(AFP) -- Portugal's automotive sector, like the rest of the industry in western Europe, is struggling to face up to growing competition from lower-wage nations in Asia and eastern Europe in the battle for jobs.
The challenges faced by the sector, a key source of exports, were thrust into the spotlight last week after General Motors announced it needed to cut costs at its assembly plant in central Portugal to ensure its survival.
The world's leading carmaker by volume said costs at its Azambuja plant were 500 euros (647 dollars) more per vehicle compared with other possible locations which it did not name.
The company did not rule out shutting the factory, which made nearly 74,000 Combo panel vans last year and employs around 1,100 people.
Workers rejected cuts to their wages, already among the lowest in the sector in western Europe, but said they would be willing to help boost productivity by improving logistics.
Most employees at the plant make less than 1,200 euros a month, union officials said.
General Motors' European workers council said the company is looking for excuses to justify its policy of shifting its assembly lines to lower-wage nations.
"The real reasons behind this are the start of GM's new strategy aimed at closing plants in western Europe and shifting production towards eastern Europe, Korea and China," it said in a statement.
General Motors, which last month cut 900 jobs in northwest England to boost productivity, is holding talks with labour and government representatives and a decision on the future of the Azambuja plant is expected by the middle of June.
Under a global restructuring plan announced last year, GM, the world's biggest automaker, is also expected to cut 30,000 jobs in the United States by 2008.
The closure of the plant would be a blow for Socialist Prime Minister Jose Socrates, who was elected in a landslide last year on promises to fight rising unemployment in the nation of just over 10 million.
Portugal's five assembly plants and roughly 160 component operations employ some 45,000 people. More than 95 percent of the nation's vehicle production is for export, mostly to other European nations.
But vehicle production has declined in recent years, mirroring a trend felt across western Europe.
The number of vehicles made in Portugal dropped 3.3 percent in 2005 from the previous year to 219,135 units, its lowest level since 1995 and the third straight year of decline, according to trade association AIMA.
The figure could fall further. Volkswagen will decide by the end of the year whether to produce the successor to its Alhambra and Sharan minivan models at its sprawling Autoeuropa plant near Lisbon or at its plant in Slovakia.
Autoeuropa, Portugal's biggest auto assembly plant, is due to stop producing the Alhambra at the end of 2007 and the Sharan during the first half of 2008.
The plant has reduced its worker absentee rate and improved delivery times in recent years but it is hurt by the high overtime pay workers are entitled to by law in Portugal, human resources director Julius von Ingelheim said.
Overtime is 200 percent more than regular pay in Portugal, compared to just 50 percent more in Slovakia and the Czech Republic, or between 38 and 63 percent more in neighbouring Spain, he said.
"The automotive sector is one of the most competitive worldwide, there are many new players and its is always changing. The biggest threat now comes from eastern Europe where salaries are only half of those in Portugal," he told AFP.
In January the Portuguese government helped secure a commitment from Volkswagen to start building its new Eos convertible at Autoeuropa. The model will help make up for the end of production of the discontinued Galaxy minivan which the plant produced for Ford until February.
But there are limits to what the state can do in terms of incentives.
Last month the European Commission said it had opened a probe into Portugal's plans to award Autoeuropa a 3.5 million euro training grant on concerns that it constitutes illegal aid under European Union law.
To stay afloat in the increasingly competitive environment brought on by globalization, car assembly plants must continuously seek to boost their productivity, Autoeuropa's manager Emilio Saenz said.
"A plant which is a star today can be nothing tomorrow," he said.
