Spain’s auto sector collides with Covid

For María Helena Antolín, a leading figure in Spain’s formidable auto parts industry, no sight is as sad as an idled factory. 

The sector is still feeling the impact of stoppages in March and April and other consequences of the coronavirus pandemic. Apart from bars and restaurants, few other industries in the EU’s most badly-hit major economy have fared more poorly.

“It is hard to imagine anything worse than a factory where the work has stopped . . . Covid paralysed all our plants in Spain,” said Ms Antolín, who heads the country’s association of car parts providers and whose family company Grupo Antolín logged worldwide sales of €5bn last year. “In those two months [March and April] total production fell by 85 per cent.”

Yet the auto industry is one of the mainstays of Spanish manufacturing, accounting for some 17 per cent of exports and second only to Germany in terms of EU car production. Its travails highlight the damage the coronavirus crisis has inflicted on even some of the most competitive parts of the country’s economy.

In the past decade the sector played a crucial role in helping the country recover from the 2008 financial crisis, carving out new markets as Spain exported its way back to growth. But the current crisis is very different.

Spain’s 1,000 or so auto parts manufacturers have suffered a full-year drop in sales of 20-30 per cent, compared with a tally of €36bn logged in 2019, Ms Antolín said. Some 6-8 per cent of the sector’s 365,000 jobs have gone. The lost ground may not be recovered until 2023, with growth of only about 10 per cent expected next year, she said.

Noemi Navas, a spokeswoman for Spain’s carmakers’ association, said the shutdown had affected the industry more than any other manufacturing sector. “Factories in other industries just closed for the two weeks when it was obligatory; we were closed for almost two-and-a-half months,” she said. Disruption to the complex supply chain for car parts, the difficulty of guaranteeing workers’ health on assembly lines in the early weeks of the pandemic and a collapse in demand lay behind the lengthy hiatus, she said.

Car registrations have fallen more rapidly in Spain than in any other leading EU economy, in line with a contraction in GDP this year that the government predicts will be more than 11 per cent. Ms Navas’s association expects domestic sales of Spanish-made vehicles this year to reach 800,000 to 850,000 — a drop of about 35 per cent compared with 2019.

According to a recent Bank of Spain study, the crisis has hit the country’s auto industry harder than any other sector except hospitality. The research found that most companies in the industry, including parts suppliers, were making negative returns on their assets, with a quarter registering returns of about minus 30 per cent. More than 60 per cent of businesses in the sector were struggling to pay interest on their debts and 20 to 30 per cent risked insolvency, according to the study.

“The auto industry is more important for Spain than for any other big EU economy with the exception of Germany — in terms of the proportion it represents of value added, exports and employment,” said Oscar Arce, director-general of economics, statistics and research at the Bank of Spain. “It is a pillar of the industrial sector, with a skilled workforce, that played a significant role in the exit from the last crisis.”

The sector was facing a “perfect storm”, with the pandemic coming on top of changing environment regulations, falling domestic sales and reduced purchasing power among young people, he said.

Some industry insiders acknowledge that Spain’s 17 car plants, which are all foreign owned including by Ford, Opel, Daimler and Renault, could also be at a disadvantage compared with factories in the companies’ home markets if production is scaled back. Nissan announced this year it was closing its Barcelona plant.

Line chart of Annual % change in gross domestic product showing Covid-19 has had a significant impact on Spain's economy

Exports remain the sector’s lifeblood, with 58 per cent of auto parts and 80 per cent of finished vehicles sold to foreign markets. However, the industry operates a just-in-time supply model, with little stockpiling or spare capacity. “When a production line stops, we stop; if it starts again, so do we,” said Ms Antolín. “We are practically at 100 per cent levels of production now, but we clearly can’t make up this year what we lost in March and April.”

Her association has urged the government to use some of the €72bn in grants it expects from the EU’s €750bn coronavirus recovery fund over the next three years to help fund €5bn of projects to develop battery technology, hydrogen power and so-called smart factories.

Domestic sales of vehicles made in Spain are expected to be down 35% this year compared with 2019 © Bloomberg

Josep Maria Recasens, director of strategy at Seat, Volkswagen’s wholly owned Spanish subsidiary, pointed out that electric cars represent 2 per cent of the country’s vehicle fleet compared with 50 per cent in Norway. He called for government action to help develop an “ecosystem” to allow the technology to develop, including electricity charging points. Spain has fewer than 100 public charging points per 1m inhabitants compared with a European average of almost 500.

“We have to learn from the lessons of the 2008 crisis, when Spain was one of the countries that recovered most slowly,” he said. “A country like Spain depends heavily on services and less on the manufacturing sector.

“Now, when we are seeing margins fall in the banking sector and all the problems of the tourist sector, we have to learn to make the industrial sector more resilient and more robust.” 

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