BRUSSELS -- Labor costs pose an increasingly serious problem for some European carmakers in a sector whose productivity lags that of rivals in the United States and Japan, the European Commission said on Thursday.
The EU executive's 2004 competitiveness report said EU carmakers' solid exports and global sales highlighted the industry's strength and said their presence in Russia and China represented a "promising source of future growth and profits".
But it said manufacturers might have to boost their competitiveness by shifting more jobs to lower-wage countries that have just joined the EU.
The comments are set to fuel a debate over whether volume carmakers can afford to keep making vehicles in western Europe at a time of sluggish demand and excess capacity that is exerting brutal downward pressure on prices.
General Motors, the world's biggest carmaker, plans to cut up to 12,000 jobs in Europe -- most in high-cost Germany -- to stem five consecutive years of losses in the region.
Volkswagen, Europe's biggest automaker, just agreed to preserve 100,000 jobs in western Germany in return for a two-year wage freeze and other worker concessions it said it needed to sharpen its competitive edge.
The Commission pointed out that labor productivity in the 15 "old" EU states was 25 percent lower than in the United States and 30 percent lower than in Japan.
Labor costs per hour in the EU-15 were also 10 percent higher than those in Japan, though on a comparable level with the United States.
The bloc's expansion from 15 to 25 countries last spring was beneficial to car companies with high wage structures because jobs could be shifted to lower-wage new members, it said.
"EU enlargement has and will continue to provide automotive firms in high-wage countries with new opportunities to profit from low labour costs by ... restructuring and relocating significant parts of their value chain." "This will help the EU-15 automotive industry to stay competitive, albeit jobs prospects are less promising than in the past."
The report also said it was crucial that European firms move ahead with implementing technology that makes vehicles safer and more environmentally friendly to meet growing demand. This would give the industry an edge internationally and was crucial to its future viability, the report said.
It said Japanese manufacturers were strong in investing in innovation and U.S. automakers had taken advantage of a huge home market and long-held internationalisation strategies.
"Based on performance on the global automotive market one can conclude that the European automotive industry is competitive. However, success in the future is clearly not guaranteed," it said.
The report said regulation was important in affecting innovation but that public policies should leave room for the industry to decide how to meet social objectives.
"The automotive industry is increasingly concerned about the accumulative burden of EU regulation on their sector and by the complexity and sometimes conflicting nature of that regulation," British Trade and Industry Secretary Patricia Hewitt told reporters on the sideline of a ministerial meeting.