Car sector looks beyond the crisis

The Spanish automobile industry is starting to show signs of a recovery. It's nothing to raise the roof about, but it is noteworthy in the context of the weakness of the domestic economy, where the jobless rate remains at 26 percent. Factories are increasing output, have been assigned new models and are creating jobs, something that is not being seen elsewhere in the Spanish economy, nor in the sector in the rest of Europe.

Wage moderation and labor flexibility, a feature of the sector since the 1990s, are key to the reasons why Spain's automobile plants are among the most competitive. The sector is now responsible for producing 39 models, compared with 34 two years ago. In the next two years that figure will increase to 45, according to figures from the National Association of Car and Truck Manufacturers (Anfac).

As a result, output has increased consistently over the past seven months after a number of tough years in which production dropped below two million vehicles a year. The sector is in line to churn out more than 2.2 million units this year and expects this number to increase to 2.4 million next year, and to 3 million in 2015. In the boom years of 2003 and 2004, the sector was producing more than 3 million vehicles a year. "In general, you can say there has been something of a recovery but there's no reason for celebration," Anfac spokesman David Barrientos says.

The improvement has had some impact on the labor market. While the Spanish economy as a whole destroyed jobs in the first half of this year, the automobile industry created 2,400 positions. And it looks like that trend is going to continue. At the end of November, Ford announced that over the past few weeks it had taken on 1,800 people for its Almussafes plant in the province of Valencia. Manufacturers have invested 3.5 billion euros over the past year and plan capital outlays of a further 1.5 billion next year.

We have agreed to salary adjustments with companies to safeguard our jobs"

The workforces of all these factories have played a big part in the improvement in the sector, which was weighed down for six years by a plunge in sales as a result of the crisis and the huge discounts that needed to be offered to secure purchases. "For years we have agreed to flexibility measures and salary adjustments with companies to safeguard our jobs," says Mariano Cerezo, who heads the MCA-UGT automobile sector labor union. According to Cerezo's calculations, wages have risen "in the best of cases by a total of only 3 percent in that period." In many cases, they have been frozen, he adds.

Another non-wage factor, but nonetheless also key, has been labor flexibility, which basically consists of adapting the working day and vacations to the production needs of plants. This has been in place in the automobile sector since the 1990s through agreements with labor union representatives, long before it was introduced on a national scale in the latest government reforms.

There are other factors that explain the competitiveness of Spain's car plants, all of which are foreign-owned. "The components industry in Spain sets the country apart from others," Anfac's Barrientos explains. The car-parts companies have lots of experience and are close to the automobile factories, which cuts costs. "Diversification has also been a key factor, both in terms of the models produced as well as the countries to which they are exported."

Almost nine out of every 10 cars manufactured in Spain are exported. "The share of exports taken up by countries such as the United States, Algeria, Austria and Turkey has been increasing," Barrientos explains. The United States did not import a single car from Spain in 2010, whereas since the start of this year Spain has shipped 18,000 vehicles there. Next year, Ford España is looking to export 100,000 of its new Tourneo Connect model to taxi drivers in the United States.

The sector has received a total of €400m from the Spanish government

The domestic market is finding it harder to pull itself out of the crisis. In the middle of the last decade, there were 1.6 million new car registrations - a proxy for sales - a year in Spain. The sector expects to end this year with sales of only 720,000. Despite that, the first signs of a pick-up in three years have emerged, albeit limited in scope, with sales in 2013 on track to exceed those of last year. "I think we've touched bottom," says Jaume Roura, the chairman of the concession-holders association Faconauto. "Next year should be one of recovery and we expect the PIVE Plan to remain in place for two or three years more to give us the push we need," he adds.

The government put in place the direct subsidies schemes Plan PIVE and PIMA Aire last year after strong lobbying by manufacturers and dealerships. The sector has received a total of 400 million euros from the government, and estimates that it has generated an additional 1.5 billion euros in value-added tax revenues and registration fees.

Discounts offered by dealerships have also underpinned purchases and it is not surprising to see new cars sold for 20 percent less than five years ago.

But manufacturers and labor union representatives fear that policies being pushed through by the government could undermine the efforts to turn the sector around. They are particularly concerned about the new taxes on energy, which are pushing production costs higher. The sector also wants improved logistics, given the importance of exports to the domestic industry. MCA-UGT's Cerezo insists on promoting a pro-active stance to avoid crises. "We want to have industry, because without industry there is no employment, and without employment, there are no rights."