By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Mexico, the biggest provider of VW vehicles to the U.S. market, is particularly exposed to the spreading fallout. As WOLF STREET warned in the immediate aftermath of the crisis:
When Volkswagen struggles, so does the state of Puebla. The huge manufacturing plant built on the city’s outskirts 50 years ago provides roughly a quarter of local GDP. Its supply chain consists of 150 companies, generating 78,000 jobs – most of them secure and highly paid, at least by local standards. What’s more, Volkswagen recently built a huge new state-of-the-art plant for its Audi subsidiary in San José Chiapa, Puebla.
In the words of my mother-in-law, a born and bred Poblana, there is not a single family in the city of Puebla that does not have some level of exposure to the VW plant.
Now Puebla’s worst nightmares are beginning to come true. VW has already cancelled Saturday shifts at its Puebla plant, the largest factory producing VW vehicles outside company HQ, in Wolfsburg, Germany. The news has predictably fuelled fears among the company’s 15,000 workers about the security of their jobs.
“Volkswagen has shafted us all,” 29-year old Alfredo Rodríguez told EL Financiero. He’s afraid that as a relative newcomer to the plant he will be among the first to be laid off.
The company has already put a halt to all new staff hirings, according to Mexico’s Chamber of Commerce. VW is yet to comment on how it plans to manage the global withdrawal of the roughly 11 million diesel cars containing the “defeat device” that deceived consumers and regulators in the US and elsewhere for years. Around 20% of the 207,000 vehicles dispatched from Puebla to the U.S. market in 2014 contained the device.
“They are going to reduce production,” warned José Quintana, president of the workers union Coparmex. “Both at state and local government nerves are fraught because they have bet everything on Volkswagen and the new Audi plant.”
The State of Mexico has offered to soften the blow by buying 200 cars straight off the production line, which will be used as police patrol cars. Unfortunately, 200 cars are unlikely to make much of a dent in the company’s coming shortfall, or by extension save much in the way of local jobs
The problems are likely to snowball from here, said Armando Soto, the president of Kaso Associates, a Mexico City-based automotive consultancy. If vehicle exports fall, it will “affect both the GDP and economic performance” of Puebla. The state has been one of Mexico’s fastest growing regions, attracting investment – in particular in the real-estate sector – from many of the country’s more unstable (that is, narco-infested) regions.
Turning a Crisis into a Disaster, the Spanish Way
Another country that has fallen prey to the VW blues is Spain, where Volkswagen manufactures Seat cars (in Catalonia) and has (or at least had) plans to expand production of its Polo model in the northern region of Navarra. The company’s total investment in the country is (or was) expected to reach €4.2 billion by 2019, roughly €3.2 billion for SEAT and €1 billion for the Polo plant in Navarra.
Since the scandal broke, everything is up in the air. Or at least it was until yesterday, when Spain’s heroic Minister of Industry, Energy and Tourism, José Manuel Soria, came back from a meeting with assurances from the Volkswagen Group’s new president and chief executive, Matthias Müller, that all the projects in Spain were “guaranteed.” On one proviso: that the government promises to keep plying the two plants with generous public subsidies to support VW’s “innovation.”
The triumphant news was cause for celebration in a nation that has been decimated by unemployment. Spain has consistently placed second in unemployment rankings for both the EU and the OECD. Only Greece is worse off. Just six moths ago, Spain was proud home to the five European regions with the worst levels of unemployment. Even now, at the height of Rajoy’s “economic miracle,” the national unemployment rate still hovers on the wrong side of the 20% mark.
Unfortunately, the Minister’s champagne moment did not last long. Within hours, a seemingly irate VW spokesperson had spoken to an industry magazine denying his claims, saying that the company had “made no commitment to guarantee its investments in Spain.” As La Vanguardia reports, the car company was far from pleased that the Minister had spoken so openly and indiscreetly about the government’s plans to subsidize Volkswagen’s activities.
In principle, state assistance for private corporations is illegal in the EU; in reality, it is permitted, but only to support innovation. What kind of innovation? Does it include the sort of innovation that is designed to deceive consumers and regulators worldwide about the true extent of pollution emitted by millions of vehicles? We don’t know either.
Given that VW is responsible for one of the most audacious corporate frauds of this century – all made possible by cutting edge “innovation” – the last thing the company probably wants right now is to be seen pressuring a government into forking over corporate subsidies for “innovation.”
Nor does it look good for the government, which in its haste to please voters has ended up putting at risk vital business investments in the country.
“It seems that the government’s electoral campaign is more important than the interests of the country’s workers and citizens,” said Matías Carnero, the president of Seat’s business committee, adding that the Minister’s intervention had “pissed everyone off.”
The Volkswagen blues has only just begun. By Don Quijones, Raging Bull-Shit.
Big Brother leashed? Read… Did the European Court of Justice Just Torpedo the Mother of All US Trade Agreements?
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