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Auto woes no death knell for Swedish manufacturing

  Sweden’s car makers Saab Automobile and Volvo Cars face a grim struggle to survive but manufacturing industry as a whole in the Nordic country remains competitive.

Worries about the fate of heavy industry in Sweden have grown in recent months as General Motors-owned Saab sought creditor protection and Ford Motor put its Volvo brand up for sale. Yet for the most part manufacturing remains a robust element in the Swedish economy.

“Certain types of industry will move away, but it’s not the case that manufacturing industry is going to disappear in the next 20 to 25 years,” Jonas Frycklund, economist at the Confederation of Swedish Enterprise said. “Manufacturing is going to continue to be strong.”

Granted, Swedish industry is not immune from the downturn. Global leaders such as bearings firm SKF, compressor and mining equipment firm Atlas Copco and truckmaker Volvo have announced big job cuts. Yet such job cuts don’t reflect a rethink on whether manufacturing in Sweden makes sense, despite factors such as high wage costs.

Much of western Europe has seen its manufacturing base squeezed by cheaper rivals in central Europe and Asia, but Sweden has coped well.

Uncompetitive industries have disappeared or shifted production offshore, while companies that remain have retooled with a focus on high value-added products in areas such as special steels and environmental technology.

Efficient production, advanced R&D and a well-educated workforce mean the nation’s manufacturing heavyweights will keep flying the flag.

Over 17% of the country’s gross domestic product came from manufacturing in 2007 against 16% in 1993, the country’s statistics office said. By contrast manufacturing in Britain has dropped to around 14% of GDP from 23% in 1990.

HARD TIMES

Atlas Copco, the world’s biggest compressor firm, is cutting over 4,000 jobs with 1,000 going in Sweden. But in the past 10 years the company’s proportion of Sweden-based staff has risen and Atlas Copco has moved some production back home, including mining equipment from the United States in 2002.

Producing in Sweden means the company benefits from being close to the European market and access to skilled workers. The group’s research centre in the country keeps it at the cutting edge of technological development. Frykholm said Atlas Copco had no plans to shift production out of Sweden.

Saab Automobile, should it survive, plans to base more production in Sweden, while Scania, Europe’s fourth-largest truck maker, is another that sees its future anchored at home. “In the last 15 to 20 years we have moved production home to Sweden,” Scania spokesman Hans-Ake Danielsson said.

Equipment costs are high and wage costs are a relatively small part of production expenses, he said. Most components for Scania trucks -- such as motors, axels, chassis and gearboxes -- are made in Sweden, though many trucks are assembled abroad. “As long as we can keep wage costs down at around 15% of production costs we see no reason to leave Sweden,” he said.

Swedish car making, however, where overcapacity and falling demand are global problems, may not survive. And in the short term its demise would hurt the country, already facing what could be its longest recession since World War II.

Saab employs around 4,100. Analysts said if those jobs and work at suppliers went, gross domestic product would drop by around 0.1 percentage point.

If Volvo Cars, which employs around 18,000 in Sweden, stopped production, the effect would be much larger. Some analysts put the total jobs which could be at risk if both brands fold at 40,000 out of a workforce of 4.5 million.

But accepting the inevitable is what has helped Swedish industry remain a global force, analysts said. “By letting go or not protecting industry that has no competitive advantage, that which has been left behind has been forced to be more effective,” Frycklund said. (Reuters)