Europe helps carmakers but can't halt labour drain

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Helen Massy-Beresford
European governments have no choice but to rush out support measures for carmakers faced with a slump in sales, as the U.S. looks set to pledge billions of dollars of aid to help its Big Three.
While the aid packages may give states some leverage to limit short-term job losses, in the longer-term, they will not be able to reverse the trend of job erosion in favour of cheaper labour in emerging markets, analysts said on Thursday.
The European car industry employs 2.2 million people directly and around 10 million more in related industries and services. It is facing a deepening crisis as the worsening economic situation batters consumer confidence, with November car sales showing the biggest falls for decades.
Germany posted an 18 percent decline, leaving it on track for the worst year of auto sales since reunification in 1990.
Spanish car sales plunged almost 50 percent, the biggest fall in nearly 16 years, while French sales dropped 14 percent.
Governments have no choice but to help carmakers right away, or risk bankruptcies, factory closures and a spike in unemployment figures. Across Europe they are putting forward support plans on top of a 200 billion euro (173 billion pound) Europe-wide economic stimulus package which includes help for carmakers.
French President Nicolas Sarkozy on Thursday pledged a scrapping incentive for people switching to greener vehicles, as well as 1 billion euros in loan guarantees, as part of a 26 billion euro package to shore up the faltering wider French economy.
In the Netherlands, Mitsubishi Motors' Dutch manufacturing plant NedCar plans to make use of a government scheme, part of a 6 billion euro package to boost the Dutch economy. There, companies whose sales have fallen at least 30 percent can cut working hours while staff get partial unemployment benefits.
Portugal's government on Wednesday announced a 200 million euro credit line for auto and component exporters as part of a wider support package.
France's Sarkozy said the state was "ready to do everything to save the automobile industry." However, he said the state would not aid companies that moved production abroad.
"I will not let French industrial resources be dismantled."
While investors breathe a sigh of relief, manufacturers know the bail-outs have implications for their short-term strategies.
"There's no such thing as a free lunch," said analyst Michael Tyndall, of Nomura International. "If governments are looking to support local industry they will be hoping local industry supports local workers," he said.
"The whole thing is a negotiating process," added Global Insight analyst Rebecca Wright.
In the longer-term, factories in Western Europe will not be able to compete on costs with those in eastern Europe or Asia, and the process of boosting production capacity in low cost zones, already underway before the crisis hit, will continue, even if a temporary cash squeeze slows it down.
"The pace of expansion will certainly slow - liquidity will be very tight over the next 12 months, dividends and capex will come under pressure," said Tyndall, adding that he expected some overeas production projects to be put under review. But in the long-term, the outsourcing trend will continue, he said.
"Only a proportion of retiring workers in Europe will be replaced, and we'll see continued expansion in emerging markets. In 5-10 years time we'll see more production outside Europe," Tyndall added.
"If manufacturers have too much capacity in Europe, in a way it is a good opportunity to downsize when everyone is in the same boat at the moment," said Global Insight's Wright.
— Reuters