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Settlement Ends Dacia Strike; Wage Inflation a Risk in Eastern Europe
14 Apr 08
The strike has ended at Renault's low-cost production unit, but a trend of increasing labour militancy is being established.
Global Insight Perspective | | Significance | The strike at Dacia's plant in Pitesti, which is the main production location for Renault's Logan budget sedan, has ended after an improved wage settlement was accepted by the workers. | Implications | Renault has largely mitigated against the production losses incurred through using stock levels. However, the stoppage has still cost around US$23.7 million in lost production and the plant's workers have won a pay increase of around 22%. | Outlook | Renault's management will be relieved that normal production has been resumed at Pitesti. However, the settlement may mark a trend of the labour forces at low-cost Eastern European production locations demanding a bigger share of the rewards generated by their efforts. |
Dacia Dispute Resolved; but at What Cost? The strike that has affected Dacia's main production facility at Pitesti since 24 March has been resolved following the acceptance of a revised pay offer that will offer the unit's workers a pay rise of around 22%. The strike has led to significant production losses of around 20,000 units at the factory which normally produces 1,300 cars daily. Some production was maintained at the plant, although some sources have claimed that as little as 1,000 units have been produced at Pitesti since the initial strike date. Speaking to the Financial Times (FT), an unnamed senior Renault executive was quoted as saying the net cost of the strike was between 12 and 15 million euro (US$19–23.7 million). He said, "We have been managing our supply chain in order to minimize the impact, and we do not expect to lose sales." The losses described by Renault are not as severe as previous reports, but only when output returns to normal will a full production and stock audit be possible. Dacia's workers had previously rejected two separate pay offers from the company's management before eventually agreeing a 360 lei (US$157) increase in their monthly salary, which is to be paid in two instalments, plus a profit sharing bonus based on the company's 2007 results equating to one month's salary. This equates to approximately a 22% increase on the average workers monthly salary. Dacia's management claim that the company's average monthly salary of 1,663 lei is 18% higher than the average salary in Romania, although some surveys have contradicted this. However, there is no doubt that Renault and other carmakers looking to establish major production centres in "low-cost" Eastern European are facing significant upward pressure on wages, as a result of economic growth and rising living standards in the region (see Romania: 21 March 2008: Dacia Workers Plan All-Out Strike). It appears that there is a general trend towards more militant behaviour in low cost Eastern European labour markets and a growing awareness of labour groups to disparities in wages between Eastern and Western Europe and the new realities of the global economy. According to the FT, demonstrating Dacia workers held up a banner reading "Wake up Romania! We no longer want to be European Union slaves". Such a banner will make uncomfortable reading for a number of global carmakers that have invested in the region. Ford, which recently bought the Craiova car manufacturing plant in Romania (see Romania: 24 March 2008: Ford Completes Purchase of Romanian Manufacturing Site), faced a three-week strike at its plant in St Petersburg, which it settled after offering workers salary increases of between 16 and 21% as part of a new contract. In addition the TPCA (Toyota Peugeot-Citroën Automobiles) plant in Slovakia, which makes the Toyota Aygo, Peugeot 107 and Citroën C1 range of small cars, raised wages for new production line workers last year by 8% last year in an effort to counter a shortage of industrial labour in the country Outlook and Implications The strike has come at a crucial time for Renault's growth targets, especially as the company's low-cost Logan sedan is core to the group's plans to grow sales volumes in developing markets and in the lower-end vehicle segments. Renault CEO Carlos Ghosn has said that Renault is looking to add around 800,000 units to the company's global sales volume between 2005 and 2009 and the Logan is central to this plan. Logan sales almost doubled last year from 367,000 units from the figure of 184,000 units sold in 2006. However, while the company is hopeful of maintaining sales growth of the model, the stoppage at Pitesti will not have helped. Despite claims that the production shortfalls were met by stock that was already in reserve, Dacia is looking to formulate a plan to recover the lost output that could involve weekend working. Renault is also bracing itself for reduced production and sales of the Logan at its Iranian joint venture (JV) where the plant is managing only about a quarter of its daily capacity of 5,000 units as UN sanctions continue to bite. The increased militancy and awareness of the labour force in low-cost markets is an unwelcome phenomenon for global carmakers looking to base production centres in Eastern Europe. However, it is an unavoidable by-product of economic growth and relative prosperity that they will have to learn to cope with. What it will do is further increase the importance of economic forecasting and market research in the decision-making process for establishing production in lower-wage countries and regions.
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