European Union expansion in 2004 shifted the continent’s industrial centre of gravity to the east. The new central European EU members, countries such as Poland, the Czech Republic, Hungary and Slovakia, have gained industrial sophistication since the Iron Curtain came down. And crucially, they have maintained their low cost advantages in terms of land and labour costs, writes Mark Bursa.
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So new investment in the car industry has focused on Central Europe – PSA, Toyota, Kia and Hyundai have all announced new plans there this centrury, joining longer-established players in the region, such as GM, VW and Suzuki.
However, these companies are not moving east to build cars for Central Europe – these new plants are source points for the whole of Europe, a market already stricken with manufacturing overcapacity. So that means something has to give elsewhere. And the most vulnerable markets are those on Europe’s western extremes.
The UK has already borne the brunt of plant closures – giant, ageing assembly plants at Dagenham, Longbridge and Luton have closed, and surely PSA’s Ryton plant will follow. GM’s Ellesmere Port plant near Liverpool isn’t safe either. But even these closures won’t solve the problem – more capacity needs to come out of Western Europe. And the country most at risk is Spain.
Twenty years ago, this would have seemed an unimaginable scenario. In the 1980s, Spain was the low-cost market in Europe, and automakers flocked to the Iberian peninsula, setting up plants to build mainly small cars, lured by Spain’s relatively low labour costs compared to other European countries. But EU enlargement means Spain is now no longer a low-cost option. And the difference is huge – the cost per hour for a worker in Spain is about €17, compared with less than €3 in eastern Europe.
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By GlobalDataDespite booming sales in Spain – last year more than 1.5 million cars were sold – production is slumping. Spanish trade association Anfac said car output in 2005 was 2.1m, down by 304,000 units or 12.7%, from 2004. And this trend is likely to continue as manufacturers start pulling models out of Spain and moving their production to central Europe.
Typical of the sort of production that is leaving Spain is the Ford Ka. This entry-level Ford is based on the old 1989-vintage BE95 Fiesta platform, and Ford simply doesn’t have a suitable platform to develop a modern replacement. So the next-generation Ka, due in 2007, will be made at Fiat’s Tychy plant in Poland under a new JV, using the new Fiat 500 platform.
Ford workers want the company to invest €20m at its Almussafes plant to ensure its survival after it stops building the current Ka in 2007. Ford says Almussafes is safe – it will carry on making Focus and Fiesta models – but the unions are not convinced. “If we don’t modernise our machinery, we won’t be able to compete with Eastern Europe,” said workers’ committee chief Gonzalo Pino.
The plant also makes the Mazda 2, but that could also move out of Spain – insiders suggest Mazda will shift production of the next generation 2 back to Asia. Losing the Ford Ka and the Mazda 2 would almost halve output at Almussafes.
Also moving out of Spain will be the next-generation Opel/Vauxhall Meriva mini-MPV, due in 2009. The current Meriva is made at General Motors’ Figuerelas plant, but after GM failed to agree a new deal with Spanish unions, the car will move, like the Ka, to Poland, where it will be built alongside the Agila at GM’s Gliwice plant. GM argues that the new Meriva will share platform components with the Astra, rather than the Corsa, and as Gliwice also makes Astras the move makes sense.
Figuerelas also makes Corsa, but losing Meriva would halve its output – and would inevitably mean job losses – or even the closure of the plant, a flagship for GM in the 1980s.
Also suffering in Spain is Renault, whose Modus mini-MPV has underperformed in Europe, resulting in a major cut in production at Valladolid. Daily output has been chopped back thee times from 1,300 in 2004, when Modus was launched, to 500 units currently and until April. At least Renault has a plan to replace these units – strong sales of the new Clio justify replacing Modus capacity with Clio, reversing a plan to build Clio only in France.
Volkswagen is also analysing the future of its Pamplona plant, where production has been disrupted by several strikes in the past few years. Industry sources say the plant’s future is under threat as it’s the only VW plant in Europe that produces a single model, the Polo, a car seen as expensive in a competitive sector. Like Martorell, Pamplona has been hit by industrial action as unions press management for a new deal for the plant.
The one manufacturer in Spain that is growing production is Nissan, which this year celebrated its 25th anniversary of manufacturing at the Zona Franca plant in Barcelona. Last year Nissan started building the Navara pick-up alongside the Pathfinder and Terrano SUVs, Primastar (Renault Trafic) van, and Almera Tino compact MPV at Zona Franca. Production volumes in Spain have climbed steadily from 17,000 in 1980 to a forecast 190,000 units this year.
However Renault/Nissan CEO Carlos Ghosn warned that Zona Franca still needed to improve productivity if it wants Nissan to continue investing in it. A new labour deal last year ensured production wasn’t shifted to cheaper plants elsewhere in the Nissan network – like Thailand or even Egypt. But the threat remains – despite “an important improvement” in the last three years Zona Franca ” must maintain high competitive standards,” Ghosn said.
These are difficlt times for Spain, and a sign of things to come for all established car manufacturing nations. Emerging markets offer significant cost advantages, and the quality gap is now non-existent. Developed markets need to keep productivity and costs in control, or risk losing out to upstart nations.
Mark Bursa
