EU struggles with national plans to rescue auto sector

Five German car manufacturers are under pressure after the European Commission said it is investigating their involvement in a potential cartel.

As MEPs, the Council and the European Commission gear up for a debate in Strasbourg this afternoon (4 February) on the impact of the economic crisis on the car industry, accusations of state aid look set to fly. EURACTIV’s media network in Western and Central Europe takes a look at the situation in some key countries.

Thousands of workers across Europe have been laid off, as the global economic crisis sends car sales plunging and sparks fears of protectionism. 

Germany has already been critical of French measures to support its home-grown industry, while Belgium is seeking assurances from German Chancellor Angela Merkel amid fears that its assembly lines are threatened by Germany’s efforts to back its auto sector. 

This comes at a time when the Commission is openly critical of the United States for propping up its ailing automotive industry, and of Russia, where additional import duties on foreign cars came into affect earlier this month. 

Meanwhile, it emerged yesterday (3 February) that France may insist that carmakers buy specific volumes of parts from local suppliers as part of a government aid package. 

The Financial Times reported that French President Nicolas Sarkozy wants Peugeot and Renault to help support France’s domestic subcontractors and suppliers in return for government loans. 

The prospect of tax incentives and subsidies for national car industries was central to a meeting of industry ministers from across the EU in Brussels on 19 January (EURACTIV 19/01/09). 

Industry Commissioner Günter Verheugen warned member states not to resort to protectionist measures to prop up their automotive sector. Instead, he urged the industry to address its structural problems, such as “overcapacity and the need to invest in innovative technologies”. 

Any public sector support offered by member states should be transparent and respect EU competition and state aid rules, the Commission has stressed, underlining that “any race for subsidies is to be avoided”. 

The Belgian government this week (2 February) held crisis talks to assess the difficulties facing its automobile assembly plants. 

Fears persist over the future of a General Motors plant in Antwerp, where the Opel Astra is assembled. The plant is believed to be under serious threat, not just from the economic downturn, but also from the strategies employed to support national car industries. 

Belgium’s major concern is protectionist policies in neighbouring member states. Federal Enterprise Minister Vincent Van Quickenborne expressed concern over the situation, saying the government would seek clarification from Angela Merkel on the issue. 

“Belgium is an important country at the level of car assembly, but it does not have a national brand. If member states take measures which are only in the interest of national enterprises, Belgium risks being ignored.”

Romania 

Fallout from the economic decline has included protests in Romania by trade union members pushing for greater job security, and the continuation of an environmental tax, which had been introduced by the previous government. 

The tax encouraged consumers to buy new cars instead of second-hand models, but the European Commission has said the so-called 'environmental tax'  breaches EU legislation. Francois Fourmont, of Dacia, has also backed continuation of the tax. 

Production at Renault-owned car producer Dacia ground to a halt in Romania last week (26 January). The plant had only recently returned to full capacity, having ceased production for a month until 12 January. 

A total of 14,000 employees were sent home for two weeks on 85% pay, but Dacia's general manager, Francois Fourmont, warned up to 4,000 staff could be let go by March if the economic climate has not improved. 

The knock-on effect of redundancies at the factory would result in up to 15,000 of job losses in the region, with parts suppliers devastated by the loss of their biggest client. The company has already slowed the pace of production from 1,360 to 1,085 units per day. 

Hungary 

A similar story is playing out in Hungary, where declining car sales threaten to decimate a once-thriving industry. The economic slowdown was compounded by forced work stoppages due to a national gas shortage earlier this month. 

Headline-grabbing layoffs at a Suzuki plant, where an estimated 1,500 staff were made redundant, are dwarfed by job losses recorded at small and medium-sized companies producing tyres, electronic components and engine parts. 

The uncertainty surrounding the future of production plants has sapped the confidence of workforces in regions heavily dependent on the automotive industry. One Suzuki employee told news portal Új Szó that workers are concerned that job losses are imminent. 

"I just could not stand the insecurity anymore. I was on the verge of insanity every time I opened the newspaper or switched on the TV. Everywhere you look, people are talking about the layoffs at Suzuki. The atmosphere at work was no better." 

"I thought it was better for me to hand in my notice because I have heard that in case of dismissal, severance pay is just for those who have worked there for at least three years. I just had one year behind me."

Czech Republic 

While car sales have remained robust in the Czech Republic, grim sales forecasts across the continent throughout 2009 have had an impact on factories. The automotive industry is responsible for a fifth of all industrial production in the Czech Republic. 

Workers at Skoda have stopped production on several occasions since last September, switching to a four-day week until January. The company has cut the number of agency workers it employs, but full-time staff have so far been unaffected. 

Hyundai's operation in the Czech Republic was also forced to cut production, resulting in a recruitment freeze. The plant has implemented a four-day week and has since decided to move to just two or three days of activity per week in response to expected further falls in demand. 

The picture is comparatively brighter at the TPCA plant, which produces Toyota, Peugeot and Citroën cars. It is no longer hiring but hopes to be insulated from the worst of the recession as it produces smaller, fuel-efficient cars which experts suggest may provide a competitive edge. 

The Czech government is toying with the idea of matching a scheme introduced by the German government, which offers financial incentives to consumers who buy new cars and makes use of an environmentally-friendly scrapping scheme. 

The industry has given its backing to the proposal, but Czech Finance Minister Miroslav Kalousek is resisting the plan for fear that it would distort the economy. 

Slovakia 

When Slovakia was first dubbed "the new Detroit" a number of years ago, it was meant as a compliment. Slovakia was pulling in jobs from higher-cost, Western European neighbours and from as far afield as Korea. 

Now Bratislava is scrambling to ensure its huge auto sector does not go the way of Detroit's 'Big Three' (General Motors, DaimlerChrysler and Ford). Maria Novakova, secretary-general of the Automotive Industry Association of Slovakia, is not keen on the comparison. "We're in a good position to grow. Frankly, we don't want to be compared to Detroit, because we don't want to end up like Detroit," she told the Associated Press. 

The things that made Slovakia a magnet for carmakers are largely still in place. It is an EU member state and has been developing rapidly, but remains a competitive place to do business. Auto workers earn €800 per month – at lest four times less than German counterparts – and companies also save on pension and healthcare costs. 

Still, no country dependent on the auto sector can escape the crisis of confidence spreading through the industry, as demonstrated by the decision of Kia Motors Slovakia to reduce the length of its shifts from eight to six hours at its Teplicka nad Vahom plant. Activity at the factor was also severely affected by disruption to gas supplies in the region. 

Nevertheless, given the state of the industry globally, Slovakia has more reason than most to remain positive. 

France 

One country that has lost out to Slovakia's capacity for low-cost car production is France. In 2006, long before the term 'credit crunch' entered the media lexicon, Peugeot had shed 2,300 jobs at its Ryton plant and moved production to Trnava. 

The situation has worsened considerably since the global downturn. The French government is looking to inject between €5 billion and €6 billion into its auto industry as part of a coordinated aid package which may also require major car producers to buy set quotas of products from local suppliers. 

French Prime Minister Francois Fillon has stressed the need to act swiftly, adding that the government has no intention of bailing out companies who simply close production plants in France and relocate to lower-cost countries. 

Critics of the plan include the Socialist Party's national secretary for industrial policy, Guillaume Bachelay, who says the government's plan helps big industry while effectively ignoring sub-contractors and consumers. 

At European level, France runs the risk of bending state aid rules if its plan is seen to work against foreign companies. Jochen Homann, state sectretary in Germany's industry ministry, is reported as saying "the rules of the game must be respected – discriminatory measures must not be taken".

For now, Brussels is satisfied with the proposals emanating from Paris. Günter Verheugen, vice-president of the European Commission responsible for enterprise and industry, has described the aid package as "justified and essential," but has also warned against any measure which confers a competitive advantage to home-grown companies at the expense of competitors. 

Germany 

The series of government support packages being rolled out across Europe is heaping pressure on member states to stand behind indigenous industries for fear that they might fall behind neighbouring countries and international competitors. 

German Finance Minister Peer Steinbrueck said last week (January 30) that it would be "fatal" not to support the German car industry given the multi-billion dollar handouts received by major automakers in the US. 

He said "every seventh or eighth job" in Germany is dependent on the car industry, many of whom have already been hit by the current crisis. More than 170,000 workers are already on short-time contracts, and that figure looks set to grow. 

26,000 employees at BMW plants in Bavaria and Berlin will work reduced hours throughout February and March. It is a similar story for 39,000 staff at Daimler and 10,000 workers at Bosch, an automotive supplier. 

Firms supplying car manufacturers, including Grammer, Schaeffler and tyre-makers Continental, will also have their hours slashed. 

Struggling automotive companies can put their entire workforces on reduced hours for up to eighteen months. In cases where factories or departments send staff home for weeks or months, employees can receive 60% of their wage (67% for staff with children) from the Federal Labour Agency. However, if their company's order books do not improve within eighteen months, workers face redundancy. 

Belgium 

The Belgian government this week (3 February) organised round-table crisis talks to assess the difficulties facing its automobile assembly plants. 

Fears persist over the future of a General Motors plant in Antwerp, where the Opel Astra is assembled. The plant is believed to be seriously threatened not just by the economic downturn, but by the strategies employed to support national car industries. 

Belgium's major concern is protectionist policies in neighbouring member states. Federal Minister for Enterprise Vincent Van Quickenborne expressed concern over the situation, saying the government would seek clarifications from Angela Merkel on the issue. 

"Belgium is an important country at the level of car assembly, but it does not have a national brand. If member states take measures which are only in the interest of national enterprises, Belgium risks being ignored."

UK 

Former EU trade commissioner and current UK Business Secretary Peter Mandelson unveiled a package of measures aimed at revitalising British carmakers, which includes a £2.3 billion (€2.53 billion) loan guarantee scheme. £1.3 billion will be drawn from the European Investment Bank, with the government pledging to guarantee loans of up to £1 billion. 

British Prime Minister Gordon Brown drafted Mandelson back into cabinet last year to help his government work through the economic crisis. He is reportedly also mulling proposals for a "wage subsidy" which would discourage layoffs by effectively propping up struggling manufacturing firms. 

Industry representatives in Britain are pressing for specific measures to ease consumer credit, warning that tens of thousands of jobs are at risk due to the collapse in car sales. 

GKN, an engineering company supplying parts to Ford and Land Rover, has cut 242 jobs since October and may announce further redundancies. Meanwhile, Aston Martin has cut its production, putting workers on a three-day week. 

Demand for cars across Europe has slumped dramatically in recent months, with a 19.3% year-on-year fall in new car sales recorded in the final quarter of 2008. Double-digit reductions were seen in Iceland, Ireland, Italy and the UK. 

Sales figures for new EU member states offer a mixed picture, with Poland enjoying a 9.4% increase in annual sales and the Czech Republic also seeing 8.4% growth. 

However, Romania recorded a decline of 8.7% for the year, while sales in Hungary fell by 9.2%. Figures for new car registrations in December also made for grim reading, with a 10.7% overall decline among new EU member states. 

The response in several key member states has been to prop up indigenous industries, raising concern at the European Commission about creeping protectionism. 

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