Magyar Manufacturing

GM has an engine plant in what some might think an odd location in Eastern Europe, a place best known for paprika and inexpensive labor, but there's more to Opel Hungary than one might first expect—like the fact that it's one of the most productive engine plants in the world.

 On the way from Budapest to Szentgotthárd (the home of Opel Hungary), the van I was in passed a gigantic suburban shopping center on the side of the freeway. “Wow, IKEA,” I observed, surprised. For those that don’t know, IKEA is a Scandinavian furniture company that’s popular enough in the States to be satirized on The Simpsons, yet has such a limited number of stores that people drive great distances to shop in them: Detroit doesn’t have an IKEA. The closest one is in Chicago. But here I was in an Eastern European country that’s still identified as “formerly communist” in many travel guides and it has an IKEA.

The point is that Hungary is fundamentally as “Western” as the rest of Western Europe (and more “American” than a lot of it; I’d also seen plenty of Pizza Huts and Burger Kings). Despite this, my initial inherent American biases prevented me from considering a possibility that Hungarians take for granted. Why shouldn’t Hungary have an IKEA? (Actually, they have two.) But enough about IKEA. This story is about Opel Hungary, a very successful operation that manufactures with an efficiency that they take for granted, but might surprise some of us Americans.

Conventional wisdom says that automakers build factories in places like Hungary (or Mexico), because labor is very inexpensive. Conventional wisdom says that this cheap labor means low-tech, low investment operations. Conventional wisdom carries a “move along, nothing to see here” attitude. But in this case, conventional wisdom is wrong. Opel Hungary is a model facility—lean, agile, and well managed.

(And it’s not that far from IKEA.)



Engine production began at Opel Hungary in mid-1992; that year, the plant built just 20,500 engines; nothing to write home about. But by 1995, the plant had surpassed its scheduled capacity of 230,000. To further increase productivity, a continuously moving assembly line was introduced, and in 1996 Opel Hungary produced 310,000 engines. In 1997, a heavily automated agile cylinder head plant was added to the facility, building 135,000 heads in its first year. The next major change came in 1999, when a four-shift system was deployed in engine assembly, pushing production up to 511,800 engines. By this time, the cylinder head plant was producing 352,500 heads. The plant is currently building Opel’s 1.4-, 1.6- and 1.8-L 16-valve ECOTEC engines and heads and is both QS 9000 and ISO 140001 certified. Welcome to the big leagues.

Opel Hungary isn’t just an engine plant, however. From 1992-1999, it was “knock-down” assembling Opel Astras and Vectras—until those frequently changing European trade tariffs changed again and the assembly line went down. But this loss of business turned out to be a boon for the plant, as two significant new projects are now in the works. An Allison Transmission plant is being installed in the former paint shop area; this June, it will start producing 18,000 truck trannys per year. Next June, GM’s first continuously variable transmission (CVT) plant will begin operating in the former car assembly area. This CVT plant will supply GM vehicles worldwide, to the tune of 250,000/year.

One of the reasons Opel Hungary got this new transmission business comes from its reputation. In a recent independent study of engine plant productivity, Opel Hungary’s 2.64 hours/engine score ranked best in its class. However, there was also a little serendipity involved. Opel Hungary managing director Albert Lidauer happened to bump into an Allison exec at a GM leadership seminar, which led to the initial idea to locate the Allison plant in the Hungarian facility. (Will direct flights from Indianapolis to Budapest be far in the future?) While this is just idle speculation, I’m willing to bet that the Allison and GM honchos that had to sign off on this deal (and the CVT deal as well) were more impressed with Lidauer’s attitude and management practices than anything else.


Lidauer will fire off his four management principles like they’re tattooed on the back of his hand: (1) Focus on people; (2) Focus on quality; (3) Focus on core business; (4) Focus on lean manufacturing. While these aren’t revolutionary ideas, the big difference between hearing them come from Lidauer and hearing them bandied about by others is that Lidauer is absolutely believable. He doesn’t just mouth these ideas like buzzwords, but can point to direct examples of how they are implemented in his plant. As he explains, he wants Opel Hungary to be a “development center for new ideas.” Admittedly, he says, the inexpensive labor advantage will disappear—but when it does, he wants the success of the organization to continue.