Austria Moves to Bolster Automotive Industry

UNCLAS VIENNA 000091 SIPDIS E.O. 12958: N/A TAGS: EIND ELAB ECON ELTN AU SUBJECT: Austria Moves to Bolster Automotive Industry ¶1. The automotive crisis has reached Austria. With no national champion but an extensive supplier network and assembly facilities, the health of Austrian industry is linked to the fortunes of European and American car producers including BMW, Opel (GM),Chrysler, and Mercedes. The sector accounts for a tenth of Austria's industrial production and employs 65,000; including dealers and related businesses, the automotive sector supports 360,000 jobs (12 percent of Austria's private-sector workforce). ¶2. New car sales in 2008 in Austria were down just 1.3%, but as elsewhere in Europe the sector took a dive in late 2008 (down 13 percent in November and 16 percent in December). The Economic Chamber's head for automotive supply, Dietmar Schaefer, told us sales will fall by at least a quarter in 2009, and will likely continue to fall in 2010. ¶3. One of the largest automotive suppliers in Austria is General Motors subsidiary "GM Powertrain Europe," which produces engines and transmissions, primarily for Opel models built in Europe. This facility will also reportedly produce the first motors for the Chevy Volt. GM-Powertrain announced in early January that it would put 1,540 of its 1,850 workers on reduced hour schedules, which amounts to a government- subsidized temporary layoff in which workers receive partial wages and partial unemployment compensation. Another major player in the Austrian automotive sector is Canadian-owned Magna Steyr, which assembles vehicles for Chrysler, BMW, and other makers. They have also temporarily laid off much of their workforce. Eybl International, an Austrian maker of automotive interiors, has filed for administrative receivership and may be closed if restructuring measures fail in the coming weeks. Overall, at least 7,500 workers in the sector are on layoff status and those hired on temporary contracts are out of work completely. ¶4. Against this background, Chancellor Werner Faymann and Vice-Chancellor Josef Proell held an "Automotive Summit" with business and unions in early January to discuss ways to ease the crisis. Coalition leaders Faymann and Proell made clear the GOA does not plan to take equity stakes in Austria's automotive industry. The summit did agree on measures (to be implemented by the end of January) to help secure jobs: -- Extending the government-subsidized reduced hour schedule from a maximum of six months to a maximum of 12 months (18 months under special circumstances). Workers will receive fifty percent of their wages for 20 hours per week from the state unemployment fund; -- Special re-training programs for those working reduced hours as well as those who have lost their jobs in the automotive sector; -- Government guarantees and subsidies for investment in the automotive industry will increase from EUR 2.9 to 5.2 billion; -- An additional EUR 33 million will go to fund research on environmental technologies in the automotive sector. Austria to Introduce Rebate for Junking Old Vehicles -------------- -------------- ¶5. Automotive suppliers and particularly dealers are not happy with the outcome of the summit, arguing that it does not go far enough in addressing the crisis. While they do accept that state capital injections are not realistic in Austria -- largely because few companies are headquartered here -- they had sought more incentives for customers to buy new vehicles, such as a rebate for scrapping old cars or a tax holiday for the license tax when registering a new vehicle. After consultations with eight other EU countries, the GoA announced on Jan. 20 that it will introduce a incentive for scrapping cars that are more than 10 years old, namely a rebate tied to the purchase of an efficient/low- emissions new car (similar to the incentive package recently approved in Germany). Negotiations are ongoing; it appears the premium, targeted at about 30,000 vehicles, will be somewhere between EUR 1000-2500 but the auto industry and importers will likely have to cover around half of the premium. ¶6. Automotive group spokesman Schaefer expressed disappointment with the GOA's limited support for the industry and said that the coming years will be tough. He expects Austria's automotive sector will survive the crisis and noted that investments in this field pay off faster than in other sectors. GIRARD-DICARLO