Spain's auto industry looking up

In Spain's depressed economy, the automobile industry is an exception: It is one of the few sectors that is clearly attracting new investment and where there are plans for expansion.

This privileged position is the result of a series of factors. From the Spanish government, the interest shown by foreign companies in the industry is being encouraged because of the valuable technology these companies can bring, abd because of the opportunities they offer for exports with their extensive distribution networks abroad.

On the other hand, Spain has been chosen by foreign companies and multinationals because of the opportunities it offers both as an individual market and as a launching pad for Europe. Here, Spain's proposed entry into the European Community is an enticement. In addition, unlike the 1960s and 1970s, when Spain's auto industry was highly protected, it is now in the process of being liberalized.

So far, the biggest foreign impact on the motor industry has come from General Motors' decision to invest $1.5 billion in a new plant at Saragossa in the north of Spain. By 1983, it is expected to produce 270,000 cars, two-thirds geared to export. This plant alone will increase Spain's passenger car capacity by nearly 25 percent to 1.4 million units a year.

During its negotiations with the government, GM emphasized that this investment was part of a global/European strategy and would therefore have to be combined with GM facilities in other countries. In return, GM committed itself to building two separate components plants in Spain, in Cadiz in the depressed south, and in Logrono in the north. This was in line with the government's insistence that a minimum of 65 percent of components for new plant operations be manufactured locally.

The insistence was also one of the stumbling blocks that had to be overcome in negotiations with Ford which now has a major plant near Valencia in the southeast.

Meanwhile, another American multinational, International, Harvester, has just agreed to invest $571 million to purchase a 35 percent stake in Enasa, Spain's leading medium and heavy truck producer, and to set up of a new engine plant near Madrid with a 100,000-unit capacity. Over 80 percent of this is going to be geared to exports.

Further important expansion in the industry is also being spearheaded by the Japanese. Like the American corporations, Japanese car groups are also in the process of a detailed appraisal of Spain as a base for their European operations.

Proof of this was the Nissan Motor Company's decisio last January to purchase a 36 percent stake in Motor-Iberica, which will eventually be used as a base for the production of passenger cars as well as for the immediate production of 15, 000 Nissan Patrols and up to 25,000 Vanettes. In addition, both Nissan and Toyota are continuing to show an interest in the possibility of setting up on their own plants in Spain or as possible future partners with SEAT, Spain's biggest passenger car manufacturer.

This last is the chief question mark hanging over Spain's auto industry. SEAT is currently in a state of crisis both because of local mismanagement and because of the unprecedented decision last May by Fiat of Italy to renege on an 1979 agreement for SEAT's full takeover. As a result, SEAT is having to rethink its whole strategy since all hope for survival was pinned on full integration with Fiat, a firm it has relied on for its technology since its birth.

In these circumstances, Toyota, which sent a delegation to Madrid earlier this month, is now prepared to consider some form of limited cooperation that would grant the Japanese firm facilities near Barcelona for the construction of a plant to produce a new model for export to Europe.According to industry sources, an agreement with Toyota may be announced later this year.

However, Toyota is not prepared to commit itself to a full takeover. As in the case of negotiations with other foreign companies, one of the problems is the high degree of local component production. The real trouble, however, is that with anticipated losses this year of up to 15 billion pesetas, and with an inflated workforce of 32,000, SEAT in its present condition is no longer considered a viable enterprise.

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