers to purchase new cars. Their program involved
consumers turning in old fuel inefficient cars and receiving government
credit worth a few thousand euros for a new car.
Hungary is facing its most trying economic challenge since its post-
communist transition of the early 1990s. While growth is contracting across
Europe, Hungary's recession is expected to be particularly deep. There are
significant risk factors: falling domestic demand, declining GDP growth, the
sliding value of the forint, rising unemployment, government austerity
measures. Compared to Europe, Hungarian auto sector is being hit on two
fronts: on the one hand, consumers are tightening their wallets, which is
pulling down domestic sales. New car sales in Hungary show a strong
correlation with economic growth and with the change in disposable income
of the population. On the other hand, falling export demand is forcing
manufactures to scale back production and dismiss workers. So the global
economic downturn has dried up demand for autos both at home and in key
export markets in Western Europe.
Once the global economy picks up again, especially in the Europe, output
should begin to rise. The scrap page plans announced by several European
governments may also provide short-term support for exports.

INVESTMENT IN HUNGARY
FDI
Since the beginning of the transition to democratic market economy at the

end of the 1980s, Hungary has attracted a steady stream of foreign capital,
well-balanced across the various sectors of the economy. Hungary, a country
of 10 million inhabitants, can currently boast of having attracted Foreign
Direct Investment (FDI) of more than 60 billion Euros to date which
represents the highest per capita rate in the Central-Eastern European region.
FDI nflow data in 2008 do not show the effect of the global economic crisis
yet.
FDI stock per capita in the CEE region, 2008

Source: wiiw, Analysis and forecasts, 2009
In the early 1990s, market-based privatization, a unique phenomenon in the

region at that time, was the main incentive for foreign investment - although
even then investments in new industrial facilities were becoming
increasingly frequent. Foreign direct investment (FDI) has been crucial in
boosting economic performance and remains the driving force behind
Hungary's economic success, fuelling its strong export growth and
significantly increasing productivity.
A new structure for Foreign Direct Investment (FDI)
While privatisation is still in progress in other central European countries,

Hungary has been focusing more intensively on the introduction of advanced
technologies and innovation into production of goods representing higher
added value. Investment in the automotive sector, research and development,
ICT, biotechnology, shared services operations and logistics has become

especially important. Today, not only have a number of the largest
multinational manufacturers and service providers established their facilities
in Hungary, their major international suppliers have also come and brought
along their subcontractors with them. Currently there are more than 30,000
companies operating with foreign participation in Hungary.
FDI Stock in Hungary by Sectors
Nearly half of foreign investments in Hungary have been cumulated in the

manufacturing sector. At the beginning of the 1990's manufacturing was the
main target of all investments. Since 1995, however, services have gained
grounds as well, partly because privatization in the services sector started
later than in the manufacturing sector. Also, in the late 1990s, as other
Visegrád countries opened up their markets and started privatisation
Hungary had to face more competition in the manufacturing sector. Today
FDI spreads more evenly among sectors in Hungary than in other countries
in the region.
Source: Hungarian National Bank, 2009

Distribution of FDI by the most important sectors
Real estate and business services: 20%
Transportation equipment: 11%
Financial services: 12.3%
Electronics: 6%
Energy and water: 5%
Food: 3%
Metals: 3%
Chemicals and pharmaceuticals: 2%
Machinery: 2%
Plastic and rubber: 1%
Source: wiiw, Analysis and forecasts, 2009

FDI Stock by Countries of Origin
Like in other CEE countries, foreign investors from the EU-15 countries
have accounted for the majority of investments (79%) in Hungary
(Hungarian National Bank, 2009). Geographical proximity and historical
links explain the dominance of the European investors.
Germany is by far the most important country of origin with 25% of all FDI,
followed by the Netherlands (14%) and Austria (13%). The United States
has been the largest non-European investor (5%) and in many cases the
investments going through the Netherlands and other European countries
also originate from the US. Among the Asian countries Japan and South-
Korea have played an increasing role in FDI.

Source: Hungarian National Bank, 2009
Contrary to expectations, in 2008, FDI inflow to Hungary did not decrease

compared to 2007, and reached EUR 4.4 billion (Hungarian National Bank,
2009). In line with global trends, however, in 2009 and 2010 FDI inflow is
expected to fall to EUR 1.5-2.5 billion in Hungary (EIU, 2008; wiiw, 2009).
However, experts forecast a recovery in 2011. The new EU-12 region is
likely to keep its favourable position as an investment destination and
Hungary may again receive an annual average of EUR 3.5-4 billion FDI in
the medium term.
AUTOMOTIVE SECTOR
The automotive sector is one of Hungary's core industries and contributes 20

per cent of total exports. In 2007, vehicle sales outside Hungary were worth
EUR 8.2 billion and engines accounted for EUR 5.3 billion. Over 600
companies employing a total of 100,000 people are active in the sector. Of
these enterprises, 240 operate according to the ISO and/or TS 16949 quality
management standards. The export ratio of Hungarian made cars is 94 per
cent, a figure that stands at 88 per cent for engine and component
production. There are total 630 automotive companies in hungary out of
which 290 have quality certificates. In the year 2007, 290,235 passenger

cars, 5,045 commercial vehicles and buses and 50,000 motor cycles wer
manufactured.
The number of first- and second-tier equipment manufacturers is continually

rising. Since the early 1990s, several foreign car manufacturers, such as
Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier 1
suppliers, have set up production facilities in Hungary.
WHY TO INVEST IN HUNGARIAN AUTOMOTIVE

SECTOR
• Tradition of innovation
• Access to a talented, creative, flexible and qualified labour pool at
competitive costs
• Central location - a possible hub for Europe
• Excellent local supplier network
• Major automotive suppliers in Hungary
Tradition of innovation
Innovation has always been a tradition for hungarians. The hungarian

automotive industry recently celebrated its centennial in year 2006. Hungary
has been a large contributor in terms of science and technology. Major
Hungarian scientific and technical contributions include:

o electrical engine (1828) - Dr. Ányos Jedlik
o carburettor (1890) - János Csonka and Donát Bánki
o NASA's Moon Rover and Mars vehicles (1961–1988) - Ferenc
Pavlics
o BMW diesel engine development (1981–1999) - Ferenc Anisits
o safety concept of vehicles (1939-1972) - Béla Barényi
o combined engine charger system (1968) - Gyula Cser
o organizer of Ford-T's mass production (1905-15) - József Galamb
Access to a talented, creative, flexible and qualified labour pool at

competitive costs
Hungarian automotive industry consists of 100,000 employees which are

well trained and educated. Major cities provied world class training and
Universities in Hungary educating engineers:

To go by the composition, Over 50% are mechanical engineers, 11%
information-systems engineers, 10% electrical engineers, 9% automotive
engineers and 39 % quality-assurance engineers and chemical engineers out
of which Nearly 20% of engineers are engaged in product-improvement,
while the rest are active in technological development, production, quality
assurance and sales. Though the wages are lower as compared to western
europe,productivity level is still high.

Labour Market
Hungary’s labour force of about 4.2 million is highly educated and highly
skilled.
About two-thirds of the employed population has completed some form of

secondary, technical or vocational education. Hungary has great traditions
and high standards in many areas including engineering, medicine,
economics, and sciences.
Foreign employers find Hungarian workers extremely flexible, highly

motivated and very efficient. Most of young Hungarians speak English
and/or other Western languages.
Employment within Hungary varies regionally: in the North-West

temporary shortages of skilled workers occur, particularly in the financial
and marketing sectors. East of the Danube unemployment levels are usually

higher than the national average, sometimes exceeding 10-15%.
The basic elements of employment agreements are regulated by the

Hungarian Labour Code (Act XXII of 1992), which is broadly similar to
employment law in other European Union countries. The Law provides a
basis for organized labour negotiations with trade unions or other
representatives of employees (e.g., works councils).
The terms of employment are established by a written labour contract, and

may be terminated by mutual consent of the parties. The normal daily
working time is eight hours; weekly working time is maximum 48 hours
with 2-day rest period. Employees cannot be obliged to work on public
holidays. Each employee is entitled to a regular vacation every calendar
year. The duration of the vacation is 20 days, but the number of vacation
days is increased according to the age of the employee. An employment
agreement may not contradict the Labour Code or any collective agreement
in force. An employment agreement can provide more benefits for the
employee than those required by the Labour Code or a collective
agreement.Social security contributions are mandatory for Hungarian
employees, employees not otherwise subject to but wishing to benefit from
the Hungarian social security system may still be allowed to contribute. The
pension system is now a three pillar system of a mandatory public scheme a
private scheme and a voluntary scheme.
Current rate of the employer’s contribution:

– 24% pension insurance
– 5% health insurance
– 1,950 HUF/month health care contribution
– 3% unemployment insurance premium
– 1.5% training contribution
As of January 2009, the minimum gross monthly wage is HUF 71,500 =

about 247 €.
Central location - an optional hub for Europe
Hungary has a location which is just perfect and makes it a optimal hub for
europe. Due to its favourale geographical position in europe, it has got a
potential logistics and production base and hence has got direct access to
balkans and eastern europe
Infrastructure and Transport
Hungary's central location in Europe and the dense motorway network is one
of its most important competitive advantages. Four vital European transport
corridors pass through Hungary, providing unparalleled access to all parts of
Europe, including major European ports and the fast-growing CIS market
In order to exploit these benefits, Hungary is determined not only to

preserve, but also to enhance its infrastructural network and to improve its
integration into the European network

. Road Network
As a result of intensive construction works along main transport corridors,

major motorways and trunk roads reach national borders, ensuring faster and
safe transportation.
Hungary has an extensive road system, centred in Budapest, and the most
developed highway network among new EU member states. 70 % of the
road traffic is passing through the motorways and main roads of the country.
The length of the country's expressway network is 1,110 km.
The improvement of the highway network and four-lane motorways linking

all the major cities in Hungary will result in an approximately 40% decrease
of driving times on the main inter-city routes.
Seven of the eight main roads start from Budapest (designated by single digit
numbers, running clockwise from the Vienna motorway M1) and all of them

link up with the European road network.
A top priority of the Hungarian government is to further extend and

reconstruct the road network in Hungary.
Excellent local supplier network
Hungary - as one of the “Detroit East” countries - can supply manufacturers

and customers in the whole of Europe. The number of orders are on an
increasing scale due to heavy investments by CBU manufacturers to expand.

MAJOR AUTOMOTIVE SUPPLIERS IN HUNGARY
Prior to the global crisis manufacturers, such as Suzuki and Audi were
steadily expanding capacities and workforce to meet growing demand.14 of
the world’s top 20 TIER-1s have already established operations in
Hungary .Several multinationals have set up R&D centres in Hungary
including Audi, Bosch, Knorr-Bremse, Magna-Steyr, ThyssenKrupp, Arvin
Meritor, Denso, Continental, Visteon, WET, Draxlmaier, Edag,Temic
Telefunken, DENSO and ZF. In 2007/2008 two of the top awards presented
by the Minister of National Development and Economy to most outstanding
foreign investors was received by Daimler AG for its new investment in
Kecskemét.
CAR MANUFACTURING AND ASSEMBLY
SUZUKI: 233,253 cars assembled in 2007, 300,000 pcs in 2008
AUDI: 56,982 cars assembled in 2007( TT coupe, A3 cabriolet)
DAIMER: 100,000 mercedes A and B class planned for 2011

ENGINE MANUFACTURING
AUDI: 1.913 million engines produced in 2007,(379 variants of 24 different

types of powertrain)
GM POWERTRAIN: 434,617 engines produced in 2007
AUDI IN HUNGARY
• In 2007 1.913 million engines produced, 15 new, innovative engine
models introduced
• 56,982 cars assembled (41.5 % increase on 2006)
• New TT model introduced in 2006, new A3 cabriolet introduced in
2007
• Turnover in 2007: EUR 5.87 billion (16.7% increase on 2006)
• Hungary’s largest exporter
• Employs 5,845 people
• 24 different engines in 379 variants of four-, six- and eight-cylinder
engines for the VW concern in a 375 th. sq meter area
• Since 1993 Audi has invested a total of EUR 3.3 billion in Hungary,
and is planning to invest 200-250 mn EUR per year is planned until
2011
• Audi Hungária is going to manufacture the 10-cylinder, 560 HP
engine for the luxurious sports car Lamborghini Gallardo
AUDI AG chose the Hungarian city of Györ as its new production location
in November 1992. The new engine plant was officially opened less than

two years later. A workforce of around 4,900 was employed there at the start
of 2001. Audi has access to a good supply of skilled workers and highly
qualified graduates from the Institute of Technology. The Györ site is a duty-
free area, permitting the flexible delivery and collection of production
components and engines. Almost the entire range of Audi engines is now
produced in Györ.
Production of Audi TT models in Hungary commenced in April 1998. More

than 145,000 of the Audi TT Coupé and Audi TT Roadster have left the
assembly lines in Györ. Final assembly of the Audi A3 commenced there in
April 2001. Environmental protection is likewise practiced in an exemplary
manner in Györ. Modern recycling management avoids unnecessary waste.
The parts for the engine assembly process are delivered in returnable
containers. Wherever waste does occur, its progress right up to recycling is
monitored. A closed cooling and lubricating circuit guarantee effluent-free
production. Dust and oil are removed from the exhaust air from the machine
rooms, and 40% of thermal energy is recovered. Audi Hungaria Motor
Ltd.. in the year 2009, following the methodology of IFRS 49 (2008 -
in: 54) million euros for research and development expenditure has been
activated.

AUDI TT
The Audi TT is a sports car manufactured by German automaker AUDI AG

since 1998 in Györ, Hungary. It is now in its second generation –and
available as 2+2 coupe or two-seater roadster.
The development of the Audi TT began in September 1994 at the Audi

Design Center in California. The TT was first shown as a concept car at the
1995 Frankfurt Motor Show. The design is credited to J. Mays and Freeman
Thomas, with Martin Smith and Romulus Rost contributing to the award
winning interior design. A previously unused laser welding adaptation which
enabled seamless design features on the first-generation. TT also delayed its
introduction. Audi did not initially offer an automatic transmission option
for the TT. A direct-shift Gearbox (DSG) became available, the first for a
production car, in 2003.
In the last financial year, a total of 32,603 motor vehicles (2008:60,359)

wipes production have not reached the previous year's level. The total
number of items within the 18,010 (in 2008:31,101) Audi TT Coupe, 4811
(2008: 10,688) Audi TT Roadster and Audi AG on behalf of 9782 (2008:
18,570) Audi A3 Cabriolet made.
PORTER’S MODEL FOR AUDI HUNGARY
1. Potential
Entrants
5. Existing
3. Buyers
2. Suppliers industry
Competitors

4.
Substitutes
1. Potential Entrants: (Strong)
Many players like Ferrari, Aston Martin, Nissan, Jaguar etc are penetrating
into the Hungarian market.
2. Bargaining power of suppliers: (Strong)
The numbers of supplier are more and easily available so bargaining power
of the supplier is high.
3. Bargaining power of Buyers: (Medium)
The AUDI cars are highly customized so buyers cannot influence the price
and so price is not the important factors when it comes to luxury cars.
4. Threat of substitutes: (Low)
While there is possible competition from lower segments cars, charted

planes and sport bikes but nothing can give customers, the kind of
experience of owning these luxurious cars.

5. Rivalry among competitors: (Strong)
The luxury car in the Europe has become very competitive, but in India still
it is untapped. But there are so many players in Europe so competition is too
high.
SUZUKI IN HUNGARY
• 1991 – Foundation of Suzuki Hungary in Esztergom on a 35,000 m2
plot
• 1992 – Serial production Swift models
• 1999 – The 250,000th Hungarian-made Suzuki
• 2000 – Wagon R+ launched
• 2003 – Introduction of Ignis
• 2004 - Awarded for the biggest reinvestment (EUR 100 million) by
the Prime Minister
• 2005 – new Swift; 146,870 cars were manufactured, record turnover
of EUR 1,262.3 million was reached
• 2006 - production of new SUV the SX4 launched
• Number of employees: 6,200
• Production in 2007: 233,253 cars; (Swift, SX4, Ignis, Wagon R+)

• By having invested EUR 199.44 mn in 2007 total volume of
investments reached EUR 1.27 bn
• Production of the Splash started in February 2008 (planned
production: 60,000 per annum)
• Production planned for 2008: 300,000 Units.
MERCEDES IN HUNGARY
Mercedes-Benz will release four new compact cars to replace the current A
and B-Class models when they reach the end of their product cycles in
2010/11. The family of compact cars will be built at a new plant in
Kecskemét, Hungary, and will likely include a coupe, cabriolet, MPV and
soft-roader.
The new plant will cost more than €800 million ($1.24 billion) to establish
and will create some 2,500 jobs. Moving to a plant in Hungary will allow
Mercedes to manufacture the cars at a lower cost than if they were produced
in Germany, and the fact that it’s a new plant means the build process should
be efficient thanks to latest construction techniques.
"We are planning a new plant in Hungary to boost our competitiveness and

to gain access to potential of the Eastern European markets,"
- Daimler CEO Dieter Zetsche
Mercedes hasn’t forgotten its Rastatt plant back in Germany, and plans to
invest €600 million ($928 million) to increase capacity for more small cars.
The new family of small cars is designed to help Mercedes meet tougher
fuel-consumption and emissions regulations as well as providing it with a
range of exciting compact models to launch in North America, although such
an export program is yet to be confirmed.
They will also drop the expensive 'sandwich' design of the current A and B-
Class in favor of a new MFA (Mercedes Frontwheel Architecture) FWD
platform. This means the new cars will sit much lower than current models,
possibly even lower than the BMW 1-series and Audi A3, and will also be
much sportier.
WHY DID MERCEDES CHOSE HUNGARY?

• � Good location and developed infrastructure
• � Good quality of labour
• � A large network of automotive suppliers are already present
• � Professional services

RECENT INVESTMENTS
DAIMLER
Daimler has decided to assemble its A class and B class Mercedes Benz cars
in Kecskemét, Central Hungary. The 800 million investment will create
2,500 jobs and production is to start in 2012. The Hungarian Government
supports the investment of Daimler with a package of measures giving the
project a clear prioritization.
BOSCH
Bosch Budapest Development Centre has been expanded by 120 new

engineers in 2008. Research activities in Budapest have started in 1999 with
a few engineers, and by now already 430 engineers work in the development

centre. Bosch has spent 36 million EUR on R&D in Hungary last year,
which means a one and a half growth within one year. The company is
cooperating with several education institutes like the Budapest Technical
College with whom the development of an intelligent small car is underway.
F.SEGURA
Spanish Grupo F.Segura has chosen the city of Szolnok to establish a new
facility to design and manufacture metal components for the automotive
industry. Initially the factory will be 11,000 sqm large, over a total area of 10
hectares. The overall cost of investment will reach EUR 11 million.
From this privileged position in the centre of Europe and bordering on seven
countries, F.Segura Hungaria KFT wants to obtain a major presence in the
current and future European context. With this strategic decision F.Segura
establishes itself in a multi-customer environment where privileged logistics
conditions and additional benefits take profit of the new emergence markets
in the region.
KNORR-BREMSE BRAKE SYSTEMS

Knorr-Bremse Brake Systems Kft. announced that it will invest more than
EUR 10 million in a research and development (R&D) project in Hungary
which will employ 60 engineers.
The Knorr-Bremse Group is the world's leading manufacturer of braking

systems for rail and commercial vehicles. The Hungarian branch has the
most employees among the European factories. Knorr Bremse has
established its development centre in 1999 in Hungary.
GEDIA
The GEDIA Group - GEDIA Gebrüder Dingerkus GmbH develops and

manufactures pressings and welded assemblies for the automotive industry,
technical products and fastening systems for the household goods industry.
The company announced that it will create 103 new jobs and an investment
of EUR 21 million in Tata, Hungary to manufacture body parts for the
vehicle industry.
AUDI
Audi Hungaria has long been a significant automotive company in Hungary

and it is one of the largest exporters. In the last 15 years more than fifteen
million engines have been manufactured. Audi TT sportcars and Audi A3
Cabriolets are only assembled in Gyor.

AUDI HUNGARIA MOTOR Kft. has closed a successful year in 2008, too.
Last year more than 1.900.333 engines have been manufactured in Gyor. As
for vehicle assembly, production volume has grown by 6% last year,
alltogether 60 thousand cars have been assembled. The Hungarian branch
has invested EUR 309 million in 2008.
WHY INDIA:
The economy of India is emerging. The automotive sector is one of the key
segments of the economy which contributes about 4 per cent in India's Gross
Domestic Product (GDP) and 5% of Industrial production. This sector has
generated about 4.5 lakh of direct employment and about one crore of
indirect employment. Globally competitive Auto Ancillary Industry and
established automobile testing and R&D centers.
9th largest automobile industry.
2nd largest two-wheeler market
11th largest Passenger Cars producers
4th largest in Heavy Trucks
2nd largest tractor manufacturer
The monthly sales of passenger cars in India exceed 100,000 units.
In the year 2009-10 the Despite economic slowdown production and exports
of the sector went up last fiscal, said the Economic Survey 2008-09, and
underlined that the industry employs over one crore people. Overall
automobile production went up by 3 per cent to reach 1.11-crore, exports
increased by over 23 per cent to over 15-lakh and domestic turnover of the
sector stood at Rs. 2.19-lakh crore.
Government Support in India
Automobile production from 5.3 Million Units in 2001-02 to 10.8 Million

Units in 2007-08. 100 percent Foreign Direct Investment (FDI) is
permissible. This liberalization has helped this sector to restructure itself,
absorb newer technologies, and keep pace with the global developments
realizing its full potential.
Indian Passenger Vehicle Market in 2008-09
Company Name Market Share

Suzuki 52%
Tata 17%
Hyundai 19%
Toyota 1%
Honda 5%
GM 2%
Ford 2%
Others 6%
The total production of passenger car in India is 1.83 millions.
Growth of Passenger Vehicle Segment
The domestic Passenger vehicles market has grown at a 14.8 per cent over
the last six years to reach 1.5 million units in 2007-08.Passenger cars,
contributing to 78 per cent of volumes, grew at a CAGR of 15 per cent. The
remaining share is with utility vehicles and sports vehicles.

Future prospect of Indian Automotive Sector
Future prospect of Indian Automotive Sector is looking bright. Passenger car

production in India is projected to cross three million units in 2014-15. Sales
of passenger cars during 2008-09 to 2015-16 are expected to grow at a
CAGR of around 10%. Motorcycle sales will exceed 10 Million units by
2012-13. Value of auto component exports is likely to attain a double digit
figure in 2012-13. Turnover of the Indian auto component industry is
forecasted to surpass US$ 50 Billion in 2014-15.
AUDI IN INDIA
As a manufacturer of high-quality and innovative luxury cars, Audi is one
of the world’s leading premium brands and is among the most admired on
the world market. The basis of its success comprises pioneering concepts in
the domains of advanced technology and design.
Audi is represented in 110 countries worldwide and since 2004, Audi has
been selling its products on the Indian market.
In March 2007, Audi set up its own sales company for India. By establishing
Audi India as a Division of Volkswagen Group Sales India Pvt. Ltd. in
Mumbai, Audi is making a clear long-term statement in the country with
ambitious growths plans. Audi’s goal is to become the leading automobile
luxury brand in the Indian market in the next few years.
The Audi India strategy encompasses significant investments in branding,
marketing, exclusive dealerships and after sales service for the upcoming
years.
At present, Audi is assembling the Audi A6 and the Audi A4 for the Indian
market in Aurangabad.

CONCLUSION
Europe and India has always been a great interest for automobile companies.
With India market being dominated by Indian and Japanese manufacturers,
Europe was always an interest for local manufacturers. India is a big market
for small cars whereas Europe has an affinity towards luxury cars.
With the global downturn in automobile market it has been analyzed that
European market has also shown the signs of market slimming, European
automobile market decline is not that steep and countries like France and
Germany has shown a fall of less than 2%.
Hungary being central location of Europe serves as hub for many sectors.
With high FDI, Hungary serves automobile industry as its core business.
Many companies have been investing in Hungary like Audi, Suzuki, Raba,
etc.
Hungary with highly innovative tradition, skilled labor, and strong supplier
network can prove to be an important hub for automobile companies. With
Mercedes entering Hungary in 2010, it opens a new door for Hungary to
development. An open door for competition is also invoked and many more
companies might also like to join the campaign.

RECOMMENDATIONS
 Audi should conduct mass potential activity when it is entering in a new

market like India. It is not that Audi has the potential customers only in Tier
1 and Tier 2 cities, people from the remote places of India are also buying
luxury cars, even though the number is small. It should also carry out joint
marketing activities with their exclusive dealer.
 Audi should launch more sports cars or coupe/roadsters in Asian Market as

the number of young people is more and youths mostly prefer
Coupe/Roadster.
 To motivate the employees and workers, some kind of extra benefits should
be awarded on the basis of performance.
 Audi should starts hiring the employees from other than Hungary and
Germany so that organization culture will be more diversified in the global
perspective.
 Audi should provide the facility of parking in their premises for their loyal
customers.
 Besides TT model, Audi should start the manufacturing of other sports

model because AUDI Hungary is becoming the most important automobile
hub.

REFERENCES
 wikipedia. (n.d.). Retrieved June 12, 2010, from www.wikipedia.org:
http://en.wikipedia.org/wiki/Automotive_industry
 European Automobile Manufacturers Association. (n.d.). Retrieved June

12, 2010, from www.acea.be:
http://www.acea.be/images/uploads/files/20091223_ACEA_PRPC-
Calendar_2010-public.pdf
 Audinews. (n.d.). Retrieved June 12, 2010, from www.audiworld.com:

http://www.audiworld.com/news/08/audi-market-share/
 Europeanmotornews. (n.d.). Retrieved June 12, 2010, from

www.europeanmotornes.com:
http://europeanmotornews.com/2010/01/29/mercedes-benz-vans-
continues-to-gain-market-share/
 European Automobile Manufacturers Association. (n.d.). Retrieved June

12, 2010, from www.acea.be:
http://www.acea.be/index.php/news/news_detail/employment/
 Society of Indian Automobile Manufacturers. (n.d.). Retrieved June 13,

2010, from www.siamindia.com:
http://www.siamindia.com/scripts/market-share.aspx
 Society of Indian Automobile Manufacturers. (n.d.). Retrieved June 13,

2010, from www.siamindia.com:
http://www.siamindia.com/scripts/production-trend.aspx

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ITM Business School,

A PROJECT ON “STUDY OF EUROPEAN

I hereby declare that Mr. Abhishek Jain, Prashant Chauhan, Saurabh

[AUDI HUNGARY] Page 3

To whomsoever it may concern

ITM Business School

[AUDI HUNGARY] Page 4

We would like to express my deepest gratitude and appreciation to our

We would like to thank Prof. Jozsal (ESSCA, Budapest). He continually and

Without their guidance and persistent help, this project on “Study of

We would also like to express our sincere gratitude to Prof. Deepthy

[AUDI HUNGARY] Page 5

[AUDI HUNGARY] Page 6

i. European Car Market………………………………………………..7

ii. Innovation and R&D……………………………………………….15

iii. Hungarian Car Market……………………………………………...20

iv. Reasons for the Decline…………………………………………….23

v. Investment scenario in Hungary……………………………………26

vi. Why to invest in Hungary…………………………………………..33

vii. Major Automotive suppliers in Hungary…………………………...41

ii. AUDI TT (Sports Car division)…………………………………….44

ii. Mercedes in Hungary………………………………………………48

iii. Recent investment in Hungary……………………………………..50

iv. Why India………………………………………………………….53

[AUDI HUNGARY] Page 7

Objectives Of The Report

• To study different car makers in Europe.

• To compare the European, Hungarian and Indian automobile market.

• To analyze the reasons for downturn in automobile market.

• To understand the organizational culture of AUDI, Hungary.

• To know the potential investment in Hungary.

• To understand the new technical designs.

• To know the major suppliers and dealers.

We have collected information through secondary sources of data

• Hungary Autos Report.

[AUDI HUNGARY] Page 8

[AUDI HUNGARY] Page 9

[AUDI HUNGARY] Page 10

[AUDI HUNGARY] Page 11

The graph shows the production of passenger car vehicles.

[AUDI HUNGARY] Page 12

Total Employment Generated:

The automotive sector in Europe is highly competitive. It supports 12

[AUDI HUNGARY] Page 13

[AUDI HUNGARY] Page 14

Automotive sector is the largest private investor in R&D. Every year 20

[AUDI HUNGARY] Page 17

Energy and Environment

[AUDI HUNGARY] Page 18

%Market Share % Change

[AUDI HUNGARY] Page 20

[AUDI HUNGARY] Page 21

The automotive sector is one of Hungary's core industries and contributes 20

The number of first- and second-tier equipment manufacturers is continually

But currently, similar to US and Europe automobile market, a steep

[AUDI HUNGARY] Page 22

To react to the hard situation, manufactures are making cost-cutting moves

[AUDI HUNGARY] Page 24

Europe’s decline can be mostly explained by the global recession. This is

[AUDI HUNGARY] Page 27

Since the beginning of the transition to democratic market economy at the

FDI stock per capita in the CEE region, 2008