Beyond Overcapacity: The Political Construction of the European Automobile Market

The EU enlargement of 2004 has generated a strong increase in Foreign Direct Investment (FDI) toward Central and Eastern European (CEE) countries. This FDI was initially expected to take advantage of the development of local markets. Yet, in particular in industrial sectors such as the automotive industry, FDI has rather led to the establishment of low-cost export bases towards high wages markets within the EU. Since this extra industrial capacity could not be absorbed by relatively stagnant EU markets this has led to a wave of relocations, followed during the 2008-2013 crisis by factory closures, restructuring, and significant renegotiations of work contracts (i.e.  “les accords de compétitivité” in France).

This evolution has been mostly explained in the literature in terms of rational choice: once a company has decided to make an investment in a certain macro-market, such as the Single Market, the choice of a national location concentrates on efficiency considerations and exploits differences in prices and wages between countries to develop the competition between them. This paper explores another hypothesis by looking into why CEE markets for new cars have simply failed to develop. The focus is on the process of political and social construction of markets both at national and EU level, and on the problematic role of the EU as an incomplete form of government of the Single Market.  The paper will rely in particular on the cases of the Polish and Romanian car markets which will be analysed from the late 1990s up to today.