A Hungarian guide to ruining an economy, one bus at a time

Today I will regale you with the story of the planned bus purchase by the Budapest Közlekedési Vállalat (BKV), owned by the City of Budapest. One hundred and fifty extra buses must be in service by November, when the long postponed but urgently needed reconstruction of the M3 metro line will begin. Those who are unfamiliar with the way business is done in Hungary will undoubtedly think that the purchase of buses doesn’t merit a whole post. But, as we all know, nothing is so simple in Hungary, especially with Viktor Orbán as prime minister.

By now all Hungarian municipalities, including the capital, have been stripped of most of their assets. They have lost their schools and hospitals, and they receive less and less money from the central budget. They are unable to apply for a loan without government approval. Even the Hungarian government, however, realized that the M3 line was in such a state that a tragedy could easily occur at any time, and therefore, as a necessary adjunct to the line’s reconstruction, it agreed to guarantee the loan necessary to purchase buses to carry the displaced metro traffic. And yet, from day one, the hands of Mayor István Tarlós and the members of the city council were tied. The government stipulated that only 75 buses could be in “ready-to-run” condition. The other 75 would be delivered in a half-finished state, and the purchaser would have to finish their assembly. IKEA buses, I guess. The government’s insistence on two different providers, one of whom would by default be a specific Hungarian company, I’m sure raised the Budapest city council’s hackles.

Nonetheless, following government orders, in 2015 the city asked for tenders for two different kinds of buses. For the “ready-to-run” kind, they received four bids. The winning bid came from the Polish company Solaris Bus and Coach S.A. The company, which was established 20 years ago, produces about 1,000-1,200 buses a year. In the other category, there was only one company that turned in a bid, the Hungarian MABI-BUS Kft. which is known primarily for its development of an electric bus called Modulo. The Polish “ready-to-run” Solaris cost €277,000 while the one that still required assembly cost €278,800.

According to the company’s website, so far only 63 complete buses have been manufactured, which have been purchased by Hungarian cities. Most of the company’s work has focused on making bodies for buses, which were sold to the United States. According to MABI-BUS’s very modest website, buses with their bodies can be found in several American cities, including Los Angeles, Washington, and Boston.

Photo: solarisbus.com

Photo: solarisbus.com

MABI-BUS has a history of being favored and unfairly rewarded by the government. Until recently, the head of the company was involved exclusively in the field of information technology. In 2010, however, he decided to build trolley buses. In 2011 the company received a grant to develop an electric bus. The government decided that it would prefer electric buses to streetcars in the key tourist district of Budapest. BKV also wanted to buy 20 electric buses and accepted a bid from Siemens-Rampini, the company that supplied Vienna. The city, however, couldn’t finalize its contract with Siemens-Rampini because government approval came too late. Most likely intentionally. In a second round of bidding MABI-BUS got the job, although it was the Chinese BYD, the best known electric bus manufacturer, that won the tender.

A few days ago it was time for the maiden run of the Modulo electric buses, but “the premier wasn’t exactly a success.” After three hours Modulo ran out of juice. Moreover, the bodies of the buses are too wide for the Castle District, where they are to be used. They are unable to turn around at the end of their run. A little earlier, while on a trial run, a bus lost one of its wheels, injuring a passerby. These electric buses cost €560,000 each.

The 150 buses the city of Budapest now needs are ordinary gasoline-powered buses. Given the gap between the Solaris and MABI-BUS bids (taking into account the cost of making MABI-BUS’s vehicles whole and usable) and the latter’s lack of experience in manufacturing gasoline-powered buses, the city council decided to simply ignore the dictate from the government and buy all 150 buses from Solaris, especially since delivery was guaranteed by the time the work begins on M3. As you can well imagine, the Orbán government was anything but happy with the city council’s “disobedience.” After all, the government had made it crystal clear which company it prefers. So, a week ago, the government reduced the size of the guaranteed loan. Suddenly there wasn’t enough money to buy 150 buses.

And what was the response from Budapest? As of three days ago, Tarlós claimed that in this case the city will buy only 110 buses and the rest will come from other routes. Tarlós in his blunt manner, in an interview on HírTV, said that he understands the decision to opt for the Hungarian-made buses because of national interest, but “at the moment there is no such thing as the manufacturing of buses in Hungary.”

Of course, this cannot be the end of the story because Viktor Orbán has to have the last word on every issue. On Wednesday, during a recess of the cabinet meeting, Zoltán Kovács, government spokesman, told MTI that the cabinet had decided “on a three-year strategy of bus manufacturing which would ensure the competitiveness of Hungary in the extremely intense international competition.” He added that already during the negotiations concerning the purchase of the Budapest buses the government asked the city to keep in mind national economic interests. Perhaps the best reaction to the announcement was portfolio.hu’s sarcastic headline: “The long-awaited national bus manufacturing is coming.”

Another most likely economically disastrous decision was made just because Viktor Orbán would like to help a Hungarian oligarch. The manufacture of buses is indeed a very competitive business. It is true that during the Kádár regime Ikarus did well, but then the Hungarian company had a ready market in the Soviet bloc and in some of the less developed countries. Once that market was opened to international competition, Ikarus’s sales collapsed. To develop a competitive international bus manufacturing business from scratch doesn’t seem promising. The six largest producers of buses in unit terms — Zhengzhou Yutong Bus (China), Daimler (Germany), Xiamen King Long Motor (China), Volkswagen (Germany), Marcopolo (Brazil), and Toyota (Japan) — accounted for two-fifths of all sales worldwide in 2013. There are more than a hundred larger and smaller manufacturers of buses. I highly doubt that serious feasibility studies have been undertaken, but MABI-BUS has already received grants worth billions of forints for the design and manufacture of its buses.

Of course, foisting the largely untried products of this company on Budapest is an absolutely foolish economic decision, but it seems that such considerations are immaterial to the Orbán government. I guess promoting MABI-BUS by all means possible, even those bordering on the illegal, is part and parcel of this regime’s unorthodox methods of running, and ruining, the country’s economy.

May 13, 2016
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Member

To set up a specific branch of Industry from scratch requires large amount of capital, INVESTED WISELY and many well trained, talented and capable engineers, various machine operators for manufacturing, computer programmers, manufacturing system planners, skilled workers in many fields in other words. After that, it takes time and good management to get it going. It will be difficult to find such people in sufficient numbers in Hungary.
MABI-BUS Kft. is a prime example of what one can achieve in Hungary with the available skilled labor and the poor work ethics.
(My respect to exceptions, such as RÁBA Automotive Group, which is a World renown and profitable automotive components and agri-machinery manufacturer)
Even the three German car manufacturers had to go outside of Hungary to find suitable engineers, workers. In addition, now the Slovakian auto industry also recruits factory workers for Tata Motors building a new Jaguar assembly plant.
Hungary does not have talented, able and INDEPENDENT people such as Elon Musk (TESLA, SPACE X) who can build new industries from scratch in just a few years. If it had, he would have left the country a long, long time ago!

tappanch
Guest
Additional scandals in the failed state of Hungaristan just today: A. Money flow. Hungarian National Bank, chaired by Matolcsy —-> Private Bank, owned by his cousin —-> Private companies owned by his cousin and other relatives. http://index.hu/gazdasag/2016/05/13/matolcsy_unokatestvere_a_sajat_bankjabol_adott_hitelt_a_sajat_cegenek/ http://444.hu/2016/05/12/atadtak-a-matolcsy-unokatestvere-altal-hitelezett-kornyezeti-hatasai-miatt-sokat-tamadott-balatoni-kikotot B. The Central Prosecution Office (Attorney General) is not willing to investigate the “green card” bond [letelepedési kötvény] scam, which was started in December 2012. The Hungarian state pays higher than market interest for the holders of these bonds. The unnecessary offshore intermediary companies (authorized by Rogan, who is the new propaganda minister) collect huge profits, while the approved “investors” can settle in the European Union. http://nol.hu/belfold/a-parlamenti-bizottsag-nem-nyomozhat-kulfoldi-cegek-utan-1615453 C. The government gave 0.5 billion to build a road to the private hotel of chief fidesznik L.L. Simon, after he had missed the deadline to get the money from EU funds. http://444.hu/2016/05/13/annyira-kellett-az-uj-ut-l-simonek-panzioja-melle-hogy-miutan-lecsusztak-az-unios-tamogatasrol-a-magyar-allam-adott-ra-550-milliot D. The head of the Fidesz think tank “Századvég” did not have to face any other candidates for the presidency of the only Economics University called “Corvinus” (named after Karl Marx before 1990), so he was elected for this post on April 20. He repeated his views in a new interview . “The nationalizations in 1948 were not called robberies, neither were… Read more »
tappanch
Guest
Corruption harvest of a single day. A, B, C, D. A. Money flow. Hungarian National Bank, chaired by Matolcsy —-> Private Bank, owned by his cousin —-> Private companies owned by his cousin and other relatives. http://index.hu/gazdasag/2016/05/13/matolcsy_unokatestvere_a_sajat_bankjabol_adott_hitelt_a_sajat_cegenek/ http://444.hu/2016/05/12/atadtak-a-matolcsy-unokatestvere-altal-hitelezett-kornyezeti-hatasai-miatt-sokat-tamadott-balatoni-kikotot B. The Central Prosecution Office (Attorney General) is not willing to investigate the “green card” bond [letelepedési kötvény] scam, which was started in December 2012. The Hungarian state pays higher than market interest for the holders of these bonds. The unnecessary offshore intermediary companies (authorized by Rogan, who is the new propaganda minister) collect huge profits, while the approved “investors” can settle in the European Union. http://nol.hu/belfold/a-parlamenti-bizottsag-nem-nyomozhat-kulfoldi-cegek-utan-1615453 C. The government gave 0.5 billion to build a road to the private hotel of chief fidesznik L.L. Simon, after he had missed the deadline to get the money from EU funds. http://444.hu/2016/05/13/annyira-kellett-az-uj-ut-l-simonek-panzioja-melle-hogy-miutan-lecsusztak-az-unios-tamogatasrol-a-magyar-allam-adott-ra-550-milliot D. The head of the Fidesz think tank “Századvég” did not have to face any other candidates for the presidency of the only Economics University called “Corvinus” (named after Karl Marx before 1990), so he was elected for this post on April 20. He repeated his views in a new interview . “The nationalizations in 1948 were not called robberies, neither were… Read more »
Guest

Not too much OT:

The Forint has “risen” from around 310 to 315/316 to the € in the last three weeks.
http://www.xe.com/currencycharts/?from=EUR&to=HUF&view=1M
Does anyone have an explanation for this?

webber
Guest

No evidence of this – it’s just speculation, but it could be that National Bank governor Matolcsy is playing games to fill up the coffers, since he took so much from the bank for his pet projects (and for his relatives).
Matolcsy has played with the forint in the past. If he is not careful, sooner or later a clever currency trader will notice one of his moves, and will catch him short and make a huge amount of money – at Hungary’s expense.

Roderick Beck
Guest

It is highly unlikely to be currency manipulation. Currency rate changes reflects changes in expectations. And expectations regarding the Hungarian economy have sharply declined since the weak GDP figure for 1Q16.

webber
Guest

Highly unlikely?
Well, Matolcsy has done it before. What happened before could be happening again.

Member

GDP growth slowed down and the MNB purposely keeps the Forint weak, sells Forints when it reaches 310Ft/1.00€. The matolcs economic theory is, that the weak forint is sufficient attraction for foreign investment and it provides a better export/import ratio.

Roderick Beck
Guest

Roughly correct. But it doesn’t require the central bank to do anything. Most currency movements simply reflect the market makers view of the fair value of the currency pair. International currency exchange even before advent of central banks reacted just like today – new information leads to changes in conversion rates. Foreign currency markets have existed for thousands of years.

Member

The Forint market is relatively small and the matolcs is not 100% stupid (only 95%) as to make actual large exchange transactions, and often, but there are some brokers helping him to dabble in the options and derivatives market enough to give a direction to the €/Ft exchange rate. Also the MNB is acting sometimes on hunches based on INSIDE INFORMATION, which is illegal, but in their case nearly impossible to prosecute.

webber
Guest

Matolcsy has done it, though – and got away with it in the past.

Member

Ditto. But as Kiss László’s example shows, that you can’t get away forever with a major crime, unpunished. The viktor, the matolcs and all the thieves, murderers, cheats and liars, masquerading as the Hungarian Government will get what is due, and there will be enough trees left for them in a country where a piece of rope will be affordable, even for the poor people. These criminals actually murder the elderly and ill, by denying them timely and good healthcare.

There was a study back around 2004-2006, that showed that the people who are over 65 and ill, require five times (5x) more money for healthcare than other age groups. That is when the boys decided, that these elderly and ill people should die as fast as possible and so the healthcare industry is wrecked purposely.

Roderick Beck
Guest

At the end of the year is the ideal time to strengthen the HUF vis-a-vis other currencies and reduce the outstanding value of Hungarian debt. It is not obvious from the historical record that the central bank did anything like that.

webber
Guest

We’re talking about a weakening forint, now.

webber
Guest

P.S. It is VERY obvious from the historical record that the Hungarian National Bank manipulated all sorts of figures, and the currency, at the end of last year and the year before.

I’m guessing you don’t read Hungarian. This has been covered ad nauseum in the Hungarian financial press.

webber
Guest

Roderick Beck –
Don’t tell me you don’t believe currency speculation can happen? Of course you know it can and sometimes does.
http://www.dw.com/en/20-years-of-black-wednesday-how-george-soros-toppled-the-bank-of-england/a-16243427
Now imagine how a national bank governor might play games with his own currency. It’s not difficult to imagine if you try (ignore the little voice in your head that says “but that’s illegal”- it’s irrelevant here)

Guest

Re: Mats ‘playing games to fill up the coffers’

You mean like this? Mats, the flim-flam financial man, isn’t as funny when he does this innovative accounting..;-)…
http://youtu.be/lzxVyO6cpos

Roderick Beck
Guest

See my previous comment. The best time for currency manipulation is late December to reduce Hungary’s public debt to GDP ratio. HUF lost value in December 2014 and December 2014.

Observer
Guest

Note that of reduction of Hungary’s public debt to GDP ratio is another smoke and mirrors game. The official figure is the % on Dec. 31, e.g. GGD was reduced from 77.5% in the first half of December 2015 to 76% on the 30th.
This was done by zeroing the liquidity (for the holidays) and some tricks with moving funds and bonds back and forth with the HNBank.

Roderick Beck
Guest

Slower economic growth. Greater likelihood of monetary easing.

webber
Guest

Mmm hmm. In countries with an ordinary National Bank governor, sure. Fine
I suggest you look more into Matolcsy’s MO. The man is not, shall we say, average.
Look for a start, at how he has distributed National Bank funds to his cronies (yes, that would be illegal in most countries: this is not “most countries.”)

webber
Guest

The problem, as I see it, is not with know-how, but with government planning and interference which is bound to go bad.
I will give a personal anecdote which, to me, suggests Hungary did have the necessary know-how, and may still –
For a time Hungary’s Ganz corporation made really excellent metro trains – so excellent, that some of the first trains to run on the light-rail in Portland, Oregon were manufactured in Hungary. The company that made these also made prototypes of new trains for the no. 3 metro line (the “blue” one) in Budapest, and these actually ran for a time on the line. In the end Budapest’s transport system ran short of money and couldn’t buy the trains. Having lost that contract, the manufacturer, Ganz, went into bankruptcy, and was bought by the Czech company, Skoda (now German owned). These days the trains running in Portland have “Skoda” written on them. The old Soviet trains running on the metro 3 line are now in awful condition.
You can see a video of the Ganz trains running on the metro 3 line here – they were excellent (speaking from personal experience), very quiet and gave a very smooth ride:

Guest

Ganz has an interesting history – it was one of the first industrial conglomerates and very successful for a time:
https://en.wikipedia.org/wiki/Ganz_Works

But like many other traditions from the Austrian/Hungarian Empire it went into oblivion …

Roderick Beck
Guest

Even the Austrian-Hungarian empire constituted a small protected market with limited economies of scale. It was bound to wiped away.

Roderick Beck
Guest

It is called economies of scale. Small countries cannot achieve economies of scale in operations. That is why the US economy surged ahead of Europe (US per capita GDP is 20% to 60% than most European countries including France and Germany) and why the Common Market was created. On top of that, bus manufacturing is a mature industry with relatively thin margins and there is not room for new players unless they have disruptive technology or business model.

webber
Guest

My point was that the know-how was (and maybe still is) in Hungary.

Anyway, Ganz was on the cusp of making it. The company was making a product that could be and was being sold as far away as the West Coast of the US. The company was buried when BKV did not honor its commitment to purchase a number of trains Ganz had built, and run as prototypes on the 3rd metro line. Very few companies can take a hit like that. Had the deal gone through, Ganz might still be manufacturing trains.
Proof that the company had great value lies precisely in its purchase by Skoda. Skoda felt it was worth paying good money for. It was going bankrupt anyway, but Skoda saw the value. The trains Ganz was making became Skoda’s, and their manufacture went to the Czech Republic
Now Oregon has set up a manufacturer for those trains, using Skoda (Ganz) plans, and paying royalties.
All that could have been Ganz’s.

Roderick Beck
Guest

Know how is not the only issue. Economies of scale means that per unit costs fall as production rises. Ganz was always a smaller player and hence its production costs were relatively high.

Amazon does not have superior know how. But it was a first mover and it got big quickly and enjoyed a cost advantage that any potential entrant could not match.

Technology by itself does not win the business game.

webber
Guest

Skoda, with a similar background, made it.
Ganz did not.
Ganz might have.

Guest
London Calling! It’s astonishing that Orban doesn’t understand how Global commerce works. It would be impossible to build a manufacturing base for buses on the back of a piddling 150 bus contract! When you are up against Mercedes, and Japan’s robots; and up against cheap labour in Poland, Romania and Slovakia (who have just ‘won’ the Mercedes engine plant from competitors Poland, Romania and Hungary – who probably offered most government subsidy – (Hungary’s bribe culture hasn’t transcended the US sanctions yet!)) You have to have a ‘niche’ strategy and a thing called ‘investment’. And know how honed on World Markets. You can’t just give it to a mate and say – “Here’s a few billion – can you knock up a few buses?” Rába have some historical expertise but I’m sure they’ll have suffered through lack of investment. And they’re in the back woods out of Orban’s embezzling circle – except for the Nomenklatura Szijjártó family. Rába won the contract for the first trains on the London Underground – and the trains ran forever – it’s a betrayal that Russia gets to refurbish the tattered old trains in the recent contract. Rába even manufactured Messerschmitt 309s for Hitler –… Read more »
Roderick Beck
Guest

Economies of scale.

Guest

Rather OT but this story throws some light on the workings in Fidesztan:

We heard from a friend who’s a teacher that she had problems going to the doctor.
She also was on that strike one day and it seems everybody on that list was taken off the social security system for that day – and then someone forgot to put them back in the system.

So when she went to the doc for a prescription a week after the strike she was told:
No, you can’t get it – you’re no longer in the social security system …

Of course that was just a silly mistake – or?

Guest
Yes ‘E of S’ is just too easy – the Bleedin’ Obvious. Bus manufacturing is a very complex melding of many industries, technology and skills – which Hungary, and many countries, don’t have. If you look at the average London bus it is full of technology – satellite location, internet, a complex video recording environment, Hydrogen fuel pods, information systems giving the next stop details, including the stop you have just got on – essentially for blind users. Not to mention the technology and modular construction to keep the bus on the road with many common ‘OEM’ parts – to enable third party repairers to keep different buses running. Modular engine pods can be exchanged in minutes to keep it running whilst the defective unit is repaired ‘offline’. All this needs the R&D of Mercedes, the IT know how of IBM with the Just-in-time of Toyota – with the cooperation of an innovative University research department such as Cambridge University – expertise with a competitive edge. In short the melding together of many mature industries that Hungary just does not have. If you take a bus ride in BP everyone is oblivious to what to expect on a bus –… Read more »
Guest

Re: ‘IKEA’ buses.

Sure appears that not only are the ‘wheels’ running away from bus purveyors but the entire manufacturing business.

In a few years if all this keeps going on Magyarorszag just might be a foremost ‘DIY’ state, a haven for ‘Do-It-Yourselfers’, if not already. And that will indubitably be available in such areas as education, health , housing etc. Everything will be ‘do it yourself’. With government involved it just muddles the works. But no matter they want their ‘fair-share’.

Roderick Beck
Guest

Hungary can have a vibrant manufacturing industry. But it will not be owned by Hungarians, which is largely immaterial. But it requires a government that respects property rights, abandons nationalist rhetoric, improves the work force skills, encourages entrepreneurial firms, etc.

Guest

You’re so right – but where can we find that kind of government?

The current government’s anti EU rhetoric is so sickening – sometimes I tend to believe they really want out of the EU into Putin’s “Eurasian Union” …
What a horrible idea – 300 years backwards!

Guest

Tough to see the Magyar economy flailing in many ways and apparently imploding. Not too sure they have a love affair with ‘free enterprise’. The concept appears to alien to the government. It looks as if it is not at the top of the eco agenda.

There may be entrepreneurs waiting for their chance but it would appear the ideas therein will die a quiet death for the fact is businessmen would need to be fettered and shackled to government whims probably having nothing to do with the issue at hand. Commie government, Orban government doesn’t make a difference. Both archaic simpletons in the conduct of economic affairs.

Observer
Guest

@roderick b

The most “vibrant” things are those completely owned by large foreign companies strong enough to fend off corruption and silly interference; the rest is lack luster at best; all for the reasons you and others listed. Nothing better will happen in the near future, the change of business environment and culture takes time.

Until then (relative) backslide or stagnation, courtesy of the NER.
Same can be observed in the economies of Turkey and now Poland, for the same reasons.

webber
Guest

I’m not the only one to think Matolcsy is playing games with the forint. Here’s a long article from the former governor of the Hungarian National Bank, György Surányi which, toward the end, suggests the same.
http://www.napi.hu/magyar_gazdasag/suranyi_matolcsyekrol_a_jozan_esz_hatarait_feszitik.614691.html
Surányi is much more polite than I am, that’s all. I am certain that insider trading is going on here, as elsewhere in Matolcsy’s machinations.

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