A combination of unfavorable factors. This, in short, is why the largest private employer in Pleven - Leoni Bulgaria will cease production of automotive cables by the end of this year. The decision was taken by the German owner Leoni and is part of massive moves for optimization, which do not end with the closure of the Bulgarian plant. For Pleven, this means the layoff of 1,300 people and the closure of production, which, although it started hesitantly at the end of 2018, last year reached a turnover topping 150 million levs.
The problems in the automotive industry since the pandemic have directly affected suppliers like Leoni. Added to this are local issues. Significant increases in labor costs make harness manufacturing inefficient. And although there are not so many investors in the region, the labor force is also insufficient, mostly because people are looking for employment in other cities or countries.
A difficult environment
Leoni Bulgaria produces wiring harnesses for cars, where about 80% of the work is done by hand. The company has one big customer - an original equipment manufacturer. It is located in Northern Bulgaria, which has been largely depopulated in recent years. The unfavorable market is one of the factors weighing in favor of the closure, according to Leoni's manager Andrey Kosoukhov. "The second is that we work for a certain client and unfortunately they are also optimizing their processes, which means that their orders are not increasing," he says.
However, there is also a problem with labor shortages, which does not allow the company to react quickly enough when volumes do increase. "According to our contract, we must be ready to react to significant deviations in orders - a double-digit percentage decrease or increase, which means that we must have a backup team of several hundred people available. Unfortunately, we cannot guarantee that we are able to hire so many people within six weeks," explains Kosoukhov.
The situation is further aggravated during the summer, when some people seek work in agriculture abroad, which coincides with strong periods of orders in Leoni. "We try to compensate for this shortage by attracting workers from other Leoni factories, which affects their results and is sometimes not the best solution and cannot last long," the manager adds.
Wage inflation
In its announcement, the group cites the high inflation in Bulgaria as one of the reasons for closing the local plant. It clarifies that it means rising labor costs. While average annual inflation for 2023 is 9.5%, the minimum wage has increased nearly 20% since 2024. The reason is that across all Leoni plants operators are only paid slightly above the legal minimum, since no special education is required. So when the minimum wage goes up, it directly affects spending. Meanwhile, productivity remains the same.
According to Kosoukhov, general conclusions cannot be drawn that Bulgaria is becoming uncompetitive for mass production. "We are talking specifically about the production of cable harnesses. Unfortunately, it requires a lot of manual labor and the share of labor costs in our overall cost structure is quite large," he points out.
The group also announced that production from Pleven is planned to be moved to another unnamed Leoni location. "This does not mean that these 1,300 jobs that will be closed in Bulgaria will be opened elsewhere," adds Kosoukhov.
At the same time, judging by the report for 2023, Leoni Bulgaria has had a rather strong year. Revenues grew by nearly 44% to 152.2 million levs in 2023, and net profit more than doubled to 3.3 million. Last year also witnessed a peak in terms of personnel, which reached over 2,100 people at the beginning of 2023.
What's ahead?
The termination of production in Pleven will not happen all at once. The layoffs will also be in several waves, with the first larger group of people being let go in September. The company has confirmed orders up until December. Meanwhile, Leoni is already actively looking for an alternative for its workers, as more than ten companies from the region have shown interest in hiring people.
For Leoni, in general, forecasts are tied to the development of the automotive industry. "This year we don't expect growth at the group level, our sales will be flat or slightly down," the company says.
Another trend has also had an effect on Leoni's activity - the reduced demand for electric cars, as the group has strong positions in the production of high-voltage cables. "This is felt particularly strongly in Germany, but also in other countries, after the subsidies were terminated," explains the group. And while in the medium and long term it expects the movement from internal combustion engines to electric cars to continue, demand is forecast to be weak over the next 2-3 years.
This is also why Leoni recently announced it will cut 10% of the staff, or about 300 people, at one of its large Romanian plants, which is the group's hub for high-voltage systems in Europe. Two other small Leoni factories unrelated to electric cars were also closed - one in Romania and one in Germany last year.
In the long term, Leoni sees potential for growth. This is especially true in China, where electric car penetration is much lower - just a few cars per 1,000 people. There are also opportunities in the Americas, particularly for cargo vehicles, where the group has strong positions as a supplier. However, the European market is already more or less saturated.
A combination of unfavorable factors. This, in short, is why the largest private employer in Pleven - Leoni Bulgaria will cease production of automotive cables by the end of this year. The decision was taken by the German owner Leoni and is part of massive moves for optimization, which do not end with the closure of the Bulgarian plant. For Pleven, this means the layoff of 1,300 people and the closure of production, which, although it started hesitantly at the end of 2018, last year reached a turnover topping 150 million levs.
The problems in the automotive industry since the pandemic have directly affected suppliers like Leoni. Added to this are local issues. Significant increases in labor costs make harness manufacturing inefficient. And although there are not so many investors in the region, the labor force is also insufficient, mostly because people are looking for employment in other cities or countries.
