Spain's car sector has become the poster child of Europe's struggling car industry with sales plummeting 40% in the first six months of 2009 and losses rising to a staggering EUR300bn last year.

But observers are confident the year will end in a better note if Madrid extends its so-called 'Plan integral del Automovil' subsidy programme which includes the much-celebrated Plan2000E, and the Competitive Plan to bolster manufacturing efficiencies for car and component makers.
 
"We are convinced that government will launch a new plan in coming months," enthuses Rogelio Mena, secretary general of the automobile and components division of top Spanish union UGT.

"The government understands how crucial this industry is and has pledged its support."

Mena, who participated in the Plan Integral's creation last year, says the state should expand the Plan2000E, Competitive Plan and Plan Vive, which rewards eco-car purchases but has now ended.

"Vive still has EUR200m of unused money so this could be put into a new plan," Mena points out, adding that Spain's 17 autonomous regions also need to become more involved in the 2000E scheme.

Spain should also earmark more funds to help banks and financing companies extend more credit in a country where 80% of car purchases are financed.

2000E "mess"

The finance director of a major Renault dealer was also hopeful the state will expand Plan2000E. But she cautioned that if it doesn't, the sector will resume the 40% average monthly sale falls registered in the first half.

She stressed the plan must also be streamlined to hasten reimbursements to cash-strapped dealers and include a more homogeneous contributions from the country's regions.

"The help is not coming quickly enough," she says. "Some dealers that applied in June are only now (mid August) getting the funds. This is worsening their already precarious financial situation."

Under Plan2000E, the state offers EUR500 per car sale while regions contribute another EUR500 and manufacturers EUR1,000, totaling EUR2,000 per vehicle. However, some regions don't contribute the same amounts with many forking out just EUR200.

Accordingly, the finance director branded the plan "a mess" saying regions' disparous commitments - and Madrid's failure to implement the scheme- is prompting consumers to drive outside certain areas to get higher rebates, stealing business from dealers that can't match them. Instead of partaking in Plan 2000E, Madrid waves the 20% registration tax. However, that only helps promote luxury car sales, not those of the more-demanded midsize sedans.

Factories rev up

Mena says the government is already working to address Plan2000E's deficiencies which he expects will be fixed if an extension is launched.

Meanwhile, he says car-making rates are improving, helped by rising demand from Germany, Italy and France, the biggest buyers of Spanish-made sedans.

According to Mena, output picked up in the summer with Citroen adding 19,000 vehicles to its Vigo factory and VW Navarre forecasting a "substantial increase" for the year.

"The data show production and exports are going to be better than previous forecasts," Mena notes.

That's good news for a country that exports 86% of the cars it makes and 52% of components. In fact, the car industry accounts for 3.5% of Spain's GDP and 8.7% of employment.

Production fell 34% to 1.07m vehicles in the first half and was expected to double that rate before signs emerged that the global economy is rebounding.

Car manufacturers' federation Anfac has forecast sales will decline 22.5% to 900,000 units in 2009 though the fallout would have totaled 1m without Plan 2000E, which has helped dealers sell 60,000 units since it was introduced in May, helping year-on-year sales to flatten out in August. 

The plan has earmarked EUR100m in aid but some observers worry it will run out in October and have urged the state to renew it then.

Last week, other top industry federation Ganvam urged the government to renew Plan200E for another year or face the spectre of another sales freeze. Ganvam's President Juan Antonio Sanchez Torres said that even though the market is showing signs of improvement sales are down 40% and will continue that trend without another Plan2000E.

However, he echoed other views that sales will match or beat Anfac's estimates if the plan is extended.

While credit markets remain jammed, Spanish consumer confidence is rising and default rates are declining, adding a glimmer of hope to second-half sales, says a Madrid auto analyst.

"This should help banks lend a bit more in the autumn though the of course this won't do much without more government incentives," he says.

Ivan Castano


See also: SPAIN: Subsidies halt slide in new car registrations