Is it true that companies favor engineering degree holders with work experience over fresh graduates? What can I do to convince them if I don't have the work experience?

As you graduate, you have one really big advantage over people with 2-5 years experience. You are willing to work for a lot less for a shot at a first job. It is true that experience is highly valued, and companies know that someone with at least 2 years is typically far more productive than a fresh graduate in terms of work quality. Top companies recruit directly on campus pulling out high performing students, so if you are after graduation and on the hunt, don't put your hopes on filling a spot where they want experience.

You need to search through local company job postings where they are small to mid-size companies. Be more aggressive than everyone else to stand out. If sending your resume include things like a personalized cover letter letting them know that you researched their company and are very excited about their products. If your college degree or optional course programs specially prepared you for what they need, show them. If the program you came from is well regarded, include a 3rd party source stating so. Include references from professors or others that can comment on your strong work ethic, drive, intelligence, skill, etc.

Be willing to accept a lower starting salary for the right job experience. Fund your own re-location to be where your new job is waiting. Your pay can dramatically increase in several years as you prove your performance. Companies don't like to lose top performers. Its a lot more important to get valuable experience than fret over some few thousand dollars that is insignificant in your total career. After all, with 2-3 years of experience, you will be that person most companies are trying to recruit.

I had a job all lined up when I graduated, and it also happened to be a recession year....where the company cancelled all new offer hires. I spent 2 months at home doing what I'm recommending above. Every day I was calling companies, searching for postings, talking to recruiters...anything I could do...as I had a lot of free time! Around week 8 of doing that, I had 4 interviews flying around the country, and 4 offers pop up letting me pick what I wanted to do next. I also had almost no feedback for 7 weeks, and didn't let that distract me. I knew it would be possible if I just kept after my hunt long enough. Don't get frustrated and give up.

Don't just post your resume to company websites and think that you will get an offer. Its just not likely to happen. Anything you find on the internet, probably dozens of others have found a many of them have more experience than you. Professionals will respect your drive to solve the problem, and often will be willing to refer you to others. Stand out and follow up until you achieve your goals.

One piece to note for the above advice, be sure you are fairly flexible on what job you are willing to take. Its the work experience that counts. The exact product, company, etc. shouldn't be your top priority in your position. Look for anything that will get you in the door and moving ahead. If you're lucky, you're efforts will grant you multiple opportunities to choose from.

One other thing you can do is to contribute to an open source project as well as creating your own project to show off your talents and passion. I have found over the years while hiring individuals out of college that internships and personal projects where they are really trying to solve a problem are very helpful. Good luck.