Efforts by PSA Peugeot Citroen (UG) and Fiat SpA (F) to end losses in Europe could cost more than 500,000 people their jobs as automakers and parts suppliers grapple with the effects of the European sovereign debt crisis.
The region’s auto industry, including component makers such as SKF AB (SKFB) and Autoliv Inc. (ALV), is set to pare payrolls as auto demand contracts for the fifth straight year. Easy-to-fire temporary workers, which account for about 1.5 million of the industry’s 7 million employees, would likely bear the brunt of the cuts, according to Lars Holmqvist, the former head of the region’s parts supplier association.
The dismissals would follow about 800,000 job losses in the industry since 2007 and add to a record unemployment rate of 11.2 percent in the 17-nation euro area. With auto demand already hampered by 17.8 million jobless, the 13-member Stoxx 600 Automobiles & Parts Index has dropped 14 percent over the past 12 months, led by Peugeot’s 72 percent plunge.
“It’s becoming increasingly apparent with the declines in vehicle sales in the region that production and staffing levels at certain manufacturers are just well beyond where they need to be,” said Ian Fletcher, an analyst at IHS Automotive in London. With nearly 30 percent of European auto factory potential unused, “excess capacity is the main issue at hand. The lower sales are just killing these companies.”
Turin, Italy-based Fiat said late yesterday it is suspending investment in Italy in response to the slump in demand and will focus on temporary layoffs to reduce costs. Chief Executive Officer Sergio Marchionne said this week he will make a decision about restructuring in Europe, including further plant closings, after third-quarter earnings.
The biggest cuts announced so far are at Peugeot. Europe’s second-largest carmaker is eliminating more than 14,000 jobs and plans to close a factory on the outskirts of Paris. Its auto unit lost 662 million euros ($812 million) in the first half.
The firings at automakers are just the tip of the iceberg. For every job lost at a carmaker, five typically disappear at suppliers, said Holmqvist, who headed European auto supplier group Clepa until April and is now senior adviser on auto issues at consulting company Kreab Gavin Anderson in Brussels.
“We’ll see a reduction of about half a million supplier jobs by the end of next year in Europe,” Holmqvist said.
The cuts are under way. MAN SE eliminated 900 temporary jobs and froze new hires at its truck and bus unit. Peugeot plans to reduce 650 temporary workers at its Sochaux plant in France by the end of the year, said Bruno Lemerle, a CGT union official at the factory. The carmaker employs about 3,800 temporary workers at its three main French factories.
The use of workers on temporary contracts helps the region’s manufacturers get around rules that restrict firings, giving them more flexibility in a crisis.
“After 2000, management started using temporary work as a cushion, even though many of the temporary workers have almost become permanent workers in the long run,” said CGT’s Lemerle. “Before that, temporary work was saved for very peculiar periods, such as the launching of new vehicles.”
SKF, the world’s biggest maker of bearings that supplies machine parts to most carmakers, has cut “quite a few hundred temporary jobs” in its European auto business since the end of 2011, Chief Executive Officer Tom Johnstone said in a July 18 interview. The company, which has also reduced working hours at several plants, is ready to cut more temporary workers if demand slides further, he said.
Autoliv Inc. (ALIV), the world’s largest producer of seat belts and airbags, eliminated 300 jobs in the second quarter, mainly in France, Spain, Germany and Sweden, and is likely to cut more jobs this year, spokesman Mats Odman said.
Peugeot, which earned 75 percent of revenue in Europe last year, is fighting with the French government over the job-cut plan. France will extend a research tax break for the auto industry, raise incentives for the purchase of hybrid and electric cars and provide 450 million euros in financing to auto suppliers to help protect jobs, Economic Recovery Minister Arnaud Montebourg said July 25.
European car sales have shrunk for nine consecutive months and truck demand is down for the last five, according to the European Automobile Manufacturers’ Association. The group forecasts that passenger car sales in the EU will shrink 7 percent this year to 12.2 million vehicles, 21 percent below the 2007 peak and the weakest demand since 1995.
The crisis is also hurting overseas carmakers. Ford Motor Co. (F)’s European business swung to a pretax operating loss of $404 million in the second quarter from a profit of $176 million a year earlier. It now expects full-year European losses to exceed $1 billion. Ford has already cut some 500 temporary jobs in Europe since last year, and is trimming production by having a four-day work week at a plant in Genk, Belgium.
“We’ve got some overcapacity, but we’ll do what we always do and match our production to demand,” said John Gardiner, a spokesman for Ford’s European operations. “We’re looking at all aspects of our business.”
GM’s Opel moved in June to close a factory in Bochum, Germany, at the end of 2016. The Detroit-based automaker, whose European operations have lost $16.4 billion since 1999, will reduce management jobs to lower costs ahead of the shutdown.
Still, there are bright spots. Bayerische Motoren Werke AG (BMW), the leading luxury-car maker, continues to create jobs in the region, including 800 at a plant in Leipzig, where it will start production next year of the electric-powered i3 city car. In total, BMW added more than 5,000 jobs in the past 12 months.
There’s also Jimmy Ekstrand. The 24-year-old temporary worker got offered a permanent position at Volkswagen AG (VOW)’s Scania unit starting in September after sweating over his future following more than a year on a short-term contract.
“It’s a headache that’s disappeared,” said Ekstrand, who makes truck parts at Scania’s factory in Soedertaelje, Sweden. “I want to stay here for many years.”
To contact the reporters on this story: Ola Kinnander in Stockholm at email@example.com; Mathieu Rosemain in Paris at firstname.lastname@example.org; Dorothee Tschampa in Frankfurt at email@example.com