GM also stated that European production of its midsize cars would in future be concentrated in either the Saab plant in Trollhattan, Sweden, or the Opel plant in Ruesselsheim, Germany. This sparked a huge contest between the two locations, with Sweden’s government announcing massive infrastructure investments to make the Saab location more competitive. Meanwhile, Volkswagen managed to push through a wage agreement with its German unions, using the threat of 15,000 job cuts to secure wage concessions in return for long-term employment guarantees.
Both cases raise questions about the future of automotive production in western Europe: is there one, if labour costs are so important to automotive companies? A study by KPMG, The Future of European Manufacturing, finds that while most European companies will continue to shift lower value added manufacturing to low cost locations, western Europe has a strong competitive advantage in high value added manufacturing goods. The question is whether automotive assembly has become a “lower value added” activity that is no longer sustainable in a high labour cost environment. Given that car companies are increasingly just putting together the complex sub-systems made by their suppliers, this may not be far from the truth. Forward-looking automotive industry locations in western Europe may be wise to shift their attention to attracting high-tech automotive suppliers, rather than trying to retain vehicle assembly operations whose days may be numbered.
Andreas Dressler is a director of KPMG’s Global Location & Expansion Services.