There has been much media insinuation in recent months that just because Spain’s economy has virtually shuttered, and imports have slid to unprecedented low levels in the process pushing the (adjusted) GDP beancount positive for the first time in 3 years, that things are somehow getting better. What the media has roundly ignored is that as a result of the collapse in consumption and end demand, courtesy of an unemployment rate that at least according to Eurostat just rose to a new record high, the companies that actually operate in Spain and form the basis for any real economic growth, are shuttering at an unprecedented pace. Of note: Spanish electrical appliance maker Fagor, which employs 5,700 people worldwide, or in a few shorts months, employed, is one step closer to bankruptcy after its Polish subsidiary filed for protection from its creditors. The company, which claims to be the fifth-biggest electrical appliance company in Europe, had trading of its debt suspended after its mother firm – private Spanish conglomerate Mondragon – refused to pour in money to rescue the company.
Fagor makes washing machines, refrigerators and other appliances at 13 factories in five countries. Or, in a few shorts months, made.
Spain’s financial market regulator said Fagor Electrodomesticos’s debt was suspended from the fixed-interest market on Thursday morning as a precaution “owing to circumstances which could disturb normal trade” in its securities. Shortly afterwards, the regulator said Fagor’s Polish subsidiary, Fagor Mastercook, had voluntarily filed for bankruptcy protection. It employs 1,400 people at its factory in Wroclaw, southwestern Poland. The Polish offshoot’s filing at a court in the northern Spanish city of San Sebastian did not affect the status of the parent Fagor Electromesticos, which is part of the sprawling Basque cooperative Mondragon.
But it raised fears among Fagor workers in the Basque country, where the company says it employs 2,000 people directly and supports the same number of jobs indirectly.
Workers planned a demonstration on Thursday evening in San Andres, the remote Basque town where the company is based.
Fagor announced on October 16 that it had launched initial proceedings towards bankruptcy protection while it tried to refinance its debt, which a source within the company said was 800 million euros ($1.1 billion).
Under Spanish bankruptcy rules, Fagor has four months from that date to try to raise funds, but the source told AFP its fate could be determined much sooner in the absence of financing from Mondragon.
“If there is no change in the corporation’s decision, the company will have to enter bankruptcy proceedings. I don’t know if that will be within one week or two, but it will be in the short term.”
But while defaults are normal things, at least in the Old Normal economy, when failure was allowed, what is troubling is that Fagor’s parent company refused to preserve the firm’s viability in exchange for a tiny liquidity injection of just €170 million.
Fagor has said 170 million euros would be enough to save it and warned that a lack of financing would push it to an “imminent bankruptcy request”. But Mondragon said in a statement late on Wednesday that it felt Fagor, which has suffered a prolonged period of falling sales, “the company no longer responds to market needs, and the financial resources it requests would not ensure its business future”.
Fagor posted sales of 1.17 billion euros in 2012, a drop of over one-third since 2007, a year before Spain’s sharp economic downturn began with the collapse of a decade-long property bubble.
The company operates with 10 brands in 130 countries worldwide, and has 13 factories in Spain, France, Poland, Morocco and China. It has a market share of 16.3 percent in Spain and of 14.2 percent in France.
The Mondragon group was founded in the 1950s by a local priest, Jose Maria Arizmendiarrieta, as a small workers’ cooperative and is now an international conglomerate with a mission of maintaining jobs. Its various branches, present in 20 countries, include industry, distribution and finance.
Despite its international presence, Mondragon’s cooperative structure has kept most of its jobs and production at home, with 35,000 employees in the Spanish Basque Country, 35,000 elsewhere in Spain and about 13,500 abroad.
And since bankruptcy now appears inevitable, that is up to 5700 former Spanish jobs that will very soon be on the streets, protesting and enjoying the Spanish “recovery.”