The economic chill blowing through Hungary

http://www.budapesttimes.hu/content/...

Friday, 06 February 2009

Firm hit by economic jitters rippling through the economy as the government grabs more taxes

After the icy wind blew ominously from Russia and Ukraine across Central Europe and the Balkans, an even colder wind, a type of economic mistral, is sweeping over the Carpathian Basin, making its presence felt in all quarters of the Hungarian economy.

Every day the media spells out in graphic form the increasing number of employees that have been made redundant, particularly amongst the multinational and larger Hungarian firms.

More Magyar malaise

Of course, some of us who have been around for awhile (I have been in business in Hungary for 20 years) have seen this before – maybe not as severe – but certainly exhibiting the same symptoms.

Irrespective of the rights and wrongs, the culprits and the victims, the fall guys and the lucky reprobates, there is one heck of a situation going down here.

How big firms can weather the storm

It seems that the game plan for large companies is fairly well mapped out, even if the method of execution varies. Analyse your costs, reduce overheads – which usually means cuts, sometimes drastic, to the number of people you employ. Tighten up the purse strings, cut back on the expenses and bonuses, impose tougher targets on sales personnel, commence a programme of rationalisation by selling off or closing unprofitable operations (they can always be bought back later if the new buyer turns the business around).

Such steps – if sufficiently tough and public enough – are warmly applauded by the banks, who, after much wrangling, agree to provide a financial shelter until better times arrive.

Not as simple for the little guy

But what of the smaller businesses whose ability to maneouvre is much more limited and where a call or letter from the bank can determine at a stroke whether the business has a future or not? Even a business in good shape needs fodder on which to feed and survive, but in many cases the fodder provider is reeling from its own mistakes and is indeed in some cases fighting for its own survival!

Business plan thrown out the window

My company Fox Autorent is, by its very nature, a small enterprise employing 35 people on a fulltime basis to handle its fleet of approximately 400 cars in the winter and 600-plus in the summer. The model on which the business is based is relatively simple: buy cars at the lowest price possible; rent them out as much as possible; sell them for as much as possible. But heyho! The model has suddenly – and maybe irreversibly – changed! Car importers are terrified of ordering stocks of cars which they may not be able to sell. Car dealers are wringing their hands at the large number of used cars in their lots. Buyers are taking a more pragmatic view of car replacement.

On the business side, leasing charges are oscillating wildly as currencies fluctuate and the Hungarian government is reinforcing its tax structures for rental and leasing vehicles, adding insult to injury.

Silk purse, sow’s ear

For us there is a silver lining in the dark cloud, as suddenly, short-term rental has become a lot more attractive to firms that need to react quickly. It can be discontinued, often with a phone call, or extended the same way.

Pursuing a new model

So, the way forward for us is to review not only our costs, but also our strategies for the future. Currently we are undertaking the biggest review of the best ways to supply and price our services, which will determine our future growth (providing we get it right). Sadly, decisions are made more by hard data than instincts, and by business planning and reorganisation rather than the laid back chaos evident in many small (and some large) enterprises. We have to become more aggressive. Don’t be surprised if you get a call from us.

The cold wind will not last forever but, as in any chill, those who suffer the least discomfort are the ones who wrap up warmly.

Sincerely,

Wolfgang Bartesch,

Owner, Fox Autorent