MADRID -- Valeo will shift more production from Europe to low-cost African countries with the planned shutdown of a third Spanish plant.
The French supplier announced that it has entered discussions with local trade unions over the proposed closure of its wiring harness systems plant in Orense, in the Galicia region of northwest Spain.
Production will be moved to a plant in neighboring Porrino, Spain, and to facilities in Morocco and Tunisia in northern Africa.
Valeo closed a Spanish clutch cable plant last year, centralizing production in Morocco and Tunisia.
Jose Antonio Bueno, a partner with Madrid-based Roland Berger Strategy Consultants, says northern Africa is a "serious threat" to win labor-intensive jobs from Spain.
But Bueno says Spain's biggest challenge comes from the 10 new countries that joined the EU in May.
"They offer exactly the same thing that Spain offered in the past," he says, "a [previously] closed market ready for liberalization with labor costs significantly lower than in other EU countries."
Spain has lost more than 4,000 supplier jobs to lower-cost countries since 2002. Other suppliers that have closed plants in Spain include Lear, Yazaki and Autotex.
Little added value
Says Jose Luis Sancho, a Spain-based partner with Accenture: "The real reason those plants have been closed is because they represented little added value to the car value chain."
He points out the cost per hour for a worker in Spain is about E16 compared with about 93 cents an hour in northern Africa and less than E3 an hour in eastern Europe.
Over the last two years, Valeo has cut the work force at its Orense plant by 65 percent to 260 employees, and says the closure is because "audits and local studies prove that the plant would not be profitable from next year, and would increase its losses in following years."
The Orense plant produces wiring harnesses exclusively for a PSA/Peugeot-Citroen plant in Vigo, 100km west on the Spanish Atlantic coast.
In a statement, Valeo announced: "Despite the measures put in place in 2002 and 2003 to preserve employment at the site, the economic situation has continued to worsen. The facility cannot be competitive as compared with production of these products in lower cost countries."
The Orense announcement is the latest in a string of closures and work force reductions at Valeo plants in Spain over the last two years: The others include:
Roland Berger's Bueno says Spain has time to react to the threat of losing even more jobs to lower-cost countries. "We will have bad news in the next months and years," he says, "but I believe Spain will remain an automotive industrial power in the decades to come."