Italians add polish to east European promise: Low wages may have lured Fiat to Poland, but John Eisenhammer finds the Italian motor giant now has a much bigger market in mind

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BLINK, and you could imagine yourself downtown at Herbert's car valeting centre. The bevy of workers sporting canary-yellow jumpsuits polishes, wipes and rubs as if a big tip depended on it.

But there is no watchful owner checking on performance; rather the stern eyes of the line foreman and a clipboard-brandishing quality controller.

For this is no wash and brush-up service, but the paint shop at the heart of the most ambitious venture by a western automobile manufacturer in eastern Europe.

Deep in the coal fields of southern Poland lie the Tychy works, and with them most of Fiat's hopes of beating its competitors to a dominant hold on the promising markets of tomorrow's Europe.

The Italian car maker's Tychy plant, the most important part of its Polish operations, manufactures the small Cinquecento, the first model developed solely for production in the low-cost east, for sale mainly in the high-quality west.

About 80 per cent of Tychy's annual production of over 200,000 Cinquecentos is exported to western Europe, mainly Italy, but also to demanding markets like Germany.

Some 6,500 Cinquecentos were sold in Britain last year in the first six months since launch, priced a little over pounds 5,000.

'The car has been well received, redefining a market segment that had been long-neglected. There have been no particular quality complaints,' says John Lawson, auto analyst with DRI.

The bustling group of workers in the paint-shop exemplifies one of the stark differences between Tychy and most western car plants.

Because labour is cheap in Poland, it is used lavishly. The average wage at the plant is pounds 180 a month. At such rates, there is no need for lean production or just-in-time.

'We could not have built the Cinquecento in western Europe for the same price,' says Paolo Marinsek, managing director of Fiat Auto Poland.

Despite the mountains of clutter alongside the assembly lines, and workers doing basic welding and intermediate painting that would be automated in most western plants, Tychy is modern by most standards.

In preparation for the Cinquecento, Fiat completely retooled the works at a cost of pounds 600m, installing a new paint shop and robots in the body assembly section. The difference is that it sought a balance between using technology to ensure western quality and getting maximum benefit from eastern wages.

Fiat's long experience in Poland meant it was fully aware of the importance of severing the low cost / poor quality equation.

The baby 126, produced under licence at Tychy when the plant was owned by the Polish state firm, FSM, was a disaster in the west, Mr Marinsek says, and it is no coincidence that the 43-year-old from Trieste was chosen to head Fiat's eastern gamble. He used to head the company's total quality project.

Fiat spent four years before the Cinquecento went into production in late 1991 trying to teach suppliers and Tychy's 7,000 employees modern technology and new attitudes.

'We have people working every day with Polish firms to improve standards. This is one of the most important activities we have, because we know it is impossible to stand alone in this country,' Mr Marinsek says.

The proportion of locally supplied parts in the Cinquecento is expected to rise to 72 per cent this year. Two important items, the engine and gearbox, still come from Italy. Fiat is looking to attract international suppliers to Poland, but because of the weak car market at present, few have heeded the call.

Gilardini, a seat and exhaust maker, is operating near Tychy, and PPG, a paint manufacturer, has begun a local joint venture. Mr Marinsek says a number of German and US firms are showing interest.

It is partly a reflection of this limited number of local quality suppliers that the Tychy plant produces in-house a large number of components, like fuel tanks and dashboards, which in the west would be done by outside firms.

Annual productivity at Tychy has risen to about 31 cars per worker. This compares with 15 at Volkswagen's Czech subsidiary, Skoda, and a western-European average in the high forties.

'Of course I am not happy with a figure of 31, but when you think that the old record at Tychy when it was an FSM plant was five, this is a dramatic leap in efficiency,' Mr Marinsek says.

But productivity is not all that is rising. Over the past two years, wages have doubled. 'In five to six years' time, Poland will have similar pay levels to Germany, and Tychy will be a lean-production plant like any in the west.'.

Fiat sees the opportunities in such prosperity far outweighing the loss of a low-wage base.

Fiat research predicts 11 per cent annual growth in eastern European car markets, against less than 5 per cent in the west. 'Low wages are an opportunity, but not a strategy,' Mr Marinsek argues. 'We are benefitting now from the cheap labour, but we are not here because of it. We are here to get a presence, to be the leader in the market.'

Fiat has 55 per cent of the Polish market of about 240,000 new cars a year. It has begun assembling the Uno at its second plant, Bielsko Biala, to meet growing local demand for bigger vehicles. The next big step is preparing for what Mr Marinsek calls the son of Cinquecento, likely to be a medium- sized car aimed at eastern markets.

For the moment, Poland is all that is left of a once grand eastern strategy. Fiat's plant in Serbia, which was originally meant to supply the Cinquecento engines for Tychy, lies dormant. Plans for investment in Russia with Vaz, the maker of Lada, came to nothing.

But Fiat is driven by the calculation that hoped-for supremacy in the east will pull the firm clear of its difficulties in the west. Fiat's market share in western Europe has fallen from 14.9 per cent in 1988 to 11.1 per cent, and it remains dependent on its protected Italian market.

'Eastern Europe is a high gamble strategy for Fiat, with mixed results so far, given Russia,' says Daniel Jones, professor of motor industry management at Cardiff University. 'But it is vital, because the company has to break out of its imprisonment in Italy.'

(Photograph omitted)