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Motor industry: threats to job security used as a standard management tool

Translated Friday 20 June 2008, by Maud Gillet

Two internal documents from the Renault firm reveal how the motor industry uses threats to job security to impose pay decreases and flexible working times.

In France and elsewhere, the gloomy picture of their country as an industrial wasteland - all the production processes shifted to lower–cost countries - has cast a frightening shadow on the lives of motor industry workers for several years. As companies relocate entire sections of their production processes abroad, this shadow is more than just an illusion. In fact, it is a powerful psychological weapon, which higher management teams have been wielding to create competition between the industry’s workforces of different countries.

As part of a strategy to lower wages across the globe and increase their staff’s flexibility, top firms circulate warnings of lay-offs, factory closures and partial or complete offshoring, issuing all kinds of threats to job security. These threats are part of a cynical corporate management strategy that the “big brains” of major companies spell out in unambiguous terms. The French Labour Federation (CGT), a major French union, has leaked two internal documents emanating from Renault referring to measures that the firm’s top executives considered at a “Group Strategic Meeting”.

In these documents, threats to job security are laid out as a standard management solution to force employees to accept drastic measures. Additionally, in contrast to Renault’s public statements, the leaked documents acknowledge that relocating in Eastern European countries is less and less profitable and that the firm has no plan to end production in developed countries.

Written between the end of 2007 and the beginning of 2008 and entitled “Competitiveness: how do the Germans manage?” and “The challenge of globalisation”, the two reports promote the German approach to competitiveness as well as the application of this approach in Spain. The reports’ author, a market analyst for Renault, remarks that while France’s export market shares are going down, Germany is “holding the fort” outside the eurozone and “increasing its shares” within the eurozone. He attributes this fact to the Germans curtailing the growth of labour costs: the increase between 2000 and 2007 is 11,3% only in the German automotive industry against 24,2% for its French counterpart. The difference comes from the Germans “cutting taxes on industry and employment as well as from forcing cuts in labour costs.”

Lowering wages in exchange for keeping jobs in the country.
“Raising to the challenge posed by globalisation, the German government (at first socialist and later grand coalitions), the industrial union IG Metall and industry bosses set up measures…”. According to the reports, these measures consist in keeping wages low in the former East Germany, reducing employment costs thanks to the shift to the 35-hour week and to the distribution of worked hours over a number of years (a practice known as "pluri-annualisation" in France), reverting to the 40-hour week without compensation, freezing wages since 2003 and cutting down staff numbers. According to the market analyst for Renault, the German model’s strength lies in "social pacts" aimed at preserving the “Standort Deutschland” (the Germany Site). He sees these pacts as examples of "an industrial nationalism practiced jointly by political leaders, industry bosses and union chiefs."

The decision of assigning the construction of future cars to German plants is traded against “an ongoing increase in competitiveness” and the signing of “emergency clauses” on wages and working times, the analyst reports admiringly. For example, in 2005, “the staff of Volkswagen’s Wolfsburg and Emden sites signed a new flexibility agreement (scrapping breaks and night shift rates) against the promise that they would be assigned the construction of a new model in two or three years.” In 2006, “after warning of the mass lay-off of 20,000 employees, Volkswagen presented its monitoring board with a scheme advocating longer hours with no pay rises.”

The pressure put on Spanish motor industry workers has been even harsher. Renault’s market analyst explains that “in October 2003, union members at Seat refused to work on 5 bank holidays; Volkswagen gave an electric shock to its workforce by relocating 10% of the production processes of the Seat Ibiza from Martorell to Bratislava (Slovakia)”. The analyst refers to this treatment as a “punishment”. Later, Mercedes “threatened the Vittoria plant’s workforce with transferring production to Germany”

Back at Volkswagen, “in December 2003, a staff reduction scheme involving 500 job losses in Pampelune was dropped after a 10% decrease in wages and working hours had been agreed on. The German industrial union IG Metall informed the unions in Barcelona that it approved of the deal.” Threats brought the expected outcome. “In May 2004, Seat employees accepted a flexibility agreement at no additional labour costs, following which Seat’s management swiftly announced that the Ibiza model would return to Martorell.” Even so, Volkswagen has yet to effect the Ibiza’s actual return – so higher management may have been lying.

“In 2005, rumours suggested that Seat would need to be downsized. The board offered to lower wages and working hours by 10% to avoid a mass lay-off.” Such rumours appear to have been created to force staff into submission. But “in October 2005, the unions rejected the deal. The company published an official estimate of 1400 redundancies at Martorell, whereas the actual number was about 600.” Redundancy figures were grossly exaggerated to scare the workforce.

As for Opel, “in October 2005, the Figuerelas plant was forced to compete with Gliwice, in Poland, for the attribution of the Meriva. The unions were asked to accept a wage freeze, increased working times, and increased flexibility…Meriva will remain in Spain.” Lastly, “in 2007, the Landaben plant’s workforce signed a flexibility deal in exchange for the attribution of the Polo, no job losses and an agreement on wages. Martorell’s staff in Spain accepted the most flexible of flexibility deal.” In short, “the spread of the German model and the threat of offshoring compel unions and management teams to reach global deals”, as the analyst smugly concludes.

In Eastern Europe, the best years belong to the past. The final part of the report “The challenge of globalisation” regards Renault’s offshoring to “low-cost” Eastern European countries.” A chart shows the gaps between wage rates in Renault’s Western European plants and Eastern European plants. Summing up, the market analyst points to “the advantage of Eastern Europe”, adds that it is “a tenuous advantage, however”, and gives “the lowdown of low-cost countries.” This comprises “socio-political instability, limited financial resources, disastrous demographics, scarcity of skilled labour, dangerous rise of labour costs, inefficient housing, education and welfare systems.”

In plain English, unfavourable conditions in these under-developed countries undermine competitiveness and the ageing population will cause labour shortages that will drive wages up. One chart suggests that pay rates in Slovakia and Poland will have doubled by 2015! On top of this, the price of petrol has rocketed and so have transport costs. The Renault analyst considers that “such problems are damaging the competitiveness of low-cost Eastern Europe.”

He goes on to outline a possible action plan: for high-cost countries, “the economic changes brought about by globalisation do not threaten the industrial future of Western European countries.” These changes “ask for the set-up of a competitive range of plants with an active part in the business and for the strategic lowering of production costs.” For low-cost European countries, “easy profits are becoming a thing of the past; from now on, securing our future competitiveness can no longer rely on low wages.”

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