WORLD / Wall Street Journal Exclusive

Europe auto relations get testy
By STEPHEN POWER, GUY CHAZAN (WSJ)
Updated: 2006-06-15 13:58

http://online.wsj.com/public/article/SB115032973930680655-aRfcvTBr9mNWaZILbUkvg5VcL_Q_20060621.html?mod=regionallinks

Several auto makers in Western Europe are entering a phase of tense relations with their work forces as companies plan to cut jobs in the region while speeding up investment in faster-growing markets.

The increased tensions could complicate, but aren't likely to stop, efforts by Western auto makers to cut costs and move jobs to lower-wage areas amid intense competition from auto makers based in Asia.

In Germany, the powerful trade union that represents assembly workers at Volkswagen AG is balking at the company's plans to extend working times at its traditional western Germany plants without a corresponding wage increase, following heavy losses at Volkswagen's U.S. and Chinese businesses. The union yesterday called for workers to join a demonstration scheduled for today at the company's Wolfsburg headquarters.

In Britain, two trade unions have launched a campaign for a public boycott of PSA Peugeot Citro?n SA in response to the French auto maker's decision in April to close its Ryton factory near Coventry, England, eliminating roughly 2,200 jobs there.

And in Portugal, warnings by General Motors Corp. about the competitiveness of its commercial-van factory in Azambuja, near Lisbon, have provoked strike threats this week by an umbrella organization that represents GM's unions across Europe.

Meanwhile, jobs and investment continue to flow to areas outside Western Europe, where overall demand for new cars has risen only 0.7% this year. Just last month, Volkswagen signed a contract with Russian officials to build an assembly-and-production plant in Kaluga, southwest of Moscow.

This week, GM -- which has been losing market share in North America and is in danger of being overtaken by Toyota Motor Corp. as the world's top-selling auto maker -- broke ground on a $115 million auto plant in St. Petersburg, Russia. In an interview on the sidelines of the event, GM Chief Executive Rick Wagoner described Russia as one of several developing markets where GM sees room for big growth. Mr. Wagoner, who is pushing ahead with plans to cut more than 30,000 jobs at GM's North American operations, noted that sales of GM automobiles in Russia have risen roughly 40% this year. By contrast, GM's sales in Western Europe have fallen slightly more than 2% this year, according to the European Automobile Manufacturers Association.

"If we can keep growing where the opportunities are to grow...someone's going to have to hustle pretty hard to catch us," Mr. Wagoner said.

The president of GM's European division, Carl-Peter Forster, added that "Russia is our growth market. And that's why we're very keen on developing it."

In addition to announcing last month that it would eliminate roughly 900 jobs at its Ellesmere Port manufacturing plant in the United Kingdom, GM is expected to announce a decision soon on the fate of its Portugal commercial-van factory in Azambuja. The company has said the plant, which employs 1,100 people, is operating at a cost disadvantage of roughly £¿00, or about $625, per vehicle, compared with "other possible locations."

Talks between GM's management and union leaders this week failed to resolve the auto maker's concerns. The chairman of the GM European Employee Forum, Klaus Franz, said Monday his group views GM's comments about the Portuguese plant as the start of a "step-by-step" process of "abandoning car production and engineering in Western Europe" and warned of a "long-lasting conflict with different types of action all over Europe," should GM shutter the factory.

A GM spokesman yesterday declined to respond to Mr. Franz's statement.

Not all European auto makers are making cuts at their traditional sites. France's Renault SA is betting that improvements in quality and higher sales outside Europe will help it to avoid job cuts, as it seeks to raise its operating-profit margin to 6% by 2009 from the 2005 level of 3.2%.