Carmakers hit by lack of state support in emerging markets 

Carmakers and suppliers that sought to save on labour costs by setting up factories in emerging economies have been stung with wage bills amounting to hundreds of millions of dollars.

While their businesses in developed higher-cost economies receive government backing, groups with shuttered plants in states without large job retention schemes such as Mexico, central Europe and north Africa have been left to fend for themselves. 

In the US, carmakers are seeking support from states as well as the federal administration, while in the UK and western Europe governments are paying up to 80 per cent of salaries with varying wage caps. 

Germany has a decades-old scheme known as Kurzarbeit, or short-time work, in which the government will pay up to 67 per cent of employees’ regular salaries. Several large corporations voluntarily top-up the remaining shortfall.

The German carmakers and major suppliers have put almost 200,000 workers on Kurzarbeit, with Volkswagen alone furloughing 80,000 of its staff, before gradually restarting production in some plants.

Spain, home to a significant number of car plants from Renault and VW to Ford, also has a government support scheme where it splits payments with businesses.

But in low-cost nations, carmakers are on their own.

“In a lot of the countries in which we produce, such as Tunisia, Hungary and Mexico, Kurzarbeit is not available, and we have to pay staff costs ourselves,” said Dräxlmaier, a German premium auto supplier.

VW brand Audi said it was paying the full salaries of 12,800 staff at its shuttered plant in Győr, Hungary, and 75 per cent of the wages of most of its 5,000 workers in Mexico.

Nissan and Fiat Chrysler also confirmed they were paying 100 per cent of wages in Mexico, which has one of the world’s largest car industries, making 3.7m vehicles a year predominantly for the US market.

The industry in Mexico ballooned following the signing of the Nafta trade agreement, as carmakers from the US and Japan opened production sites to make the most of the lower wages and tariff-free access to the US market.

Several of Europe’s carmakers have also opened sites across north Africa, catering to the growing vehicle market in that continent, as well as benefiting from lower employment costs.

Renault has plants in Morocco and Algeria, VW’s Seat brand has a site in Algeria, while France’s PSA has a facility in Tunisia.

Renault confirmed to the FT that it was still paying full Moroccan wages, with an agreement to try to restart production by the end of May.

In Algeria, where factories have been closed since last year because of the political situation, VW’s Seat has a factory with local partner Sovac, which has been paying staff 75 per cent of salaries.

However, even with support schemes in developed countries, carmakers are facing huge bills from stoppages.

Renault is seeking a fresh credit line from the French government because the company is burning through €600m of cash each month.

Herbert Diess, VW chief executive, said the group faced a bill of €2bn per week during the shutdown. 

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