MADRID – Spain is trying to bolster its national competitiveness to prevent a future decline in automotive production.
Automakers and suppliers are investing more than E2.4 billion in new or replacement Spanish auto production programs by 2007 (see table). But some believe Spain is becoming less attractive as a production location and by 2010 its 11 assembly plants could lose production assignments to other factories, especially those in eastern Europe.
Spain currently is the No. 3 auto-producing country in Europe. Its annual output of 3 million units ranks it behind Germany and France, and ahead of the UK and Italy.
But production in Spain may drop 30 percent within five years, warns Joaquin Ruiz de Velasco, business strategy professor at the Instituto de Empresa, a Madrid university.
Spains main problem is the entrance into the EU of 10 new countries that have low wages and are well situated, he says. Spain only has car production guaranteed for the next six years, even though carmakers and their suppliers are already investing millions for long-term business.
When it entered the EU in 1986, Spain was a low-wage magnet that attracted heavy investment from the auto industry. Most of the countrys 11 assembly plants were built in the 1980s. Spains current production capacity is 3.3 million cars a year, says consultancy AutoFacts, a unit of PricewaterhouseCoopers.
But as Spanish wages have gradually risen almost to the level of Germany, France and other high-wage EU manufacturing centers, its primary advantage has faded.
The EUs new low-wage countries have magnified some underlying structural problems in Spain:
- Only Fords Valencia and Seats Martorell plants have adjacent supplier parks.
- Spains 11 plants are scattered, reducing economies of scale and increasing suppliers logistics costs.
- Spain is far from many EU markets, so inbound and outbound logistics costs are high.
- Spanish suppliers offer few engineering or r&d services.
The Spanish auto industry should address its structural problems immediately, says Antonio Luis Ocana, national secretary of the UGT union, which is responsible for Spanish manufacturing plants, before automakers start making the next round of decisions on where to build models.
He thinks parts plants should be located closer to assembly plants and that suppliers in Spain must boost their r&d capabilities.
If there are not more regrouped clusters [of suppliers,] we will lose production in the long term, Ocana says. He believes the danger is greatest after 2010.
But suppliers say that locating next to each customer is difficult.
A supplier with multiple customers cannot commit to only one supplier park, says Delphi Spain spokesman Javier Belderrain.
Spains assembly plant boom in the 1980s happened without considering this problem, says spokesman Gonzalo Garrido of supplier CIE Automotive. Its easy to build a supplier cluster in eastern Europe when a plant is being built, instead of after the fact.
Spains top treasury official says Ocanas concern is overblown.
I dont think that a lack of car clusters in Spain is a threat for suppliers in the long term, says Miguel Angel Fernandez Ordonez, Spains budget minister. Instead I think that this situation represents a challenge for everybody.
Labor leader Ocana also called for suppliers to provide more r&d centers capable of handling multiple customer needs.
Many r&d centers are working for just one carmaker, Ocana says. What makes sense is an r&d center working for three carmakers.
Consultants generally agree with Ocana on additional r&d.
|Key: 1. PSA, Vigo 2. Renault, Palencia 3. Renault, Valladolid 4. D/C, Vitoria 5. VW, Pamplona 6. GM, Zaragoza 7. VW, Martorell 8. Nissan, Barcelona 9. PSA, Madrid 10. Ford, Valencia 11. Santana, Linares|
Inigo Aranzabal, principal partner at AT Kearney Spain, says providing customers with r&d support could compensate for suppliers who are not close to assembly plants.
OEMs are transferring to suppliers a big chunk of their value added [operations], which means that its not so relevant to be close, he says. Other factors are more relevant, like the capacity to innovate and share risks in development.
Critics say Spains national and regional governments must work together to attract foreign investment.
Without national coordination, 13 regional governments have focused on creating small clusters of suppliers in their area. And regional governments have less leverage against large companies than a national agency.
For example, when Ford threatened to move Focus production from Valencia to another country, the Valencia regional government donated land to create a supplier park. Ford started production of the new Focus at the plant in January – with parts delivered by a large conveyor belt paid for by local tax money.
Traditionally, Spains central and local governments have bet on the industry, but have not focused their bets in specific sectors, says Manuel No, president of AT Kearney Spain and Portugal. Thats why clusters in Spain have a little bit of everything, but perhaps not the most important things.
Most regional governments support their local supplier clusters, says Eugenio Prieto, vice president of AT Kearney Spain and Portugal.
He says: But most of them are not investing in r&d, which is the way you can differentiate a competitive and advanced economy.
- Few supplier parks
- Scattered factories; logistics costs
- Low r&d capabilities
- Suppliers move near auto plants
- Suppliers add r&d capability
- Government lures investment