Wim Dries was at a public swimming pool with his kids in February when a message over a loudspeaker summoned him to take an urgent call. On the line was the head of Ford Motor’s (F) factory in Genk, Belgium, who said he was being held by workers opposed to a plan to close the plant. “He was surrounded by a group of strikers and the tension was high,” says Dries, the city’s 40-year-old mayor. After Dries offered to send police to the factory, “things cooled down,” and the workers let the manager go, he says.
The labor trouble at Ford, which aims to shutter two other European factories, shows the resistance automakers face to their efforts to stanch losses in the region. PSA Peugeot Citroën is fighting one of its unions in court in Paris to shut a factory and cut 11,200 jobs. Labor is also fighting General Motors’ (GM) plans to close a German plant. And at Daimler (DAI:GR), workers angry over cost cuts at its Mercedes-Benz unit spurred union representatives on its board to push through a shorter-than-expected contract extension for Daimler Chief Executive Officer Dieter Zetsche, according to a person familiar with the matter. “These are very sensitive political subjects, and it’s the sector where the unions are the best organized,” says Jürgen Pieper, a Bankhaus Metzler analyst in Frankfurt.
Automakers in western Europe, which has a long history of worker protections, can’t simply fire employees or close plants when business sours. Workers in France must be extensively consulted beforehand. The process can take years and often results in political pressure to delay any job curbs—as has been the case with Peugeot’s proposed reductions. German labor law grants union representatives half the seats on companies’ supervisory boards—giving them considerable power to slow job cuts.
The union pushback shows how difficult it will be for auto manufacturers in Europe to push through the 30,000 job cuts and five factory closings they’ve announced since last July. Without reining in spending, those losses will likely mount as European auto sales head for a sixth straight annual drop. Fiat (F:IM) CEO Sergio Marchionne estimates carmakers’ collective losses in the region last year at €5 billion ($6.5 billion). GM saw a $1.8 billion deficit in Europe last year, bringing its cumulative losses there since 1999 to $18 billion. Ford expects to lose $2 billion in Europe in 2013, up from $1.75 billion last year. Peugeot, which in 2012 posted its first operating loss in three years, is struggling to push through plans to eliminate about 20 percent of its workers in France.
At Aulnay-sous-Bois, north of Paris, Peugeot is clashing with workers over plans to close a plant where it makes the Citroën C3 compact. The CGT union has succeeded in temporarily blocking the shutdown, and the factory has been virtually idle since Jan. 16, when the CGT occupied part of the facility, demanding that the company offer more severance pay to laid-off workers. The strikers have thrown firecrackers, eggs, and bolts and spit at nonstrikers and managers, said factory manager Laurent Vergely, working in the small room near the front gate where he has set up shop since he was detained for a few hours in October. “It’s taking more time than expected” to reach agreement, says Peugeot CEO Philippe Varin.
Even if automakers succeed with the five factory shutdowns they’ve announced, their efforts may fall short of what’s needed. With sales and capacity utilization continuing to drop, carmakers probably need to close 10 factories to restore profitability, says Florent Couvreur, an analyst at CM-CIC Securities. Given the powers granted to unions in Europe, Couvreur thinks that’s unlikely.
That’s in stark contrast to what happened in the U.S. after the Obama administration rescued GM and Chrysler in 2008 with an $80 billion bailout. The American industry’s recovery was made possible by job cuts, plant closings, and a United Auto Workers union agreement to halve wages for new workers and eliminate traditional pensions and retiree health care. Today the three American automakers run 28 assembly plants in the U.S., vs. 36 in 2007, according to the Center for Automotive Research. Employment at all U.S. auto factories fell to 524,200 in July 2009 from a peak of 1.16 million in June 2000. By the end of 2012, it had recovered to 662,300.
In February, labor representatives at GM’s Opel unit got the company to back down from a threat to close its factory in Bochum, Germany, at the end of next year. The new agreement would keep the plant operating until the end of 2016 and then transform part of it into a components and logistics center, retaining 1,200 of the site’s 3,000-plus jobs.
Even when an automaker stops production at a plant in Europe, shutting it can take years because of worker protection laws. Fiat, which closed its factory in Sicily at the end of 2011, still has some 850 people on temporary layoff arrangements on its payroll. “We are still Fiat workers, we enter the factory every month to get our pay slips from the company, our sons can attend vacation programs organized by the company,” says Roberto Mastrosimone, head of the Fiom Union at the plant. “If Marchionne wants to get rid of us, he has to send a pink slip to 850 people. We will fight to avoid this.”