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
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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