Europe's carmakers ready cuts to emulate Detroit
PARIS (Reuters) - Europe's volume carmakers are returning from summer breaks with their sleeves rolled up, ready to shut plants and lay off staff in what many see as an overdue push to cut costs as their U.S. counterparts did three years ago.
In 2009, when the United States rescued General Motors (GM.N) and Chrysler from bankruptcy on condition they close plants and slash jobs to rebuild profits, European governments responded to a slump in vehicle sales by offering car firms aid to do the opposite - maintain employment levels in the hope of a swift recovery.
Three years on, and with no sign of an end to a European economic crisis that has crushed demand for cars in core Mediterranean markets, French and Italian makers, along with GM's German Opel unit and Ford's regional division, face less resistance from politicians and labour unions as they present cuts as an alternative to risking outright collapse.
Governments, including the newly elected Socialists in Paris, no longer have funds to bail companies out, and some union leaders are calculating that cuts now can save more jobs later - though few expect workforces, which have in some cases already been substantially eroded, to take plant closures quietly.
But American auto consultant David Cole said he expected major restructuring to get under way as Europeans faced the choice to "sacrifice a battalion in order to save a division".
"Everybody has decided this is the right time to make structural changes," said Cole, a former head of the Center for Automotive Research in Ann Arbor, Michigan.
"When they see that a company could disappear with all its jobs, they may realise it's better to lose 20 percent."
Factory closures are no longer the "taboo subject" they were when the industry faced the first wave of crisis after 2008, said Laurent Petizon, a Paris-based director for consultancy AlixPartners, which advised GM on its state-aided turnaround.
"There seems to be a growing realization that overcapacity needs to be dealt with."
Three years after the drastic cuts demanded by U.S. President Barack Obama's administration in return for public cash, GM and Chrysler are reporting strong earnings, even with the U.S. market still below pre-crisis levels.
Global No.1 GM, which shed four brands, 14 U.S. plants and 21,000 jobs, posted a record profit of $7.6 billion last year, while Chrysler netted $183 million under new parent Fiat (FIA.MI) after a similar tightening of its belt.
In Europe, where the industry was barred from closing factories in return for billions in state loans, scrappage bonuses and other life support subsidies, most mass automakers now appear locked in a downward spiral.
PSA Peugeot Citroen (PEUP.PA), Renault (RENA.PA) and Fiat - along with Ford (F.N) in Europe and GM's Opel - are struggling to stay profitable and in most cases failing.
Peugeot is leading the losses, and the charge, with plans to cut more than 10,000 French jobs and carry out the country's first car plant closure in two decades.
Fiat, which shuttered one Italian plant last year, has warned it will close another unless it can build vehicles competitively for U.S. export.
"We reserve the right to deal with these issues, including the issue of closing plants, after the third quarter," CEO Sergio Marchionne said last month.
Renault has been careful not to rule out cutting capacity. Four months before Peugeot's announcement, Renault CEO Carlos Ghosn had predicted that any significant restructuring move in Europe would "force all carmakers to do it".
GM may also order deeper cutbacks after ousting Opel chief Karl-Friedrich Stracke in July. Stracke had reached an outline union deal to extend a moratorium on firings until the likely closure of Opel's Bochum plant in 2017.
The politics have not stymied all change. European governments have often "looked the other way" as companies have shrunk plants and headcount by attrition, said Ron Harbour, a managing partner with consulting firm Oliver Wyman.
Renault's French headcount fell 9.6 percent in the three years to 2011, and Peugeot's shrank 7.6 percent. Fiat, however, barely dented its domestic workforce of nearly 63,000 despite being the only European maker to close an assembly plant.
In all cases, the softly-softly approach has failed to keep pace with a 13 percent Western European market decline over the period. "They've just been kicking the can down the road, but they're getting to the end of the road," Harbour said.
From similar overcapacity levels in 2007, when auto plants on both sides of the Atlantic were producing about 85 percent of maximum output, surviving U.S. plants have stepped up to 90 percent while Europeans sagged to 74 percent, AlixPartners says.
The averages mask contrasts: two in five European plants are running below 75 percent, deemed the minimum profitable rate, while Volkswagen's (VOWG_p.DE) factories are close to full tilt. The laggards are concentrated in Italy, France and Spain.
Divergent interests between the increasingly dominant German automaker and its struggling rivals may complicate capacity cuts, as well as the industry's handling of issues from CO2 regulation to international trade pacts.
Higher restructuring hurdles, from bankruptcy law to labour protection, also mean European cutbacks will never match Detroit's for depth or speed. Still, the U.S. example is too recent and, so far, successful to ignore.
"Barack Obama said the federal government was ready to help (GM and Chrysler) on condition they carry out the necessary restructuring," said Laurence Parisot, head of French employers' organization Medef, days before Peugeot unveiled its cuts.
"If we want our companies to be competitive market leaders again in five or 10 years, we have to accept some adjustments," she said.
That view is gaining traction across the political spectrum. Francois Hollande, France's new Socialist president, initially voiced "shock" at Peugeot's plan to close the Aulnay plant near Paris, calling it "unacceptable".
But official objections to the plan have since faded and company insiders say government had, in fact, been briefed in advance on the announcement, and even appeared to help with its delivery; within hours of the automaker's news conference, the head of France's state-owned railway, SNCF, said it would pay "particular attention" to laid-off carworkers looking for jobs.
And Safran (SAF.PA) officials also told reporters that the partly government-owned aerospace conglomerate was already in talks on hiring surplus Peugeot staff.
Even Arnaud Montebourg, the industry minister who had pledged to resist Peugeot's plans, last week called on unions to "act responsibly" out of consideration for the 90,000 French workers whose jobs the company hopes to preserve.
Governments' own financial troubles have closed the option of further state aid.
"They can't just prop up sales again, because there's no underlying demand and they're too broke anyway," said Philippe Houchois, a London-based auto analyst with UBS.
Some trade unions are also bargaining from weakness. France's Force Ouvriere has agreed a pay freeze and flexible working time at one Peugeot plant and to renegotiate conditions at others, mirroring labour deals struck by GM in Britain and Fiat in Italy.
But the larger French union CGT has vowed to fight to save Aulnay and block further concessions - underlining the difficulties that still beset European restructuring.
(Additional reporting by Paul Lienert in Detroit, Jennifer Clark in Milan and Andreas Cremer in Berlin; Editing by Alastair Macdonald and Will Waterman)