Car factories

1. Car Factories Offer Hope for Spanish Industry and Workers
Samuel Aranda f or The New York Times
A Spanish auto manufacturer's group predicted an 11 percent rise in car production next year, to 2.2 million vehicles. New
cars w ere stored on a lot in Barcelona.
By RAPHAEL MINDER
Published: December 27, 2012
MADRID — Despite the economic gloom that has enshrouded it since the onset of the global
financial crisis, Spain has at least one industrial bright spot: The country and its skilled, if
underemployed, work force have once again become a beacon for European carmakers.
Four years of economic turmoil and the euro zone’s highest
jobless rate have made the Spanish labor market so inviting — an
estimated 40 percent less expensive than those of Europe’s other
biggest car-making countries, Germany and France — that Ford
and Renault recently announced plans to expand their
production in Spain.
Even before those announcements, other carmakers had committed this year to new plants or
expansion totaling as much as 2 billion euros, or $2.64 billion.
Some experts say such gains in competitiveness and investment are exactly what Spain needs for
its economy to recover and to remove any doubts about whether the country can remain in the
euro union.

2. Because Spain no longer has its own currency to devalue as a way to lower the price of its
exports, it is having to find its competitive advantage in lower labor costs. Many economists
have argued that societies cannot survive such painful downward adjustments.
But Spain, for now at least, seems to be defying that argument. Its trade deficit has been
shrinking — down 28 percent for the first 10 months of this year, to 28 billion euros, compared
with the same period a year earlier, according to newly released government data. That is the
lowest level since 1972.
Although part of that trade improvement reflects lower imports, it is also a sign of better
competitiveness as employers have been able to impose wage cuts without unleashing violent
social unrest.
Automobile executives recognized that the financial crisis was a warning to a sector whose
productivity fell from 2000 to 2007, a period when the Spanish economy was instead driven by
a real estate boom.
“From 2008, we suddenly realized that we had lost a lot of competitiveness and needed to work
very hard to improve things, particularly in terms of labor issues and logistics,” said José
Manuel Machado, who heads Ford’s business in Spain and is also president of the Spanish
Automobile and Truck Manufacturers’ Association, known as Anfac.
Anfac forecast this month that Spain’s car production would rise 11 percent next year, to 2.2
million vehicles.
Over all, Spain’s unit labor costs — a measure of productivity — are down 4 percent since 2008,
according to Eurostat, the European statistics agency.
In a related measurement, the most recent Eurostat data put Spain’s average hourly labor cost at
20.60 euros which was well below Germany’s 30.10 euros and France’s 34.20 euros.
Unlike most other Spanish industries, car manufacturing has no sectorwide collective
bargaining agreement with unions. As a result, each carmaker has been able to adjust working
hours with its own employees, in response to changing demand.
In return, the companies have promised workers that they will not be subjected to the huge
layoffs made in other parts of the economy, which have helped to lift Spain’s jobless rate to a
record 25 percent. Since the start of the crisis in 2008, car factories have cut their work force by
about 9 percent, compared with 21 percent for Spanish industry as a whole.
“We have lost some jobs, but it has been a proud resistance compared to the massacre in some
other sectors,” said Manuel García Salgado, who is in charge of the automotive sector within the
Unión General de Trabajadores, one of the two main labor unions in the country. “I don’t want
to give lessons to anybody. But at such a delicate moment for Spain, showing that we believe in
flexibility and consensus has certainly been highly valued by the carmakers.”

3. The car sector employs 280,000 people in Spain, including parts suppliers, and accounts for a
tenth of the country’s economic output. About 85 percent of the industry’s workers are on long-
term contracts.
“When you look at the car manufacturers and suppliers in Spain, a lot of the fat has been cut out
since the start of the crisis, and what is left now is a very strong skeleton and muscles,” said
Marc Sachon, a professor of operations management at the IESE business school in Madrid.
“Ford and Renault are now giving further proof that companies are changing their European
manufacturing footprint and moving away from places where costs are higher.”
Opel, a subsidiary of General Motors, confirmed this month that it would close its plant in
Bochum, Germany, in 2016, a decision that has sent shock waves through the country, which
has Europe’s largest car market. PSA Peugeot Citroën is also in tense negotiations with unions
after announcing in July the closing of its factory in Aulnay-sous-Bois, near Paris, in 2014.
In contrast, carmakers have added a dozen models to their Spanish production over the last two
years. The latest, introduced by Ford this month, is a new version of the Kangoo, a small van,
manufactured at its factory near Valencia. The Valencia factory is also set to benefit from a hefty
reorganization plan announced in October by Ford that involves closing factories in Britain and
Belgium. Ford is hoping to close the Belgian plant by the end of 2014, with the loss of about
4,300 jobs, and transfer much of the work to Valencia.
And last month, Renault presented an investment plan focused on its factories in Spain, France
and Turkey that would create 1,300 new jobs in Spain.
Volkswagen, the largest carmaker in Europe, is also expanding in Spain. In October, the
company announced an 800 million euro investment in its Martorell plant, near Barcelona, that
builds Seat cars as well as the Audi Q3, a compact sport utility vehicle. Both Seat and Audi are
units of Volkswagen.
This year, Nissan and Iveco also said they would step up their investments in Spain, Nissan by
300 million euros and Iveco by 500 million euros.
During a recent visit to Renault’s Palencia factory, Mariano Rajoy, the prime minister,
welcomed the French car company’s investment plan by saying that “finally I can give some
good news.” He pledged that Renault and others would receive “all the facilities” to help raise
production further. “The aim is to support an industry that is key for the industrial and social
fabric of Spain and provide it with a climate of confidence,” Mr. Rajoy said.
Still, Anfac, the carmakers’ association, is asking the government for financial support —
primarily in the form of new tax breaks — worth 500 million euros. That could be difficult for
Mr. Rajoy to accommodate, given the pressure he is under to raise tax revenue to meet budget
deficit goals agreed to with his European counterparts.

4. While car production in Spain is in the hands of foreign companies, their presence has spawned
the development of a large network of parts suppliers, many of which have also successfully
expanded overseas. And Irizar, a Spanish maker of buses and coaches, is set to make its first
deliveries in the United States early next year. Irizar already has more than 80 percent of its
sales outside Spain.
While Mr. Machado, the Ford executive and trade group head, proudly cites the Spanish car
industry’s target of returning to a precrisis production level of three million vehicles a year,
some analysts say that could be wishful thinking.
At least part of the demand would need to come from within Spain itself, they say. But Spanish
car sales have slumped this year to an estimated 700,000 vehicles, a level of 25 years ago. With
the country expected to stay in recession through the end of 2013, no quick upturn in sales is
expected.
Exports now represent 90 percent of Spain’s car production, and that “in the long run makes
you vulnerable to other risks, like the kind we have seen the Japanese car industry facing
because of the yen’s appreciation,” said Mr. Sachon, the business school professor.
To diversify Spain’s exports, Mr. Sachon also suggested that the country needed to start aiming
for more exports to the south, to Africa, within easy geographic reach.
“The Chinese seem to have discovered Africa as a market for their vehicles,” he said, “so I find
very surprising the lack of interest in Spain so far for Africa.”