* Europe's second biggest carmaker faces lower cost rivals
* Restraining wages essential but not enough, industry says
* Industry wants more state investment in freight transport
* Car plants need to secure future by expanding into R&D
By Sonya Dowsett
MARTORELL, Spain, Nov 22 While much of the
European car industry is in dire straits, Spanish assembly
plants are raising production, winning new models and creating
jobs despite years of recession.
But Spanish manufacturers must expand into research and
development while the state needs to improve transport links,
despite its deep financial problems, if Spain is to remain
Europe's second-biggest carmaker and beat lower cost rivals such
as the Czech Republic, industry officials say.
At the moment, at least, the outlook is bright. Grey-shirted
assembly line workers at Spain's biggest car factory live in a
world apart from outside the factory gates, where one in four is
unemployed and countless others fear for their jobs.
At the Martorell plant near Barcelona, headquarters of the
Volkswagen-owned Spanish brand SEAT where production
rose seven percent last year, workers assemble five different
models on a moving carousel.
"Nobody talks about lay-offs here, nor has anyone been
fired," said assembly line worker Pedro Pastor, a 30-year-old
father who has worked for SEAT for 10 years. "In contrast, a lot
of my friends are on the dole and can't find work."
Just as Mexico has a thriving motor industry making vehicles
for much of the Americas, its Spanish counterpart is prospering
despite the depressed domestic economy by keeping labour costs
down and targetting stronger European markets.
A six-year sales slump and aggressive discounting across
much of continental Europe have badly hurt mid-range
manufacturers. PSA Peugeot Citroen, one of the worst
affected which lost 5 billion euros ($6.73 billion) last year,
said on Thursday it may close an assembly line at its Mulhouse
plant in eastern France unless production picks up.
Martorell, which makes the top-selling SEAT Ibiza and Leon
models, illustrates the robust state of Spain's car industry.
Spain's biggest export market is France, which is showing signs
of a sales recovery, followed by Germany which avoided the worst
of the euro zone crisis and relatively buoyant Britain.
The industry created over 2,400 Spanish jobs in the first
six months of this year as foreign firms including Ford
and even Peugeot Citroen opened production lines, investing 3.5
billion euros in just over a year.
With Spanish unemployment at 26 percent, unions keen to
protect jobs have accepted flexible work practices and salary
freezes, which together with close links to a world-class
domestic car parts industry have helped to attract the orders.
Spain has no domestically-owned car makers - Volkswagen
bought SEAT from the state in 1986 - but the overall industry
accounts for 10 percent of economic output and employs 9 percent
of the workforce.
UNIONS LEAD THE WAY
Spanish car industry wages are around the European average
and similar to those in Italy. However, the unions have led the
way in agreeing to practices such as their members working more
hours when a big order comes through, and then taking time off
owed to them when assembly lines lie idle.
"Spanish unions are signing the best collective bargaining
contracts in Europe with multinational companies," Treasury
Minister Cristobal Montoro told Reuters this week.
Unions have adopted measures that would have been
unthinkable a few years ago, such as twin-track salary scales
where new workers get paid less for doing the same job as
Many of these measures, like deciding collective wage
agreements at each company rather than across the entire
industry, have become enshrined in law by the centre-right
government's labour reform last year.
Salary freezes have meant wages in the sector have lagged
inflation by around two percentage points over the past two
years, unions estimate. Average assembly line workers' wages are
between 1,900 to 2,000 euros per month, unions say, still above
the average Spanish salary.
Spain is expected to continue to attract car orders over the
next two years, with factories predicted to work at 85 percent
of capacity in 2015, up from 68 percent in 2012, according to
consultant IHS Automotive.
By contrast, Italian factories are forecast to operate at
only 59 percent in 2015, compared with 48 percent last year.
But labour costs make up barely 10 percent of a vehicle's
cost and the industry wants a better freight network to allow
production to be shipped more efficiently to its major markets.
"Restraining wages is not enough, it's essential, but it's
not enough," said Mario Armero, executive vice president of
Spanish car makers' association ANFAC. "Improvements must be
made in transport links."
Compared with labour costs, transport has an equal or
greater weighting in Spain, says business consultants PwC. This
is an important concern for a country which exports nearly 90
percent of its car production.
Successive Spanish governments have invested heavily in
passenger transport to benefit the tourist industry, like the
high-speed AVE high-speed train network, rather than freight.
"Infrastructure in Spain has been geared more towards the
transport of people rather than goods," said the head of Citroen
in Spain, Alfredo Vila, whose factory in the northwestern city
of Vigo was recently assigned the production of the new C4
The government has promised to invest 112 million euros in
integrating seaports with road and rail links. But big spending
projects are likely to be delayed while the state makes sweeping
cost cuts to meet tough budget deficit targets.
Government spending on public works fell 11 percent in the
first nine months of this year, official data show, on 2012
investment figures that had already hit an all-time low.
NOT JUST A WORKSHOP
European competitors such as the Czech Republic, where
labour costs are half those of Spain's, are closer to the main
markets including Germany. Martorell is waiting for Volkswagen
to decide whether to build a SEAT sports utility vehicle (SUV)
at the plant or at its Czech subsidiary Skoda.
Bringing research and development to Spain will make the
industry less dependent on production lines, officials say.
Hopes are pinned on a growing number of Spaniards at the top
level of car makers, including Volkswagen board member and head
of procurement Francisco Javier Garcia Sanz and Jose Vicente de
los Mozos, who is executive vice-president of manufacturing and
supply chain at Renault.
"Spain shouldn't just be a workshop," said PwC car industry
expert Manuel Diaz. "We should have more research and
development, because that is what makes production sustainable
and creates an industry around fabrication."