by T Fernández-de-Sevilla · 2017 · Cited by 6 — not exceed 50% of the value of the exported cars. The decree, in the conditions that it set for the establishment of new enterprises, perfectly suited
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1 Fernández – de – Sevilla, Tomàs (2017) . d a storm: Renault in Spain during the stagflation crisis, 1974 – 1985 Business History 59 ( 01 ) : 121 – 140. GROWTH AMID A STORM: RENAULT IN SPAIN DURING THE STAGFLATION CRISIS, 1974 – 1985 ABSTRACT The aim of t his paper is to analyse the trajectory of FASA – Renault during the stagflation crisis. In late 1972, the Spanish government enacted the so – called Ford decr ees. The intention was to stimulate specialisation in the European arena by inserting the Spanish subs idiaries within the international strategies of large transnational corporations. In doing so, the effects of the economic crisis were compounded by the r estructuring of the sector. The goal is to understand how, in the midst of this situation, FASA – Renaul t was able to increase production and the size of its workforce, ultimately becoming the leading firm in the sector in terms of production and sales in Sp ain. This is a remarkable fact due to labour force participation in Spain fell by nearly 3 million peo ple from 1974 to 1985. The paper argues that FASA – Renault, albeit with nuances, kept its commitment to diversification, neither adopting practices inspire d by the production systems of the large Japanese manufacturers nor following the model put forward by the US giants based on large – scale production of a single low – to mid – range car for export. KEYWORDS: Automobile industry; Stagflation Crisis; Spa in ; Re nault; Subsidiaries; Multinationals; Production Systems; Industrial Policies; Labour disputes.
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2 1. I ntroduction The period addressed in this paper can be characterised by the exhaustion of a pattern of accumulation, that of post – war growth. The f irst sig ns of weakness became noticeable in the late nineteen – sixties and they struck with full force from 197 3, spurred on and redoubled by the oil price shocks . 1 The crisis pervading the European economy was basically industrial in nature. Its outbreak was a sev ere blow for the automotive industry, marking a breaking point that would lead to important structural changes . 2 The aim of this paper is to analyse the trajectory of FASA – Renault during the stagflation crisis. In Spain, the outbreak of stagflation was pre ceded by a shift in industrial policy aimed at reshaping the automotive industry . 3 During the nineteen – fifties, the Franco administration realised that foreign investment represented a ndustrialisation. The trade – off was between a protected home market on one hand and investments and te import substitution, Spain lacked the capital and technology to develo p growth industries in the second technological revolution. Their implementation could only come at th e hands of foreign direct investment through joint ventures with local initiatives . 4 The appeal of Spain was a protected home market and, given its size, its vast growth potential. As attested by J. Catalan and T. Fernández – de – Sevilla , the takeoff of the a utomotive industry occurred under a number of industrial policies focused on a market reserve for established producers, a requirement to manufacture with local parts, and an extremely cautious licensing system for manufacturers . 5 This institutional
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3 arrang ement led to the emergence of a kind of crony capitalism that privileged the ability to control and pull the strings of government 6 , within which FASA – Ren ault was able to act with maximum effectiveness . 7 The weakness of the strategy lay in the fact that fo reign companies taking part in this type of development process were seldom to manufacture innovative products or to transfer state – of – the – art technology. The reason was that protection enabled them to sell at high prices and large margins, even in the cas e of mature and obsolete products. This had the result that the products offered by the companies participating in the model found it hard to be competiti ve in foreign markets . 8 Once the home market had been filled and lost its vigour, however, exports bec ame the only way to sustain development in the industry. By the end of the sixties, the confirmation of the limitations of domestic demand forced a turnin efforts on a policy of import subs titution, it started to promote exports. The preferential agreement signed by Spain with the EEC in 1970 signified a reduction in community tariffs on Spa nish exports of passenger cars to 3.3% in 1974. In the wake of the agreement, Ford and GM once again r esumed projects that they had abandoned with Peninsula as a platform for the manufacture of low – to mid – range cars for the European market. Their interests were aligned with those of the Franco administration and their efforts, therefore, were greeted with wholehearted assistance . 9 In late 1972, the government enacted the so – c alled Ford decrees. The first decree, issued on 30 November, was justified as necessary to transform t he automotive industry in order to increase its exports. The intention was to stimulate specialisation in the European arena by inserting the Spanish subs idiaries within the international strategies of large transnational corporations. The new legislation sought to boost large –
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4 scale production of some models while maintaining the levels of nationalisation, but it also aimed to promote the manufacture of oth er models with a lower degree of nationalisation. While the earlier levels of nationalisation were mai ntained for already established manufacturers, a minimum of 50% was authorised if they exported vehicles in line with the established general percentages and the value of the imported parts did not exceed 50% of the value of the exported cars. The decree, in the conditions that it the minimum nationalisation level at 50% , put the minimum threshold for investment in fixed assets at 10 billion pesetas, established the expo rt percentage at two – thirds of unit production, set the value of imported pieces, parts and other components at no greater than 50% of the value of the ex ported cars, and limited year – on – year growth in domestic sales to 10% of total sales . 10 The second For d decree, enacted on 23 December, declared the sector of production by model, boost exports, and establish advantageous working conditions. The decree included incentive s for land expropriation in order to establish or expand plants, tax reductions of up to 95%, and freedom to depreciate new plant and equipment during the first five years. For a company to take advantage of these benefits, it needed to fulfil the followin g conditions: an average production rate of greater than 500 vehicles per working day; mass production greater than 400 units per day for a basic model or greater than 200 for two models; gross investment in fixed assets greater than 7 billion pesetas, and minimum annual exports at 20% of production. For already established firms, the deadline for fulfilment of these conditions was set as 1 December 1976 . 11
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5 The transformations were many and various. The effects of the economic crisis were compounded by the r estructuring of the sector. The aim of this paper is to analyse how FASA – Renault could deal with this situation not only raising its production but also b y increasing its staff (which rose from 16,357 to 20,539 employees over the period while the total emp loyees in Spain fell by nearly 3 million people and the unemployment rate shot up from 2.6% to 21.9% ), eventually becoming the large car manufacturer in S pain. The aim of this paper is to understand how, in the midst of this situation, FASA – Renault was abl e to increase production and the size of its workforce (which rose from 16,357 to 20,539 members over the period), ultimately becoming the leading firm in the sector in terms of production and sales in Spain. This is a remarkable fact bearing in mind that labour force participation in Spain fell by nearly 3 million people and the unemployment rate shot up from 2.6% to 21.9%. Similarly, identifying its grow th model is also an aim of the paper, which argues that d iversification remained as FASA – Renault main strategy . Neither the production systems of the Japanese car – makers nor the strategy applied by the US giants centred on a single low – to mid – range car fo r export were applied intensively FASA – Renault , albeit with nuanc es, kept its commitment to diversification, neither adopting practices inspired by the production systems of the large Japanese manufacturers nor followin g the model put forward by the US giants based on large – scale production of a single low – to mid – range car for export. The research draws on a number of previously unexplored sources of information, such as the minutes of board meetings and of general shar business reports. This information is sup plemented with information obtained from the Spanish Association of Car and Lorry Manufacturers (ANFAC, 2003) and the statistical ectorate – General for Traffic (DGT). 12
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6 2. Three Years in the Red, 1974 – 1976 In early 1973, the Spanis h minister of industry set a production target of 1.3 million passenger cars for 1977. Of these, a half – million were to be earmarked for export . 13 The resu lts for the first quarter of the year, which showed a year – on – year production increase of 17.5%, appea red to confirm the need to scale up capacity in the sector. If the figures for the manufacturers as a whole were good, those of FASA – Renault, which featur ed a rise of 34.2%, were even better. FASA, an acronym for Fabricación de Automóviles S.A., had been f ounded in 1951 with the aim of assembling Renault cars under license in Valladolid, a city located in the centre of the northwestern quadrant of the Iberi an Peninsula . 14 In 1965, it expanded from car assembly to include the manufacture of engines and bodies in Valladolid and gearboxes in Seville. In the same year, Renault became the leading shareholder . 15 Three years later, the company announced the construct ion of a second assembly plant in Valladolid. In 1973, only a year after the plant came online, Arturo new plans for expansion. The aim was to raise annual production to 340,000 vehicles by 1980, with export levels nearing 30%. To reach this goal, the construction of a third plant was envisaged for one of the neigh bouring provinces . 16 In 1974, however, the firm encountered turbulence that brought its projected development plans to a standstill. The economic crisis th particularly hard. The reasons for this lay in a we aker energy base, a weaker industrial structure and the greater weight of the affected sectors, and these factors were compounded by the amassed rigiditie s of thirty years of dictatorship and the beginning of political reforms that demanded less stringent adjustment policies. 17 There were still a number of shortcomings at the structural level, including the greater relative weight of
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8 and workplace strife, which intensified in the autumn of 19 74 and did not slacken until the dying days of winter 1976. The first signs of the cycle of social and workplace conflict affecting FASA – Renault appeared before the outbreak of the crisis, one more symptom that the Franco regime and the accumulation model of developmentalism were falling into decline . 19 In 1970 all of the large companies in Spain had a vert ical trade union that was the sole agent authorised to engage in collective bargaining on behalf of the workforce. With the start of the decade, however, informal discussion groups sprang up in the Valladolid plants, circumventing the trade union and resul ting in shop – floor general assemblies. As E lsie Charron has explained, this clandestine movement coupled labour demands with political struggle in opposit ion to the regime. 20 The first actions promoted by these assemblies took place in 1972 and consisted of one and two – hour work stoppages aimed at forcing improvements in the collective bargaining agreement under negotiation. The signing of the agreement, whi ch provided for a nominal wage increase of 15% for the following fiscal year, restored a certain level of calm . 21 However, the environment heated up again in 1973 when talks began on a new agreement. In December, protest marches set off from the FASA – Renaul t plants and ended in the city centre. The measures taken by the workers to exert pressure intensified in January 1974, crystallising in a sit – in strike that affected every facility in the manufacturing complex. Finally, between wages, social security and a reduction in working hours, the new collective bargaining agreement raised labour costs by 22% . 22 De spite the agreement, the workers in assembly, bodies and deliveries called a work stoppage on 27 September 1974. The strike which, when added to a lockout , lasted nine days, was declared unacceptable by company management, who assigned
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9 sanctions of various kinds against a further 145 workers. The situation degenerated into a cycle of conflict that worsened with the call for a general strike to be held on 11 December with b oth political and trade – union ends. In the midst of all of this, a fire in the second assembly plant added even greater strain to the situation. At 5.49 a m on the morning of 30 October, a blaze broke out in the plant, causing the death of ten workers and i njuries of varying severity to thirty more . 23 Although the causes of the fire could issued by an cau . 24 The damage was quantified at 426.8 million pesetas and forced work at the plant to stop for a week. Between the strik es and the fire, FASA – Renault lost roughly 19,000 cars, or 8% of the scheduled production for the fisc al year . 25 Although better wages, reductions in working hours and higher social security contributions were negotiated for 1975 26 , the industrial conflict b ecame entrenched. Ultimately, the situation erupted in April 1975. When the workers most closely invol ved in the protests were dismissed, some two thousand workers occupied the assembly plant number two of Valladolid on 22 April and were forcibly removed b y the police on the afternoon of 24 April. The police action was followed by a lockout that went on un til 2 May, after which the company took the decision to dismiss or suspend without pay over a hundred workers, including several union representatives . 27 T he clear damage to the interests of the company, apparent from the 21 thousand cars that were not prod uced in the month of April, gradually softened the stance of the board, leading to an incremental return to normality . 28 occasio n for an initial relaxation, allowing many of the levied sanctions to be lifted. Following the amnesty decreed on the occasion of the proclamation of Juan Carlos as
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10 pardoning all sanctions for events prior to 22 November 1975, although the dismissals were excluded . 29 In January 1976 the plants in Valladolid saw a new cycle of protests that degenerated into a strike, leading to a new lockout that lasted eight days. As a condition dismissed work ers and of the agreed working hours . 30 On this last point, the company was more willing to grant concessions, but the board remained intransigent in its st ance on the dismissals . 31 In the end, the magnitude of the losses in the winter of 1976 led management to accept an agreement on working hours that enabled a cer tain normalisation of activity. 32 mony of the cos t structure. This was an outgrowth not only of the political situation and a crumbling regime that did not have enough power to impose its conditions, but also of the The cycle of stoppages and strikes put a severe strain on FASA – Renault because of the cars that it failed to produce and because of the rising costs involved . Graph 1. FASA – Renault: Weight of labour costs over total costs (%) GRAPH 1 SOURCE: FASA – Renault, A nnual Reports , 1972 – 1986. The labour conflicts overlapped with the height of the price – cost squeeze, arising from the system of price controls in which t he industry operated. Between January 1974
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11 and June 1975, the cost of stocks rose 31% while staff cost s went up by 48.5%. In return, prices climbed 19.75%, underlining the magnitude of the gap . 33 The scenario did not vary significantly in the last semester of 1975. A single rise of 10% was authorised in August, which was once again below the recorded cost i ncreases. Taken together, all of these factors caused FASA – Renault to close all three years from 1974 to 1976 in the red, reporting mounting losses that r eached 694 million pesetas in the final year (graph 2). Graph 2. FASA – Renault: Total net profits (in million ptas) and net profits over turnover (%) GRAPH 2 Primary Y – axis: Net profits. Secondary Y – axis: Sales margin. SOURCE: FASA – Renault, Annual Reports , 1973 – 1986. A first consequence of this situation was to halt projected capital spending in May 1974 for a period of two years, most notably postponing the third assembly plant, which the company had decided to build in Palencia, 35 kilometres from Valla dolid . 34 In mid – 1974, the board increased share capital by 540 million pesetas, cautioning that this wa s only the first expansion and that others would be required . 35 However, by the close of the summer, major difficulties in securing finance from Spanish an d . 36 The losses reported in its income sta tement forced a suspension of the planned capital infusions and obliged the company to resort to alternative forms of financing. The consequent freeze of its development programme pushed FASA – Renault to operate at the limits of its production capacity.
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