Industrial relations in the automotive sector

The automotive sector in Latvia consists of a number of small and medium-sized enterprises, mainly producing trailers and car components. This article examines the situation, in 2003, with regard to the structure of the sector, trade unions, employers' organisations and collective bargaining.

Before the beginning of Latvian independence and economic and political transition in 1990, the automotive sector formed a notable part of the overall mechanical engineering and metalworking industry. It consisted of several large enterprises:

• the Riga Bus factory (Rīgas Autobusu fabrika, RAF), producing the 'Latvia' minibus and components for it;

• Sarkana zvaigzne (formerly G Erenpreiss) producing bicycles and motorised bicycles ('motobikes');

• Rigas autoelektroaparatu rupnica, producing components (auto-electric apparatuses) for cars and minibuses; and

• the Daugavpils drive-chain factory, producing drive-chains for bicycles, motobikes and cars (about 2 million per year), and bicycles for children.

The wider mechanical engineering and metalworking industry was an important part of the Latvian economy during the Soviet period. Latvia specialised in this sector within the USSR, and in 1980 it produced 17% of the USSR's total minibus production and 46% of its total motobike production. All enterprises were large, with strong trade union organisations.

After 1990, the majority of these enterprises did not develop, mainly because of delayed and complicated privatisation. During the Soviet period, all of the firms were famous in the USSR for their high quality of production. However, after independence, the management of the enterprises failed to achieve real competitiveness or appreciate the situation in their former markets, and this led to a serious decline of market share and production. After several failed privatisations, the capacity of the enterprises declined even further.

Today, the remaining automotive production is part of the wider mechanical engineering industry, which is made up of a large number of small and medium-sized enterprises (SMEs). These enterprises - either survivors from the earlier period or newly established - have a diversified production structure and a larger or smaller part of their production may be of automotive-related products (trailers and semi-trailers, and components for cars) . For this reason it is impossible to identify a homogeneous and specific automotive sector

Furthermore, Latvian statistics do not specify the automotive industry (ie NACE codes codes 31.60, 34.10, 34.20 and 34.30). They provide data only on wider sectors, into which parts of the automotive industry might fall. For example, manufacture of electrical equipment and apparatus (NACE code 31) as a whole represents about 2% of total industrial production and employs 2,554 people. Its output is increasing and 61.3% of its production is exported, of which 21.5% goes to EU countries. In terms of production, the statistics provide data on production of trailers and semi-trailers. A total of 611 trailers for trucks, cars and boats were produced in the first half of 2003, worth LVL 2.6 million. This subsector is made up of two main enterprises - Mono-Transserviss and Madara- and several smaller firms. The main markets of Mono-Transserviss are in Denmark, Sweden, Finland, Estonia.

Another source of data is the information database of the Association of the Mechanical Engineering and Metalworking Industry (Latvijas Mašīnbūves un metālapstrādes uzņēmumu asociācija), according to which almost 940 companies in Latvia were classified as mechanical engineering plants or metalworking companies at the end of 2001. In the first half of 2003, the sector represented 28% of total industrial production, and 75%-76% of this was exported. Production of vehicles, trailers and semi-trailers (NACE code 34) involved 21 SMEs (companies with fewer than 250 employees) at the end of 2001. In the first half of 2003, they employed 454 people (up from 342 at the end of 2001). They contributed 1.4% the total production of the sector, of which 70% (80% at the end of 2001) was exported. Furthermore, 69 SMEs and four large enterprises produce non-classified electrical machines and appliances. In the first half of 2003, they employed 2,466 persons (up from 2,416 at the end of 2001) and contributed 10% of the total production of the sector, of which 64% was exported (62.4% at the end of 2001).

Only two former large automotive enterprises have survived. Some other enterprises were divided into smaller units, which later closed, while new enterprises have been built on defunct sites. Rigas autoelektroaparatu rupnica is now a private enterprise, part of a diversified holding company. It produces electrical equipment for the automotive industry for export. Its main markets are Russia, Belarus, Ukraine and local. The Daugavpils drive-chain factory, now called Ditton pievadkezu rupnica, is also private. It produces (among other products) short-link drive-chains for bicycles, motobikes and cars. It main markets are Russia, Germany, Italy, Ukraine, other European countries and local.

The main difficulties facing the sector are obsolete equipment, problems with modernisation and a lack of investment.

Trade unions

The automotive sector does not have its own trade union organisations. Workers in the mechanical engineering and metalworking industry are represented by the Metalworkers' Trade Union (Latvijas metālistu arodbiedrība, LMA) and Trade Union Latvijas Metāls (Apvienotā arodbiedrība Latvijas metāls) - both affiliated to the Free Trade Union Confederation of Latvia (Latvijas Brīvo arodbiedrību savienība, LBAS) - while there is also an enterprise-level trade union at the Liepajas Metalurgs steel and metals company. Automotive sector workers are represented by LMA and Latvijas Metāls, and especially the former, which is also an affiliate of the International Metalworkers' Federation (IMF).

At enterprise level, trade unions retain a presence in enterprises that had strong union traditions before privatisation, and have established themselves in some new enterprises. They are present in about 10% of all automotive enterprises, with membership varying from 10%-20% of all employees in some enterprises to 70%-80% in others.

The establishment of trade union organisations or other forms of employee representation is not common in newly established and restructured enterprises. In general, enterprises are small and trade union traditions have often eroded. Trade unions thus find difficult to maintain representation in the sector, where the majority of small and newly established enterprises do not encourage trade union presence. If companies lacks trade union organisations, sector-level union organisations cannot influence employment relations in them

Other forms of company-level employee representation are not common in the automotive industry.

Employers’ organisations

At sector level, the relevant employers’ organisation is the Association of the Mechanical Engineering and Metalworking Industry, in which the automotive sector is represented indirectly as part of the mechanical engineering and metalworking industry. The association is a public non-profit organisation founded in 1994. It is a member of the Industrial Confederation of Latvia (Latvijas Rūpniecības konfederācija) and the European Association of Pump Manufacturers EUROPUMP. The association cooperates with the Latvian Development Agency (Latvijas Attīstības aģentūra, LAA), the Latvian Chamber of Trade and Industry (Latvijas Tirdzniecības un rūpniecības kamera, LTRK) and other Latvian industrial associations and educational and research centres.

Collective bargaining

At overall sectoral level, the Association of the Mechanical Engineering and Metalworking Industry and the LMA trade union have signed a collective agreement that regulates general issues of industrial relations in the mechanical engineering and metalworking industry. LMA considers this agreement as binding on companies in the industry, in line with the relevant labour law.

In metalworking companies where trade unions are established, collective bargaining occurs and collective agreements are signed. LMA has prepared an industrial relations 'manual' and a sample agreement in order to facilitate the bargaining process. The collective agreements at sector and enterprise level include general provisions on the duration of working tome, work organisation, safety at work, wages and salaries and other issues required by labour law. LMA is seeking to organise in more enterprises, but these efforts have met resistance and a lack of interest on the part of both employers and employees.

The lack of collective bargaining and union presence in many firms is attributed by commentators to the following factors:

• many enterprises are too small for formal industrial relations;

• when enterprises are small, it may be relatively easy to find compromises in employment relations through personal negotiation'

• there is lack of specialist staff in the sector and employers tend to be attentive to employees’ needs in order to retain qualified personnel;

• employees tolerate some poor employment practices if this corresponds to their economic interests. For instance, workers may agree to work longer hours if they feel that this facilitates development of the enterprise and thus promises better employment conditions in future; and

• the tradition of collective bargaining is still weak in Latvia.

Furthermore, labour legislation in Latvia provides relatively strong protection of employees’ rights, and the State Labour Inspectorate (Valsts darba inspekcija) takes up and resolves employees’ claims and complaints. Employees may thus believe that they can enforce their rights without any collective representation.

Transnational aspects

The share of foreign direct investment is very small in the Latvian automotive sector, and outsourcing and contracting out are not common in the industry. Therefore, global processes that are changing the nature of automotive industrial relations in many countries have not yet had a serious impact in Latvia.

However, given that the tradition of worker representation is weak at most enterprises, foreign investors often try to 'simplify' the practice of industrial relations in Latvian subsidiaries, compared with that in their home country, in order to reduce labour costs. In other words, they do not encourage (or attempt to prevent) the establishment of employee representation at enterprises they acquire. Latvian legislation provides that the establishment of such representation is the responsibility of employees, so foreign investors are not breaching any rules. Commentators argue that better information and training of employees over their rights and industrial relations would encourage an improvement of relations in the automotive and other sectors.

Commentary

Today the Latvian automotive industry is represented by a relatively large number of SMEs producing trailers and car components and other products. The sector is improving its performance, and the share of exports is high. The largest enterprises are Rigas Autoelektroaparatu rupnica and Ditton pievadkezu rupnica. The main markets are Russia, Belarus, Ukraine, European countries and local.

Industrial relations are rudimentary in the majority of enterprises. In most companies, individual employment contracts and regulations of internal order - which are mandatory to regulate employment relations at the enterprise level in line with labour law - are the main instruments of industrial relations. About 10% of enterprises have trade union presence and company collective agreements. The relevant trade union organisation is trying to improve this situation. At sector level, the automotive industry is represented indirectly as an integral part of mechanical engineering and metalworking industry. At this level, social dialogue mechanisms are present and active. The impact of transnational issues on industrial relations is not significant. (Raita Karnite, Institute of Economics, Latvian Academy of Sciences)