GOS MOVES TO SUPPORT AUTO INDUSTRY WITH MODEST

UNCLAS MADRID 000125

SIPDIS

EEB/TPP/MTAA BNAFZIGER, USTR ROY MALMROSE

E.O. 12958: N/A
TAGS: ECON EFIN WTO SP PREL ETRD
SUBJECT: GOS MOVES TO SUPPORT AUTO INDUSTRY WITH MODEST
MEASURES

REF: A. SECSTATE 04753

B. 08 MADRID 1189


1. (U) Summary. Spain is the eighth largest producer of
automobiles in the world, making any downturn in the
automotive industry significant for the Spanish economy.
With domestic production down 45 percent in December from the
year before, it is no surprise that more than half of Spain's
70,000 auto workers have been affected by "temporary"
layoffs. The GOS has warned the 11 multinational auto
companies against outright layoffs and has introduced two
relatively modest measures to stimulate lending for
innovative production and green-car purchases (800 million
euros and 1.2 billion euros, respectively). Spanish auto
industry associations are pushing for more aggressive action,
and the GOS continues to consider additional car industry
aid. End Summary


2. (U) As Spain is the eighth largest producer of automobiles
in the world, any downturn in the automotive industry is
significant for the country and its economy. This sector
directly employs 70,000 Spanish workers - with hundreds of
thousands more indirectly employed - and contributes 2-5
percent to GDP. With domestic sales down by 42 percent in
January and domestic production down 45 percent in December
from the year before, practically all the 11 multinational
auto companies operating in Spain have reduced employee work
hours via "temporary layoff plans." Between 30,000-50,000
auto industry workers have reportedly been affected by these
work hour reductions, ranging from days to weeks. Some auto
makers have also employed small-scale permanent layoffs
despite GOS warnings that such layoffs will preclude these
companies from benefitting from GOS support measures.


3. (U) However, so far GOS measures have been relatively
modest. The GOS announced a 800 million euros auto support
package in November, with 110 million euros to be designated
for training, engineering and systems projects and the
remaining 690 million euros to be used as a zero-interest
credit line for new production lines and technology
(particularly energy efficient or otherwise innovative
technology). The GOS has also recently reintroduced and
increased eligibility for its summer 2008 plan to provide 1.2
billion euros in low-interest loans for those wishing to
replace older cars with new environmentally friendly cars.
The GOS has not taken any measures to support the auto
companies' suppliers.


4. (U) Regional governments have also actively worked to
encourage car makers to keep their plants open and jobs
available. The president of the region of Aragon said
November that the region intended to provide 200 million
euros in loans for General Motors to produce its new Opel
model at its Figueruelas plant. The president of Catalonia
travelled recently to Japan, among other reasons, to convince
Nissan decision makers to keep plants in Barcelona open.
(Note: Nissan attempted to lay off over 1,600 workers in
November at its plant in Barcelona, a move that was met with
angry, semi-violent demonstrations (ref B))


5. (U) Comment: Overall, auto industry associations in Spain
have not been satisfied with the GOS measures to date and are
pushing for more aggressive action. Media reports suggest
that the GOS continues to engage with auto makers and to
examine providing additional car industry aid such as a
reduction in car taxes or fees. However, the GOS will be
limited in the extent that it can affect demand, and hence
production, since 80-90 percent of cars produced are exports
to the rest of Europe. There are 11 multinational car
producers that operate in Spain, including General Motors and
Ford, with a total of 18 factories across the country. There
are no entirely Spanish car producing companies in Spain.

CHACON