EU Study Warns Job Losses Due to Economic Downturn Could Cripple Auto Industry

BRUSSELS – A European Union study worries short-term reaction to the global economic crisis, such as massive layoffs, will leave the region’s automotive industry unprotected from low-cost competition when the downturn is over.

The study, “Anticipation of Change in the Automotive Industry,” was conceived two years ago in reaction to the pressures facing the European industry at the time, which primarily was overcapacity.

Then the recession hit.

“We did not expect what happened less than a year ago,” Lars Holmquist, executive director of the European suppliers organization CLEPA, says at a presentation here of the study results. “In October a year ago, we had a drop in demand by 30%.”

The pressure on jobs is ferocious. Holmquist says 12 million European jobs are linked to the auto industry, and the precipitous drop in vehicle production means “millions of jobs will be lost.”

For Robert Verrue, the European Commission’s recently appointed director general for employment, “nothing is worse than a loss of jobs when we know well that this crisis will end, and the end implies a re-launching of activity and the need for workers.”

Researchers from the U.K., Germany and France conducted in-depth interviews at Renault SA and Audi AG as well as at suppliers Faurecia SA, ThyssenKrupp AG and Robert Bosch GmbH. They also talked with industry consultants and reviewed academic literature.

The study on the current downturn will be followed by another in October on best methods for worker training and a third will follow on “social dialogue,” which means labor relations in Europe.

The study presented here suggests the pace of catch-up by lower-cost, emerging markets is faster than in any previous period of history. “Hence, a radical new approach to strategizing in the sector may be needed,” it concludes.

EC employment commissioner Robert Verrue says EU has money to fund training and help workers through economic crisis.

Peter Scherrer, general secretary of the EMF metal workers unions, says the researchers found sectors such as coal, steel and textiles have seen a similar dysfunctional change.

“You find a pattern,” he says. “As the industrial revolution gathers pace, there is a dominant producer. It grows in that country, then matures and becomes almost a monopoly. Then competition comes from a low-cost economy.

“First the leader lobbies for import tariffs to keep (these competitors) out, then moves to higher-value-added sectors (and) out of the mass markets, and in the end is pushed up into niche markets. We see this in sector after sector.”

Two principal recommendations come from the researchers:

“Our worry is that we do things in the crisis that inhibit our ability to innovate after the crisis,” says Nic Beech, professor of management at the University of St. Andrews in Scotland.

The French supplier Faurecia, for example, tells researchers it no longer can afford to innovate, yet innovation is considered the only course for long-term survival.

“The European (auto) industry is going to survive in quite a different form and shape,” Scherrer says. “We can do things now that in 18 months’ time we can’t do.”

But for some people attending the presentation here, the study’s proposals do not address the real problem.

“Change won’t come until we have fewer vehicle manufacturers, which goes against the political will,” says Paul Jennison, who follows legal issues for Knorr-Bremse AG, a brake supplier to the heavy-duty-truck industry where sales are down 60%.

“From the industrial point of view, it would be better if General Motors (Corp.) went to the wall. The Obama rescue helps, but I’m skeptical myself.”

EC employment commissioner Verrue says the EU has money to fund training and help workers through the crisis. He intends to push to change rules that require countries to provide matching funds, because many East European countries have no financial resources.

“The automotive crisis is at the top of priorities for today’s leaders,” Verrue says. “A strong industrial base is considered essential to get out of the crisis. The automotive industry, in particular, is extremely critical.”