January 29, 2009 / 12:48 PM / 8 years ago

Detroit fear spreads to Swedish auto-making town

6 Min Read

<p>Saab's Trollhattan headquarters are seen in this undated photo. People in Trollhattan, in the heart of Sweden's industrial southwest, have grown used to staying abreast of the news out of Detroit. What keeps them focused on the fate of U.S. autos is fear. To match feature FINANCIAL/SWEDEN-AUTOSVictoria Klesty (SWEDEN)</p>

TROLLHATTAN, Sweden (Reuters) - People in Trollhattan, in the heart of Sweden's industrial southwest, have grown used to staying abreast of the news out of Detroit. What keeps them focused on the fate of U.S. autos is fear.

This municipality is the headquarters of Saab, a money-losing carmaker owned by General Motors, itself struggling for survival. Volvo Cars, based nearby in Gothenburg and also loss-making, is owned by Ford and faces similar uncertainty.

Many of Trollhattan's 54,300 residents either work for Saab directly or for one of its suppliers. So as General Motors has teetered, so has this entire community.

"If Saab failed, it would weigh heavily on the region. If both Volvo and Saab were to fail, it would be a big blow to the whole country," said Saab union representative Paul Akerlund.

The carmakers are important not just for the local communities but for all of Sweden, because they are so tightly enmeshed in the wider economy. The auto industry made up almost 15 percent of Sweden's exports in 2007.

Unemployment in the country of around 9 million currently runs at just over six percent. Western Sweden's chamber of commerce and industry estimates 62,000 workers in the region are directly employed by vehicle-makers and their suppliers.

But spokesman Stefan Gustavsson estimates each job supports two more. That translates to almost 190,000 jobs, or more than four percent of Sweden's workforce.

"If Saab fell, there would probably be no money for anything beyond the absolute necessities in this municipality," said Akerlund. "Many street lights would probably have to go dark."

In Sweden, midwinter days bring just six hours of light.

It's as if the local economy has gone into suspended animation. Akerlund, who sits on the municipality's council, says tax revenues in the region are already declining and the town's budget now needs to be revised.

The few people moving about on Trollhattan's frigid streets say they are contemplating the possible demise of a company that has been making cars here for six decades.

"Everything is standing still at the moment," said resident Amanda Frendberg, 24, in a deserted bar. "Nobody dares to buy a house for example, with all this talk about closing Saab down."

Knock-on Effect

Saab, which GM has said has never made a profit in the two decades it has been part of the group, has halted production on some days but so far not announced job cuts beyond letting consultants go.

Volvo Cars, which Ford bought in 1999 for $6.45 billion and which lost $484 million before taxes in the third quarter of 2008, has announced nearly 4,000 job cuts in Sweden in recent months.

Saab's suppliers are feeling the pain acutely. Last year, car production fell by more than 20 percent, according to Swedish auto association BilSweden.

Thule Towing Systems, a towing equipment maker that supplies the local auto industry, until recently had 53 workers: 41 have lost their jobs.

Erik Anneback, who manages the firm, is pessimistic: "As it is now, one cannot really see a way out of it," he said from his office in an industrial park.

The Swedish center-right government, which is against taking stakes in either firm, has been cautious. Late last year it pledged to provide up to 25 billion crowns ($3.1 billion) in credit guarantees and emergency loans to the auto industry.

"The government has done a solid job recently," Akerlund said. "But it started way too late. There are many suppliers that now risk ruin."

Contagion

Sweden is already in recession and official forecasts are for its economy to contract by nearly 1 percent in 2009. Consumer confidence has not been worse since a crisis in the early 1990s.

As thousands of job cuts already announced by Swedish firms actually happen, more people will know someone -- a neighbor, a relative -- who has been directly affected by the slowdown and that will drive confidence even lower, points out Robert Bergqvist, chief economist at SEB.

Nowhere is the risk greater than in the southwest, home also to other industries such as bearing maker SKF, the world's largest.

People in Trollhattan who held off from buying houses had good reason. In the last three months of the year, prices fell 10 percent, according to broker data.

"I know many who work at Volvo, and I think there is not so much anger, rather a feeling of helplessness, of bitterness," said Trollhattan resident Maria Felle, 33.

"This has a psychological effect on those in the region who don't work in the car industry as well," said Annika Winsth, economist at Nordea. "It infects other areas, not least of which are retail sales. We can see that in the numbers already."

Akerlund said Swedish trade unions have a culture more of pragmatism than protest, and Trollhattan faces only more uncertainty as both GM and Ford seek buyers for their Swedish operations. GM was given a financial lifeline by the U.S. government last month, although Ford held off from taking out a loan.

What makes things more unsettling is the fact Saab has over the years become tightly integrated with GM's German unit, Opel, making an outright sale more difficult and raising the prospect of something more drastic.

The Swedish government has said its aid to the companies would be contingent on the money being spent in Sweden and ensuring their future viability and profitability.

"Around here, people have a lot of affection for Saab," said the towing firm manager Anneback. "Saab is a part of people's everyday life."

Reporting by Victoria Klesty; Editing by Adam Cox and Sara Ledwith

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