Crisis in automotive sector puts industrial relations under strain

The Swedish automotive sector has been hit hard by the economic recession, witnessing a considerable decline in jobs and production, and is currently facing major challenges as both Saab and Volvo Cars are for sale. The social partners have criticised the government for being too passive and for not taking the actions needed to save jobs. However, the government wants to avoid supporting individual sectors, arguing that employees will be protected by the social welfare system.

Economic crisis hits automotive sector

The automotive sector is an important part of employment and total production in Swedish industry, representing 11% of the total manufacturing industry with about 140,000 employees at major manufacturers such as Saab, Scania, the Volvo Group and Volvo Cars.

Since the summer of 2008, when the effects of the global recession started to emerge in Sweden, the automotive sector has been severely hit by the crisis, resulting in a considerable decline in employment in the sector – about 22,000 employees have been given notice since early 2008. The crisis in the automotive sector also has consequences for many other areas of Swedish industry. For instance, one job in the automotive sector creates 1.6–1.8 jobs in other sectors of activity, which means that for every 1,000 jobs cut in the automotive sector, around 1,600 jobs in other sectors disappear simultaneously.

Saab and Volvo Cars up for sale

The sale of both Saab and Volvo Cars was announced due to acute financial problems arising for their owners, General Motors (GM) and Ford, respectively. Rumours of Chinese buyers caused concerns about the consequences this will have for employment and industrial relations at both companies. However, in December 2009, GM announced its intention to shut down its Saab unit after talks collapsed on a sale to the Dutch sports car manufacturer Spyker Cars NV. Meanwhile, in the same month, Ford confirmed that it had reached a deal to sell Volvo Cars to the Chinese motor company Zhejiang Geely.

In late 2008, the Swedish government launched a package of measures to deal with the crisis, amounting to a value of SEK 28 billion (about €2.7 billion as at 11 January 2010). Of this amount, SEK 20 billion (€1.95 billion) has been reserved to guarantee loans in the European Investment Bank (EIB), while SEK 5 billion (€489.8 million) has been allocated to cover rescue loans and SEK 3 billion (€293.8 million) has been earmarked for a new risk investment corporation. So far, practically none of this funding has benefited companies in the automotive sector, due to rigid rules associated with the funding. Instead, the government has increased funding to cover more general job support structures such as the Swedish Public Employment Service (Arbetsförmedlingen). The automotive sector has only been supported directly through the allocation of SEK 3 billion to facilitate the availability of credit among subcontractors.

Reactions of social partners

The social partners in the automotive sector have criticised the government for not handling this unemployment situation forcefully enough. In particular, the trade unions have levelled strong criticism against the government for not taking any action to address the situation. They argue that the economic crisis is a matter of national concern and that the government should take an active and constructive role in finding different ways to stimulate the automotive sector, as the crisis will have serious consequences at many levels of society in the long run.

In a letter dated 2 December 2009, the Union of Metalworkers (IF Metall) and the trade union for professionals in the private sector (Unionen) demanded that the government take immediate and active measures. They insisted that the government through its words and actions should recognise the importance of the automotive sector for Sweden, and at the same time realise the importance of including the trade unions in any debate in order to achieve a successful outcome.

Government position

The government is arguing strongly against any situation where it puts taxpayers’ money at risk by supporting companies that are not economically sustainable. In this regard, the government often refers to experiences from the 1970s, when the state lost a significant sum of money trying to save the shipbuilding industry, which turned out to have no future in Sweden, with or without public support. The current government therefore wants to avoid supporting individual sectors, instead preferring to focus on increasing the economy’s and labour market’s capacity to restructure.

The Ministry of Enterprise, Energy and Telecommunications (Näringsdepartementet) argues that the Swedish model does not include efforts to try to save jobs at companies facing difficulties, but that the employees affected by job losses will be protected through the social welfare system, receiving high levels of unemployment benefits.

Commentary

The Swedish system of high unemployment benefits rather than efforts to maintain employment in companies at risk enables the economy to restructure. This system is usually also supported by the trade unions, who argue that it protects welfare or income levels, rather than jobs. On this occasion, however, views on the problems facing the automotive sector differ, as do the proposed measures to address these problems. The government believes that the sector is in need of restructuring and must adapt to changing or even lacking demand. The trade unions consider that the sector is in a temporary crisis due to the global financial and economic crisis and is thus in need of temporary support measures, as implemented in many other countries.

Mats Kullander and Ellinor Häggebrink, Oxford Research

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