Low-Cost Labor Gives Spain an Edge with Foreign Carmakers

By Minder, Raphael | International Herald Tribune, December 29, 2012 | Go to article overview

Low-Cost Labor Gives Spain an Edge with Foreign Carmakers


Minder, Raphael, International Herald Tribune


With labor costs low, Spain is attracting car manufacturers who see a large competitive advantage in producing there, rather than in other European countries.

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 the other biggest European 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 EUR 2 billion, or $2.65 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 currency union.

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 EUR 28 billion, 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 increased 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 had fallen from 2000 to 2007, a period when the Spanish economy was 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 Jose 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 car production in Spain 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 EUR 20.60, well below the figures of EUR 30.10 in Germany and EUR 34.20 in France.

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 experienced in other parts of the economy, which have helped lift Spain's jobless rate to a record 25 percent. Since the start of the crisis in 2008, car factories have collectively cut their work forces 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 Garcia Salgado, who is in charge of the automotive sector within the Union 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. …

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