Value chain length and spatial concentration in transport equipment manufacturing
The present experimental statistics continue the series that examines the activity, economic weight, value chain length and spatial concentration of each section and division of the economy. So far, two analytical publications on industry and construction have been published in the framework of the experimental statistics, and in this experimental statistics we present the transport equipment industry within manufacturing.
The transport equipment industry1 plays a key role in both production and exports in Hungary, it is one of the key sectors of the Hungarian economy, and its analysis can be instructive for those who are interested in the deeper context of economic processes.
Hungary is one of the EU Member States where the output of transport equipment manufacturing has grown strongly since the turn of the millennium. The volume of domestic production increased 4.3 times between 2000 and 2023, while the EU grew by 27% and Germany, the largest transport equipment player, by 36%.
Changes in transport equipment production have a significant impact on national economic trends, as transport equipment production is the largest manufacturing sector in Hungary, accounting for more than a quarter of total manufacturing output and almost a fifth of gross value added in 2023. Exports are the dominant activity, accounting for 91% of the sector group's sales in 2023. Although its geographical concentration is lower than the average for the economy, it is still significant as the large car manufacturers, which are the main players in the sector group, are located in a particular geographical area. The geographical concentration has varied somewhat since the turn of the millennium, but has always been present.
The value chain length of transport equipment manufacturing, measured as gross value added divided by output, is the smallest among manufacturing sectors, due to the fact that transport equipment production relies heavily on imported products and components or those produced in other sectors. The high dependence of transport equipment production on imports is reflected in the fact that four-fifths of intermediate consumption purchases originated abroad. All of the largest supplier sectors supplied the domestic transport equipment industry's needs largely from foreign sources.
In the ten years following the turn of the millennium, the value added content of the sector basically increased, before declining in the two years most affected by the global economic crisis. After a new upward trend until 2018, the sector has been declining again in recent years, with a value chain length of 16% in 2023. Growth periods in the transport equipment value chain have been broadly in line with periods of capacity building and production ramp-up. However, the start-up of production did not entail a structural adjustment of the economy and a gradual integration of transport equipment production, so the value chain length resumed its downward trend. Like the countries of the region, Hungary's transport equipment manufacturing sector, despite its overall growing importance, has not been able to make a significant qualitative and structural impact on the economy, as large export-oriented companies have not become a deeply embedded part of the local economy.
In recent years, the EU transport equipment industry as a whole has been facing growth challenges, with the rise of Chinese competitors, tightening engine standards and recent turbulent economic developments all playing a role in the global market loss. New manufacturing capacity created by recent major investments is expected to give a new impetus to the domestic transport equipment industry, but to make a lasting contribution to economic catching-up, the sector group needs to increase the share of domestic suppliers, to move up the value chains and to attract higher value-added activities.
Situation of the transport equipment industry
Transport equipment manufacturing is the most important sub-sector of the domestic manufacturing industry. In 2023, it accounted for 26% of the manufacturing industry's output value, 17% of its gross value added and 15% of its employment. It also has an impact on other manufacturing activities through its extensive supplier relationships, so its performance has a significant influence on the development of industrial production as a whole.
In 2023, the output of transport equipment manufacturing amounted to HUF 14 028 billion, while its gross value added was much lower at HUF 2188 billion. The share of value added in output is the lowest among the manufacturing sub-sectors (consistently below 20%), due to the heavy reliance of transport equipment production on imported products and components or those produced in other sectors.
Transport equipment manufacturing is a dominant sector not only in Hungary, but also in the European Union as a whole: according to the latest available data for 2022, it accounted for 13% of the EU manufacturing value added. In Germany, which has the highest industrial potential among the Member States, this share was 23%, making it the most important manufacturing subsector in our largest external partner, but it is also the most important industrial sector in France and Spain among the other large economies, and is of medium importance in Italy's manufacturing sector. In terms of gross value added, 53% of EU transport equipment production in 2022 was concentrated in Germany, with France, Italy and Spain accounting for a further 24% in total. Hungary's share of 1.5% is one and a half times larger than its economic weight in the EU, also measured in terms of GDP at current exchange rates.
Figure 1
Within the domestic transport equipment industry, passenger car production is the dominant sector. According to the European Automobile Manufacturers' Association (ACEA), more than half a million passenger cars were produced in Hungary in 2023, making us the seventh largest car manufacturer in the EU (followed by Germany, Spain, the Czech Republic, Slovakia, France and Italy). More than 12 million cars rolled off the production lines in the EU as a whole in 2023, and nearly 76 million cars globally.
In Hungary, transport equipment manufacturing is one of the most export-dependent manufacturing sectors, along with electronics and electrical equipment manufacturing. In 2023, 91% of its turnover came from foreign markets. Its foreign exposure is high not only because of the volatility of the buyer markets, i.e. global demand, but also because the backbone of domestic production is provided by foreign-led, large car manufacturers, whose strategic decisions have a major impact on the performance of Hungarian transport equipment production. This global exposure is reflected in the fact that the transport equipment industry is highly sensitive to the effects of the global economy. In the 2000s, its momentum was first disrupted by the deepening financial and economic crisis in 2009, when production volumes fell by one of the largest declines among manufacturing sub-sectors. However, the impact of the 2012 European recession was offset by the start-up of the Mercedes plant in Kecskemét, which also contributed significantly to the transport equipment boom in the following years. The upturn lasted until the coronavirus epidemic, when it became a global phenomenon, with car plants temporarily shutting down in 2020, and disruptions in supply chains in 2021, mainly due to global chip shortages, leading to a further decline in production. In recent years, transport equipment production across the EU has been facing growth challenges, with the global market loss being driven by the rise of Chinese competitors, tightening engine standards and recent turbulent economic developments. New manufacturing capacity from major investments in recent years, notably the establishment of BMW and BYD, is expected to provide a new impetus to domestic transport equipment production, which could have an impact on overall industrial production and national economic performance.
Figure 2
Overall, Hungary is one of the EU Member States where transport equipment production has grown strongly over the last two decades. The volume of domestic production in 2023 was 4.3 times higher than in 2000, while in the EU as a whole output increased by 27% in the same period, and by 36% in Germany. The growth dynamics in Hungary are not unique among the countries that joined the EU in the 2000s, and the assessment of the data should take into account both the different development paths of the individual countries and the fact that German car manufacturers have shifted their focus from domestic to foreign production in recent years.
In Hungary, transport equipment production is the largest sector group within manufacturing industry, which is also decisive for exports. It is worth highlighting three sectors of the mechanical engineering industry (manufacture of transport equipment; electrical equipment; computer, electronic and optical products), as these are the "leading sectors" in terms of exports, with export shares of over 90% in all three. However, their output has changed differently over the last period, with the transport equipment industry, although still growing at a higher rate than the manufacturing average, increasing less than the other two sectors.
Figure 3
Table 1
Key indicators for the transport equipment industry compared to manufacturing and the national economy as a whole2
Denomination
Transport equipment industry
Manufacturing
National economy
National economic weight (share of gross value added), 2023, %
3.4
19.9
100.0
Number of employed persons aged 15-74, thousands, 2023
147
972
4 698
Gross value added per person employed, 2023, thousand HUF/person
14 883
13 312
13 827
Cumulative volume change in value added over the last 5 years (2019-2023), 2018 = 100.0%
107.7
101.6
112.0
Average gross monthly earnings of full-time employees (Q1-Q3 2024), thousands HUF/person
837.7
663.5
631.0
Regional (county-level) concentration of gross value added by Herfindahl-Hirschman index , 2023
0.149
0.084
0.177
Value added content of output, %
2015
18.2
25.2
42.6
2023
15.6
23.6
43.5
Spatial concentration of transport equipment manufacturing in Hungary
The regional concentration of the transport equipment industry can be considered significant in Hungary, as the major car manufacturers, which are the main players in the sector (Audi, Mercedes, Opel, Suzuki) are located in specific geographical areas (Audi is headquartered in Győr-Moson-Sopron, Mercedes in Bács-Kiskun, Opel in Vas and Suzuki in Komárom-Esztergom). This territorial concentration has changed somewhat over the last 25 years, but has been present throughout.
Figure 4 shows the evolution of the territorial (county) concentration between 2000 and 2023, using two indicators: the Herfindahl-Hirschman index and the value added ratio of the transport equipment industry in Győr-Moson-Sopron county, which has the highest production rate (including the Audi plant). Between 2000 and 2011, the direction of the concentration process is not clear, in the first half of the period other players located in other counties entered or increased their production, so that the share of Győr-Moson-Sopron county in the value added decreased, and thus the degree of spatial concentration in Hungary became lower. Between 2005 and 2011, concentration increased, but since 2012, when the Mercedes factory in Kecskemét entered the production, it has been basically decreasing.
Figure 4
Figure 5 shows the change in the spatial concentration of transport equipment manufacturing value added from 2000 to 2023, using the Lorenz curve3. Figure 6 also shows maps showing how the percentage of each county in the value added of transport equipment manufacturing changed from 2000 to 2023. The graphs show that the degree of concentration was very significant in 2000, but that it decreased by 2023, but is still striking (the Gini index4 was 0.79 in 2000 and 0.67 in 2023). Ten counties in Hungary have played and continue to play a peripheral role in this industry, with their individual share in value added remaining below 1% in both 2000 and 2023. At the same time, the capital and the other nine counties are more important and there has been a shift in their weight. Although Győr-Moson-Sopron has always been the dominant county, its share of the national share of the transport sector has decreased from nearly 50% to 33%. In terms of the ranking of the capital and the counties, the biggest loser was Vas, which was still in 2nd place in 2000, but by 2023 its weight in terms of production had halved and it was only in 6th place: it was overtaken not only by Bács-Kiskun and Komárom-Esztergom counties, but also by Fejér (mainly due to the transport equipment manufacturing and supply companies in Székesfehérvár) and Budapest5.
Figure 5
Figure 6
Figure 7
Value chains in the transport equipment industry in Hungary and neighbouring countries
The gross value added and value added of the transport equipment industry is basically determined by the production and output of the organisations on the one hand, and the input value of intermediate consumption (energy consumption, purchase of raw materials, etc.) required for the production of these goods and services on the other. The difference between the two is gross value added.
A regional comparison of value chains6 , measured as the ratio of gross value added to output, shows that, while in the European Union as a whole this indicator is basically increasing, reaching over 25% in the 2010s, it is much lower in all the Visegrad countries, and no clear increase can be observed in any of them.
It is also worth looking at the evolution of the Hungarian value chain length separately (Figure 7) by plotting the trends for each period. Between 2000 and 2010, the value added content in the sector basically increased, then declined in two years, and after a new upward trend until 2018, it has been declining again in recent years. The periods of growth in the value chain length of the transport equipment sector have been broadly in line with the periods of capacity building and production ramp-up in the transport equipment industry. In other words, the first major upward phase in the early 2000s can be linked to the broadening of Audi's production range, while the second upward phase is linked to the significant further expansion of transport equipment industrial capacity. The start of production, however, did not entail a structural adjustment of the economy and a gradual integration of transport equipment production, so that the value chain length resumed its downward trend.
Figure 8
In the case of the transport equipment sector in the countries of the region, the sector has not been able to have a significant impact on the structure of the economy in qualitative and structural terms, because large export-oriented companies have not become a deeply embedded part of the local economy. In the case of Hungary, the 20 largest domestic players are 95% foreign-owned. Although the share of domestic ownership is higher among suppliers, the share of domestic resources is still less than 50%. The vast majority of suppliers are linked to only one large company, which leads to a situation of dependency.
The economic integration of domestic transport equipment subsidiaries is lower not only than in the home country but also in other CEE countries and is one of the lowest among domestic sectors. In addition to their direct production activities, transport equipment plants generate demand in other sectors of the economy (metallurgy, transport and storage, wholesale trade, finance and insurance, consultancy). However, spill-over effects in Hungary are low not only in international comparison but also among domestic sectors.
The economic embeddedness of the sector (i.e. the degree of spill-over effects) is also related to the ownership structure. The share of foreign ownership in the domestic transport equipment sector is above 90%, and its embeddedness in the national economy was only 8.4% in 2019, with only electronics and air transport having lower values. In other words, the transport equipment industry is basically isolated in the Hungarian economy, with suppliers typically linked to a single large company.
For the transport equipment sector and other similar sectors dominated by foreign direct investment to make a lasting contribution to economic catching-up, it is necessary to increase the share of domestic suppliers, to move up the value chains and to attract higher value-added activities.
Figure 9
Changes in the length of the value chain may be influenced by composition effects in addition to volume and price changes. If production shifts towards lower or higher value-added sectors, the average value chain length of transport equipment production as a whole will not change in real terms, but will be affected by a composition effect. Within the transport equipment industry, two sectors are distinguished: road transport and other transport equipment. The value added content of other transport equipment is higher (17% for road transport equipment and 24% for other transport equipment on average from 2015 to 2023). Although there has been a slight shift towards other transport equipment (in 2000, less than 2% of the output of transport equipment was still generated by other transport equipment, which gradually increased to 4.7% in 2023), this shift is still largely due to the fact that road transport equipment still accounts for the bulk of output, and is therefore only slightly reflected in the change in total value added content.
Price share changes7 also played a large role in the significant decline in the industry's value added content in 2021-2022.1 It is worth looking at the impact of volume and price changes on the transport equipment industry.
In 2021 and 2022, the price level of intermediate consumption in the transport equipment sector (as in industry as a whole) increased much more than that of value added8, and therefore the value chain length calculated on the basis of current price data also decreased purely as a result of price changes. In 2023, the price level of intermediate consumption increased less than that of value added, and the process was reversed. Since the share of imports in intermediate consumption in the transport equipment industry is high, the process depends essentially on the direction of changes in the exchange rate.
In the last three years, the volume index of value added has exceeded that of output, i.e. the material intensity of production has been falling throughout.
Table 2
Value, price and volume indices of intermediate consumption, value added and output in the transport equipment industry
(previous year = 100.0%)
Aggregate
Price index
Volume index
Value index
2021
2022
2023
2021
2022
2023
2021
2022
2023
Intermediate consumption
104.1
117.7
104.6
98.2
112.7
104.7
102.2
132.6
109.5
Value added
96.6
106.3
109.3
98.4
113.5
109.4
95.1
120.7
119.6
Output
102.8
115.9
105.1
98.3
112.8
105.5
101.0
130.7
110.9
An adequate tool for the analysis of value chains is the Input Output Table (IOT9), which can show not only direct uses but also cumulated uses (sum of direct and spill-over effects due to cumulated indirect effects).
Table 3
Specific values calculated on the basis of mathematical processing of a symmetric IOM
Aspect
Manufacture of transport equipment
Manufacturing
National economy
Multiplier (total domestic output generated by producing 1 HUF of value added), HUF
1.21
1.34
1.37
Direct import content (how much direct imports were needed to produce 1 HUF of output), HUF
0.41
0.47
0.28
Cumulative import content (how much direct and indirect imports were needed to produce 1 HUF of output), HUF
0.74
0.57
0.358
Export share of output (what proportion is realised as exports on the total consumption side), %
57.2%
44.3%
27.1%
Source: own calculation based on the symmetric IOT produced by the HCSO.
In Table 3, we can look at the basic indicators for the transport equipment production, manufacturing and national economy as a whole. The multiplier shows the total domestic output generated by producing 1 HUF of value added, taking into account spill-over effects. It is influenced by two main factors, the import intensity of production (the more import intensive an activity is, the less domestic output it generates) and its value added content (the higher the value added content, the lower the share of intermediate consumption, the lower the spillover effect). In the case of transport equipment manufacturing, the import content is higher and the value added content lower than in manufacturing as a whole, and the high import content has a stronger impact, with the resultant spillover effect being lower in transport equipment production than in manufacturing as a whole (where it is broadly in line with the national average).
The direct and cumulative import content required to produce output is important and interesting in itself. The import content is also high in manufacturing, with an import content of HUF 0.47 for HUF 1 of output, to which HUF 0.1 is added due to spill-over effects, i.e. a higher proportion of import inputs are directly incorporated into the value of products in manufacturing. The direct import content in the transport equipment sector is slightly lower than in manufacturing as a whole, with 0.41 forints of import content "built into" HUF 1 of output, while the share of indirect imports is high, at a further HUF 0.33. Thus, overall, the cumulated import content of the transport equipment sector is higher than that of manufacturing.
Given that the transport equipment sector plays a prominent role in exports within the industry as a whole, the calculation of additional indicators is justified. Using the IOT, so-called content indicators can be calculated, of which the cumulative import content of exports (i.e. how much imports are needed to export HUF 1) may be of interest. Figure 9 shows the specific import content of exports by manufacturing subsectors based on the IOT. It can be seen that the import content of road transport equipment is one of the highest among the sectors, e.g. double that of the pharmaceuticals sector, which is also a major exporter.
Figure 10
The supply network of the transport equipment industry is composed of other organisations, mainly in the manufacturing sector, in addition to those within the sector group. According to the IOT, the transport equipment industry purchased a total of HUF 7 871 billion from foreign and domestic supplier sectors for intermediate consumption. Of these purchases, 42% came from within the sector, but mostly from abroad. Based on the input output table available for each of the 64 sectors, a further four-tenths of intermediate consumption was provided by six sectors, each accounting for between 3% and 11% of total purchases by the transport equipment industry.
Table 4
Largest supplier sectors to the transport equipment industry (imports + domestic)
Sector, sector group
Domestic transport equipment consumption produced by the sector
value, billion HUF
its share of all intermediate consumption in the transport equipment industry, %
import share, %
Manufacture of transport equipment
3 275
41.6
87.8
Manufacture of machinery and machinery equipment n.e.c.
876
11.1
95.0
Manufacture of computer, electronic and optical products
661
8.4
94.0
Manufacture of fabricated metal products
556
7.1
84.1
Manufacture of rubber and plastic products
396
5.0
77.2
Manufacture of electrical equipment
391
5.0
94.2
Manufacture of basic metals
233
3.0
88.0
Other manufacturing
1 482
18.8
47.6
Total
7 871
100.0
81.1
Source: own calculation based on the symmetric IOT produced by the HCSO.
The high dependence of transport equipment production on imports is reflected in the fact that 81% of intermediate consumption purchases were sourced abroad. All of the largest supplier sectors supplied the domestic transport equipment industry's needs largely from foreign sources.
If only the domestic supplier network is considered, the picture is less concentrated by sector. Although the transport equipment industry's HUF 400 billion of intermediate consumption within the sector group is also significant here, accounting for 27%, the role of the other sectors is not outstanding individually. Furthermore, while the breakdown of total (import + domestic) value of purchases is dominated by manufacturing sectors only, the largest domestic supplier sectors are also dominated by service sectors. The more important service sectors are characterised by the fact that the majority of their intermediate consumption output for the domestic transport equipment industry is domestic.
Table 5
Largest domestic supplier sectors to the transport equipment industry
Sector, sector group
Domestic transport equipment consumption produced by domestic operators in the sector
value, billion HUF
its share of total intermediate consumption in the domestic transport equipment industry, %
its share of domestic + import intermediate consumption of the transport equipment industry produced by the sector, %
Manufacture of transport equipment
400
26.9
12.2
Wholesale trade (except of motor vehicles and motorcycles)
97
6.5
71.8
Manufacture of rubber and plastic products
90
6.1
22.8
Manufacture of fabricated metal products
89
5.9
15.9
Architectural and engineering activities; technical testing and analysis
64
4.3
76.5
Land transport and transport via pipelines
61
4.1
60.9
Legal, accounting, book-keeping and auditing activities; business and management consultancy activities
55
3.7
43.0
Manufacture of machinery and machinery equipment n.e.c.
44
3.0
5.0
Labour market services
42
2.8
95.6
Wholesale and retail trade and repair of motor vehicles and motorcycles
42
2.8
92.7
Manufacture of computer, electronic and optical products
39
2.6
6.0
Real estate activities (except owner-occupied housing)
38
2.6
90.8
Electricity, gas, steam and air conditioning supply
33
2.2
66.3
Scientific research and development
30
2.0
59.8
Other activities
366
24.6
25.6
Total
1 489
100.0
18.9
Source: own calculation based on the symmetric IOT produced by the HCSO.
Footnotes
-
The transport equipment industry is made up of two sectors within manufacturing (C): the manufacture of transport equipment (29) and the manufacture of other transport equipment (30). Two factors are worth noting in relation to the composition of the activities within these sectors. Firstly, the manufacture of transport equipment does not include the maintenance and repair of related vehicles. The second is that the manufacture of automotive batteries, which is of particular importance in Hungary, is not included in the group of activities of the transport equipment industry, but is part of the activities of the electrical equipment (27) sector. This is the main reason why this sector has been the one whose production value has grown much faster in recent years (Figure 3). ↩
-
The Herfindahl-Hirschman index is one of the most commonly used concentration indicators, the square sum of the relative value sum. It measures between 1/n and 1, where 1/n indicates the even distribution of the value sum over n areas (in our case 20 counties), i.e. the absence of relative concentration, and 1 indicates absolute concentration if only one group of sectors were present in a given economy. ↩
-
The Lorenz curve is a square plot in the rectangular coordinate system, with cumulative relative frequencies on the horizontal axis and cumulative relative sums on the vertical axis. The diagonal of the square represents the uniform distribution, the total absence of concentration. The further down the Lorenz curve from the diagonal, the more concentrated the phenomenon under study in relative terms. ↩
-
A Gini index (concentration coefficient) of 0 means uniform distribution, 1 means perfect concentration. Its specific value can be quantified from the Lorenz curve: the area under the Lorenz curve relative to the area of the triangle representing perfect concentration. ↩
-
According to the HVG TOP500 (list of the 500 largest non-financial companies by turnover in 2022, HVG [2023]), the TOP500 includes 49 transport equipment companies, i.e. 10% of the high turnover companies are in this sector. Their turnover represents 16% of the turnover of the TOP 500. The majority of high turnover transport equipment companies are located in these counties. Besides Audi, other important players in Győr-Moson-Sopron are SMR Automotive Mirror Technology, Dana Hungary and Rába. In Komárom-Esztergom county, Suzuki is joined by the car parts manufacturer Borgwarner from Oroszlány. In Bács-Kiskun county, Knorr-Bremse and ACPS Automotive are important players alongside Mercedes. The two largest transport equipment companies in Fejér county are Harman-Becker Gépkocsirendszer Gyártó and Denso Gyártó Hungary. In the case of Vas county, the turnover of the Opel motor factory in Szentgotthárd does not make it into the top 500, but the turnover of Schaeffler Savaria in Szombathely is significant and is therefore included in the list. ↩
-
The length of value chains is an important characteristic of an economy. It shows how much of the total value chain from research and development, through materials and component supply and assembly, to sales and subsequent after-sales service is present in an economy. Based on this, the length of value chains is measured by the ratio of gross value added to output. ↩
-
See in the experimental statistical publication Industrial value chain length and spatial concentration (HCSO, 2024). ↩
-
Technically, the volume index of value added is double-deflated, i.e. the price index is an implicit (indirectly calculated) index, but the content is the weighted average of the intermediate consumption and value added indices of the output index. ↩
-
A symmetric IOT is produced every 5 years, with the last available IOT for 2020. As the IOT is essentially a measure of the so-called technological interconnectedness of the economy, it changes slowly over time, so the 2020 picture is still relevant today. ↩
The present experimental statistics continue the series that examines the activity, economic weight, value chain length and spatial concentration of each section and division of the economy. So far, two analytical publications on industry and construction have been published in the framework of the experimental statistics, and in this experimental statistics we present the transport equipment industry within manufacturing.
The transport equipment industry1 plays a key role in both production and exports in Hungary, it is one of the key sectors of the Hungarian economy, and its analysis can be instructive for those who are interested in the deeper context of economic processes.
Hungary is one of the EU Member States where the output of transport equipment manufacturing has grown strongly since the turn of the millennium. The volume of domestic production increased 4.3 times between 2000 and 2023, while the EU grew by 27% and Germany, the largest transport equipment player, by 36%.
Changes in transport equipment production have a significant impact on national economic trends, as transport equipment production is the largest manufacturing sector in Hungary, accounting for more than a quarter of total manufacturing output and almost a fifth of gross value added in 2023. Exports are the dominant activity, accounting for 91% of the sector group's sales in 2023. Although its geographical concentration is lower than the average for the economy, it is still significant as the large car manufacturers, which are the main players in the sector group, are located in a particular geographical area. The geographical concentration has varied somewhat since the turn of the millennium, but has always been present.
The value chain length of transport equipment manufacturing, measured as gross value added divided by output, is the smallest among manufacturing sectors, due to the fact that transport equipment production relies heavily on imported products and components or those produced in other sectors. The high dependence of transport equipment production on imports is reflected in the fact that four-fifths of intermediate consumption purchases originated abroad. All of the largest supplier sectors supplied the domestic transport equipment industry's needs largely from foreign sources.
In the ten years following the turn of the millennium, the value added content of the sector basically increased, before declining in the two years most affected by the global economic crisis. After a new upward trend until 2018, the sector has been declining again in recent years, with a value chain length of 16% in 2023. Growth periods in the transport equipment value chain have been broadly in line with periods of capacity building and production ramp-up. However, the start-up of production did not entail a structural adjustment of the economy and a gradual integration of transport equipment production, so the value chain length resumed its downward trend. Like the countries of the region, Hungary's transport equipment manufacturing sector, despite its overall growing importance, has not been able to make a significant qualitative and structural impact on the economy, as large export-oriented companies have not become a deeply embedded part of the local economy.
In recent years, the EU transport equipment industry as a whole has been facing growth challenges, with the rise of Chinese competitors, tightening engine standards and recent turbulent economic developments all playing a role in the global market loss. New manufacturing capacity created by recent major investments is expected to give a new impetus to the domestic transport equipment industry, but to make a lasting contribution to economic catching-up, the sector group needs to increase the share of domestic suppliers, to move up the value chains and to attract higher value-added activities.
Situation of the transport equipment industry
Transport equipment manufacturing is the most important sub-sector of the domestic manufacturing industry. In 2023, it accounted for 26% of the manufacturing industry's output value, 17% of its gross value added and 15% of its employment. It also has an impact on other manufacturing activities through its extensive supplier relationships, so its performance has a significant influence on the development of industrial production as a whole.
In 2023, the output of transport equipment manufacturing amounted to HUF 14 028 billion, while its gross value added was much lower at HUF 2188 billion. The share of value added in output is the lowest among the manufacturing sub-sectors (consistently below 20%), due to the heavy reliance of transport equipment production on imported products and components or those produced in other sectors.
Transport equipment manufacturing is a dominant sector not only in Hungary, but also in the European Union as a whole: according to the latest available data for 2022, it accounted for 13% of the EU manufacturing value added. In Germany, which has the highest industrial potential among the Member States, this share was 23%, making it the most important manufacturing subsector in our largest external partner, but it is also the most important industrial sector in France and Spain among the other large economies, and is of medium importance in Italy's manufacturing sector. In terms of gross value added, 53% of EU transport equipment production in 2022 was concentrated in Germany, with France, Italy and Spain accounting for a further 24% in total. Hungary's share of 1.5% is one and a half times larger than its economic weight in the EU, also measured in terms of GDP at current exchange rates.
Within the domestic transport equipment industry, passenger car production is the dominant sector. According to the European Automobile Manufacturers' Association (ACEA), more than half a million passenger cars were produced in Hungary in 2023, making us the seventh largest car manufacturer in the EU (followed by Germany, Spain, the Czech Republic, Slovakia, France and Italy). More than 12 million cars rolled off the production lines in the EU as a whole in 2023, and nearly 76 million cars globally.
In Hungary, transport equipment manufacturing is one of the most export-dependent manufacturing sectors, along with electronics and electrical equipment manufacturing. In 2023, 91% of its turnover came from foreign markets. Its foreign exposure is high not only because of the volatility of the buyer markets, i.e. global demand, but also because the backbone of domestic production is provided by foreign-led, large car manufacturers, whose strategic decisions have a major impact on the performance of Hungarian transport equipment production. This global exposure is reflected in the fact that the transport equipment industry is highly sensitive to the effects of the global economy. In the 2000s, its momentum was first disrupted by the deepening financial and economic crisis in 2009, when production volumes fell by one of the largest declines among manufacturing sub-sectors. However, the impact of the 2012 European recession was offset by the start-up of the Mercedes plant in Kecskemét, which also contributed significantly to the transport equipment boom in the following years. The upturn lasted until the coronavirus epidemic, when it became a global phenomenon, with car plants temporarily shutting down in 2020, and disruptions in supply chains in 2021, mainly due to global chip shortages, leading to a further decline in production. In recent years, transport equipment production across the EU has been facing growth challenges, with the global market loss being driven by the rise of Chinese competitors, tightening engine standards and recent turbulent economic developments. New manufacturing capacity from major investments in recent years, notably the establishment of BMW and BYD, is expected to provide a new impetus to domestic transport equipment production, which could have an impact on overall industrial production and national economic performance.
Overall, Hungary is one of the EU Member States where transport equipment production has grown strongly over the last two decades. The volume of domestic production in 2023 was 4.3 times higher than in 2000, while in the EU as a whole output increased by 27% in the same period, and by 36% in Germany. The growth dynamics in Hungary are not unique among the countries that joined the EU in the 2000s, and the assessment of the data should take into account both the different development paths of the individual countries and the fact that German car manufacturers have shifted their focus from domestic to foreign production in recent years.
In Hungary, transport equipment production is the largest sector group within manufacturing industry, which is also decisive for exports. It is worth highlighting three sectors of the mechanical engineering industry (manufacture of transport equipment; electrical equipment; computer, electronic and optical products), as these are the "leading sectors" in terms of exports, with export shares of over 90% in all three. However, their output has changed differently over the last period, with the transport equipment industry, although still growing at a higher rate than the manufacturing average, increasing less than the other two sectors.
Key indicators for the transport equipment industry compared to manufacturing and the national economy as a whole2
| Denomination | Transport equipment industry | Manufacturing | National economy |
|---|---|---|---|
| National economic weight (share of gross value added), 2023, % | 3.4 | 19.9 | 100.0 |
| Number of employed persons aged 15-74, thousands, 2023 | 147 | 972 | 4 698 |
| Gross value added per person employed, 2023, thousand HUF/person | 14 883 | 13 312 | 13 827 |
| Cumulative volume change in value added over the last 5 years (2019-2023), 2018 = 100.0% | 107.7 | 101.6 | 112.0 |
| Average gross monthly earnings of full-time employees (Q1-Q3 2024), thousands HUF/person | 837.7 | 663.5 | 631.0 |
| Regional (county-level) concentration of gross value added by Herfindahl-Hirschman index , 2023 | 0.149 | 0.084 | 0.177 |
| Value added content of output, % | |||
| 2015 | 18.2 | 25.2 | 42.6 |
| 2023 | 15.6 | 23.6 | 43.5 |
Spatial concentration of transport equipment manufacturing in Hungary
The regional concentration of the transport equipment industry can be considered significant in Hungary, as the major car manufacturers, which are the main players in the sector (Audi, Mercedes, Opel, Suzuki) are located in specific geographical areas (Audi is headquartered in Győr-Moson-Sopron, Mercedes in Bács-Kiskun, Opel in Vas and Suzuki in Komárom-Esztergom). This territorial concentration has changed somewhat over the last 25 years, but has been present throughout.
Figure 4 shows the evolution of the territorial (county) concentration between 2000 and 2023, using two indicators: the Herfindahl-Hirschman index and the value added ratio of the transport equipment industry in Győr-Moson-Sopron county, which has the highest production rate (including the Audi plant). Between 2000 and 2011, the direction of the concentration process is not clear, in the first half of the period other players located in other counties entered or increased their production, so that the share of Győr-Moson-Sopron county in the value added decreased, and thus the degree of spatial concentration in Hungary became lower. Between 2005 and 2011, concentration increased, but since 2012, when the Mercedes factory in Kecskemét entered the production, it has been basically decreasing.
Figure 5 shows the change in the spatial concentration of transport equipment manufacturing value added from 2000 to 2023, using the Lorenz curve3. Figure 6 also shows maps showing how the percentage of each county in the value added of transport equipment manufacturing changed from 2000 to 2023. The graphs show that the degree of concentration was very significant in 2000, but that it decreased by 2023, but is still striking (the Gini index4 was 0.79 in 2000 and 0.67 in 2023). Ten counties in Hungary have played and continue to play a peripheral role in this industry, with their individual share in value added remaining below 1% in both 2000 and 2023. At the same time, the capital and the other nine counties are more important and there has been a shift in their weight. Although Győr-Moson-Sopron has always been the dominant county, its share of the national share of the transport sector has decreased from nearly 50% to 33%. In terms of the ranking of the capital and the counties, the biggest loser was Vas, which was still in 2nd place in 2000, but by 2023 its weight in terms of production had halved and it was only in 6th place: it was overtaken not only by Bács-Kiskun and Komárom-Esztergom counties, but also by Fejér (mainly due to the transport equipment manufacturing and supply companies in Székesfehérvár) and Budapest5.
Value chains in the transport equipment industry in Hungary and neighbouring countries
The gross value added and value added of the transport equipment industry is basically determined by the production and output of the organisations on the one hand, and the input value of intermediate consumption (energy consumption, purchase of raw materials, etc.) required for the production of these goods and services on the other. The difference between the two is gross value added.
A regional comparison of value chains6 , measured as the ratio of gross value added to output, shows that, while in the European Union as a whole this indicator is basically increasing, reaching over 25% in the 2010s, it is much lower in all the Visegrad countries, and no clear increase can be observed in any of them.
It is also worth looking at the evolution of the Hungarian value chain length separately (Figure 7) by plotting the trends for each period. Between 2000 and 2010, the value added content in the sector basically increased, then declined in two years, and after a new upward trend until 2018, it has been declining again in recent years. The periods of growth in the value chain length of the transport equipment sector have been broadly in line with the periods of capacity building and production ramp-up in the transport equipment industry. In other words, the first major upward phase in the early 2000s can be linked to the broadening of Audi's production range, while the second upward phase is linked to the significant further expansion of transport equipment industrial capacity. The start of production, however, did not entail a structural adjustment of the economy and a gradual integration of transport equipment production, so that the value chain length resumed its downward trend.
In the case of the transport equipment sector in the countries of the region, the sector has not been able to have a significant impact on the structure of the economy in qualitative and structural terms, because large export-oriented companies have not become a deeply embedded part of the local economy. In the case of Hungary, the 20 largest domestic players are 95% foreign-owned. Although the share of domestic ownership is higher among suppliers, the share of domestic resources is still less than 50%. The vast majority of suppliers are linked to only one large company, which leads to a situation of dependency.
The economic integration of domestic transport equipment subsidiaries is lower not only than in the home country but also in other CEE countries and is one of the lowest among domestic sectors. In addition to their direct production activities, transport equipment plants generate demand in other sectors of the economy (metallurgy, transport and storage, wholesale trade, finance and insurance, consultancy). However, spill-over effects in Hungary are low not only in international comparison but also among domestic sectors.
The economic embeddedness of the sector (i.e. the degree of spill-over effects) is also related to the ownership structure. The share of foreign ownership in the domestic transport equipment sector is above 90%, and its embeddedness in the national economy was only 8.4% in 2019, with only electronics and air transport having lower values. In other words, the transport equipment industry is basically isolated in the Hungarian economy, with suppliers typically linked to a single large company.
For the transport equipment sector and other similar sectors dominated by foreign direct investment to make a lasting contribution to economic catching-up, it is necessary to increase the share of domestic suppliers, to move up the value chains and to attract higher value-added activities.
Changes in the length of the value chain may be influenced by composition effects in addition to volume and price changes. If production shifts towards lower or higher value-added sectors, the average value chain length of transport equipment production as a whole will not change in real terms, but will be affected by a composition effect. Within the transport equipment industry, two sectors are distinguished: road transport and other transport equipment. The value added content of other transport equipment is higher (17% for road transport equipment and 24% for other transport equipment on average from 2015 to 2023). Although there has been a slight shift towards other transport equipment (in 2000, less than 2% of the output of transport equipment was still generated by other transport equipment, which gradually increased to 4.7% in 2023), this shift is still largely due to the fact that road transport equipment still accounts for the bulk of output, and is therefore only slightly reflected in the change in total value added content.
Price share changes7 also played a large role in the significant decline in the industry's value added content in 2021-2022.1 It is worth looking at the impact of volume and price changes on the transport equipment industry.
In 2021 and 2022, the price level of intermediate consumption in the transport equipment sector (as in industry as a whole) increased much more than that of value added8, and therefore the value chain length calculated on the basis of current price data also decreased purely as a result of price changes. In 2023, the price level of intermediate consumption increased less than that of value added, and the process was reversed. Since the share of imports in intermediate consumption in the transport equipment industry is high, the process depends essentially on the direction of changes in the exchange rate.
In the last three years, the volume index of value added has exceeded that of output, i.e. the material intensity of production has been falling throughout.
| Aggregate | Price index | Volume index | Value index | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |
| Intermediate consumption | 104.1 | 117.7 | 104.6 | 98.2 | 112.7 | 104.7 | 102.2 | 132.6 | 109.5 |
| Value added | 96.6 | 106.3 | 109.3 | 98.4 | 113.5 | 109.4 | 95.1 | 120.7 | 119.6 |
| Output | 102.8 | 115.9 | 105.1 | 98.3 | 112.8 | 105.5 | 101.0 | 130.7 | 110.9 |
An adequate tool for the analysis of value chains is the Input Output Table (IOT9), which can show not only direct uses but also cumulated uses (sum of direct and spill-over effects due to cumulated indirect effects).
| Aspect | Manufacture of transport equipment | Manufacturing | National economy |
|---|---|---|---|
| Multiplier (total domestic output generated by producing 1 HUF of value added), HUF | 1.21 | 1.34 | 1.37 |
| Direct import content (how much direct imports were needed to produce 1 HUF of output), HUF | 0.41 | 0.47 | 0.28 |
| Cumulative import content (how much direct and indirect imports were needed to produce 1 HUF of output), HUF | 0.74 | 0.57 | 0.358 |
| Export share of output (what proportion is realised as exports on the total consumption side), % | 57.2% | 44.3% | 27.1% |
In Table 3, we can look at the basic indicators for the transport equipment production, manufacturing and national economy as a whole. The multiplier shows the total domestic output generated by producing 1 HUF of value added, taking into account spill-over effects. It is influenced by two main factors, the import intensity of production (the more import intensive an activity is, the less domestic output it generates) and its value added content (the higher the value added content, the lower the share of intermediate consumption, the lower the spillover effect). In the case of transport equipment manufacturing, the import content is higher and the value added content lower than in manufacturing as a whole, and the high import content has a stronger impact, with the resultant spillover effect being lower in transport equipment production than in manufacturing as a whole (where it is broadly in line with the national average).
The direct and cumulative import content required to produce output is important and interesting in itself. The import content is also high in manufacturing, with an import content of HUF 0.47 for HUF 1 of output, to which HUF 0.1 is added due to spill-over effects, i.e. a higher proportion of import inputs are directly incorporated into the value of products in manufacturing. The direct import content in the transport equipment sector is slightly lower than in manufacturing as a whole, with 0.41 forints of import content "built into" HUF 1 of output, while the share of indirect imports is high, at a further HUF 0.33. Thus, overall, the cumulated import content of the transport equipment sector is higher than that of manufacturing.
Given that the transport equipment sector plays a prominent role in exports within the industry as a whole, the calculation of additional indicators is justified. Using the IOT, so-called content indicators can be calculated, of which the cumulative import content of exports (i.e. how much imports are needed to export HUF 1) may be of interest. Figure 9 shows the specific import content of exports by manufacturing subsectors based on the IOT. It can be seen that the import content of road transport equipment is one of the highest among the sectors, e.g. double that of the pharmaceuticals sector, which is also a major exporter.
The supply network of the transport equipment industry is composed of other organisations, mainly in the manufacturing sector, in addition to those within the sector group. According to the IOT, the transport equipment industry purchased a total of HUF 7 871 billion from foreign and domestic supplier sectors for intermediate consumption. Of these purchases, 42% came from within the sector, but mostly from abroad. Based on the input output table available for each of the 64 sectors, a further four-tenths of intermediate consumption was provided by six sectors, each accounting for between 3% and 11% of total purchases by the transport equipment industry.
| Sector, sector group | Domestic transport equipment consumption produced by the sector | ||
|---|---|---|---|
| value, billion HUF | its share of all intermediate consumption in the transport equipment industry, % | import share, % | |
| Manufacture of transport equipment | 3 275 | 41.6 | 87.8 |
| Manufacture of machinery and machinery equipment n.e.c. | 876 | 11.1 | 95.0 |
| Manufacture of computer, electronic and optical products | 661 | 8.4 | 94.0 |
| Manufacture of fabricated metal products | 556 | 7.1 | 84.1 |
| Manufacture of rubber and plastic products | 396 | 5.0 | 77.2 |
| Manufacture of electrical equipment | 391 | 5.0 | 94.2 |
| Manufacture of basic metals | 233 | 3.0 | 88.0 |
| Other manufacturing | 1 482 | 18.8 | 47.6 |
| Total | 7 871 | 100.0 | 81.1 |
The high dependence of transport equipment production on imports is reflected in the fact that 81% of intermediate consumption purchases were sourced abroad. All of the largest supplier sectors supplied the domestic transport equipment industry's needs largely from foreign sources.
If only the domestic supplier network is considered, the picture is less concentrated by sector. Although the transport equipment industry's HUF 400 billion of intermediate consumption within the sector group is also significant here, accounting for 27%, the role of the other sectors is not outstanding individually. Furthermore, while the breakdown of total (import + domestic) value of purchases is dominated by manufacturing sectors only, the largest domestic supplier sectors are also dominated by service sectors. The more important service sectors are characterised by the fact that the majority of their intermediate consumption output for the domestic transport equipment industry is domestic.
| Sector, sector group | Domestic transport equipment consumption produced by domestic operators in the sector | ||
|---|---|---|---|
| value, billion HUF | its share of total intermediate consumption in the domestic transport equipment industry, % | its share of domestic + import intermediate consumption of the transport equipment industry produced by the sector, % | |
| Manufacture of transport equipment | 400 | 26.9 | 12.2 |
| Wholesale trade (except of motor vehicles and motorcycles) | 97 | 6.5 | 71.8 |
| Manufacture of rubber and plastic products | 90 | 6.1 | 22.8 |
| Manufacture of fabricated metal products | 89 | 5.9 | 15.9 |
| Architectural and engineering activities; technical testing and analysis | 64 | 4.3 | 76.5 |
| Land transport and transport via pipelines | 61 | 4.1 | 60.9 |
| Legal, accounting, book-keeping and auditing activities; business and management consultancy activities | 55 | 3.7 | 43.0 |
| Manufacture of machinery and machinery equipment n.e.c. | 44 | 3.0 | 5.0 |
| Labour market services | 42 | 2.8 | 95.6 |
| Wholesale and retail trade and repair of motor vehicles and motorcycles | 42 | 2.8 | 92.7 |
| Manufacture of computer, electronic and optical products | 39 | 2.6 | 6.0 |
| Real estate activities (except owner-occupied housing) | 38 | 2.6 | 90.8 |
| Electricity, gas, steam and air conditioning supply | 33 | 2.2 | 66.3 |
| Scientific research and development | 30 | 2.0 | 59.8 |
| Other activities | 366 | 24.6 | 25.6 | Total | 1 489 | 100.0 | 18.9 |
Footnotes
-
The transport equipment industry is made up of two sectors within manufacturing (C): the manufacture of transport equipment (29) and the manufacture of other transport equipment (30). Two factors are worth noting in relation to the composition of the activities within these sectors. Firstly, the manufacture of transport equipment does not include the maintenance and repair of related vehicles. The second is that the manufacture of automotive batteries, which is of particular importance in Hungary, is not included in the group of activities of the transport equipment industry, but is part of the activities of the electrical equipment (27) sector. This is the main reason why this sector has been the one whose production value has grown much faster in recent years (Figure 3). ↩
-
The Herfindahl-Hirschman index is one of the most commonly used concentration indicators, the square sum of the relative value sum. It measures between 1/n and 1, where 1/n indicates the even distribution of the value sum over n areas (in our case 20 counties), i.e. the absence of relative concentration, and 1 indicates absolute concentration if only one group of sectors were present in a given economy. ↩
-
The Lorenz curve is a square plot in the rectangular coordinate system, with cumulative relative frequencies on the horizontal axis and cumulative relative sums on the vertical axis. The diagonal of the square represents the uniform distribution, the total absence of concentration. The further down the Lorenz curve from the diagonal, the more concentrated the phenomenon under study in relative terms. ↩
-
A Gini index (concentration coefficient) of 0 means uniform distribution, 1 means perfect concentration. Its specific value can be quantified from the Lorenz curve: the area under the Lorenz curve relative to the area of the triangle representing perfect concentration. ↩
-
According to the HVG TOP500 (list of the 500 largest non-financial companies by turnover in 2022, HVG [2023]), the TOP500 includes 49 transport equipment companies, i.e. 10% of the high turnover companies are in this sector. Their turnover represents 16% of the turnover of the TOP 500. The majority of high turnover transport equipment companies are located in these counties. Besides Audi, other important players in Győr-Moson-Sopron are SMR Automotive Mirror Technology, Dana Hungary and Rába. In Komárom-Esztergom county, Suzuki is joined by the car parts manufacturer Borgwarner from Oroszlány. In Bács-Kiskun county, Knorr-Bremse and ACPS Automotive are important players alongside Mercedes. The two largest transport equipment companies in Fejér county are Harman-Becker Gépkocsirendszer Gyártó and Denso Gyártó Hungary. In the case of Vas county, the turnover of the Opel motor factory in Szentgotthárd does not make it into the top 500, but the turnover of Schaeffler Savaria in Szombathely is significant and is therefore included in the list. ↩
-
The length of value chains is an important characteristic of an economy. It shows how much of the total value chain from research and development, through materials and component supply and assembly, to sales and subsequent after-sales service is present in an economy. Based on this, the length of value chains is measured by the ratio of gross value added to output. ↩
-
See in the experimental statistical publication Industrial value chain length and spatial concentration (HCSO, 2024). ↩
-
Technically, the volume index of value added is double-deflated, i.e. the price index is an implicit (indirectly calculated) index, but the content is the weighted average of the intermediate consumption and value added indices of the output index. ↩
-
A symmetric IOT is produced every 5 years, with the last available IOT for 2020. As the IOT is essentially a measure of the so-called technological interconnectedness of the economy, it changes slowly over time, so the 2020 picture is still relevant today. ↩