Hundreds of jobs lost as Bosch moves from Wales to Hungary

The Bosch Group - a privately owned German multinational manufacturing business has announced the closure of it’s car parts factory in south Wales with the loss of hundreds of jobs. With 900 jobs going at the factory itself, the final scale of extra unemployment will be significantly higher because of the negative multiplier effects for the local and regional economy.

The German company blamed the closure on a sharp drop in demand for car parts which meant that the Welsh factory had been operating well below productive capacity. Sales for Bosch’s alternator product dropped by 45 per cent between 2008 and 2009. And last year the Bosch Group made its first loss in over sixty years.

There is a revealing section in this BBC news report

“Plant director Adam Willmott said move was one of “pure economics” after a feasibility study had concluded the switch to Hungary, where labour costs were 65% of those at the Cardiff plant, was necessary to gain the benefit of economies of scale.”

The factory is expected to close in 2011 and the news is a reminder that, although there are tentative signs of an economic recovery, many job losses can be expected even after the trough has been reached in real GDP. Lots of businesses are making strategic decisions about where to locate production for the next phase of the economic cycle. Hungary offers competitive advantages and one behind the scenes factor might be the fact that the Hungarian government is supportive of joining the single European currency when macroeconomic conditions are favourable.

The announcement of the Bosch closure is undoubtedly a major blow to the economy of south Wales, where traditional industries like coal mining and steel making have declined in recent decades. The risk is that the fresh wave of job losses will add to an existing structural unemployment problem in the region.