| PARIS/GENK, Belgium
PARIS/GENK, Belgium Oct 24 Car makers suffered
a day of reckoning on Wednesday when Ford announced
Europe's third plant closure this year, Peugeot
accepted state aid and even Volkswagen reported a
big drop in profits.
The European car market has been shrinking as a result of
the region's debt crisis, government spending cuts and rising
unemployment, with sales in September falling at their fastest
pace in the last 12 months.
While car companies had tried to hold out, the situation is
getting too bad to cling to past glories.
"The car industry has been in crisis for about five years,
so the writing has been on the wall for some time," said Henner
Lehne, a Frankfurt-based analyst at IHS Automotive.
"Companies have had enough time to prepare for this, so no
one should be caught on the hop like when Lehman Brothers
collapsed," he said.
Facing an angry worforce, Ford said it would close its plant
in Genk, Belgium, by the end of 2014, consolidating production
of its new mid-sized models in an underused factory in Valencia,
Spain, where wages are lower.
The U.S. carmaker also called a meeting with unions in
Britain for Thursday, raising fears another plant closure was on
the way. A spokesman declined to comment on media reports that
it would shut a plant in Southampton, where it makes Transit
Ford was clearly unhappy with the state aid announced on
Wednesday for Peugeot.
"Once again we're trying to do what needs to be done, while
our competitor asks for a massive bailout," said a Ford
executive, who asked not to be identified.
Ford restructured its U.S. operations before the worst of
the 2008-9 financial crisis and escaped the government-backed
bankruptcies that General Motors and Chrysler both needed to
The Genk closure will increase Ford's overall capacity
utilization in Europe from roughly 70 percent to perhaps as much
as 82 percent by the end of 2014, analysts Jeffries said in a
note, but more may be needed.
"Ford would likely need to take additional steps in terms of
capacity rationalization, but this morning's announcement, if
approved, would be a meaningful first step in addressing the
company's excess capacity in the region," Jeffries said.
Ford's announcement of the Genk closure, which is expected
to cost Ford about $1.1 billion but save $730 million a year,
comes a couple of months after Peugeot started proceedings to
close a factory in Aulnay, France.
GM has said it will shut a factory in Bochum, Germany, but
not until 2016. GM Europe is due to update its restructuring
plan before the end of the month.
While Ford has moved to cut capacity in Europe, rival GM
appears ensconced in negotiations with unions, alliance parnter
Peugeot and government officials.
Analysts estimate that excluding premium carmakers, European
assembly plants are running at 68 percent capacity, well below
the minimum profitable level of 75-80 percent, deepening the
industry's pain and cash burn.
Even the region's biggest car company Volkswagen
has been hit by the slump, reporting a 19 percent drop in third
quarter operating profit to 2.34 billion euros as it used strong
sales outside Europe to offer deals and protect sales at home.
Unlike GM Europe, Ford and Peugeot, VW is at least in profit
and is using the money to re-engineer some of its technology so
it can use the same platforms under the bonnets of its various
marques, which include Skoda, Seat and Audi.
The investment, expected to total 15 billion euros, should
start boosting profits as the common platforms roll out.
DIFFERENT STORY AT PEUGEOT
It was a different story at Peugeot, which announced a state
backed deal for its lending arm which finances pay-as-you-go
offers that are vital to shift stock in harsh economic times.
The French group said it was close to an agreement with
banks on 11.5 billion euros of refinancing and had state
guarantees on a further 7 billion euros for Banque PSA Finance.
The deal may attract some European Union objections, Peugeot
acknowledged, and the German state of Lower Saxony, a major
shareholder in VW, has said it will oppose the package as a
possible breach of EU rules.
"It's not state aid, it's state support," Peugeot Chief
Financial Officer Jean-Baptiste de Chatillon said, adding that
Peugeot would pay for the state guarantee. "It's priced at
In return for the funds, Peugeot said it would halt dividend
payments and scrap stock option awards to executives.
Operating on a smaller scale than VW, Peugeot is working
with GM Europe to share technology and beef up its purchasing
power in an alliance. On Thursday the companies said they would
make two small cars, a mini SUV and a larger car together.
Reporting a 3.9 percent decline in third-quarter sales,
Peugeot warned that net debt would rise to 3 billion euros by
year-end from 2.4 billion on June 30. Sales fell to 12.93
billion euros in the three months to Sept. 30 as revenue from
the carmaking division fell 8.5 percent to 8.52 billion euros.
"What we're seeing are three different ways of responding to
the European crisis," said London-based Credit Suisse analyst
"Ford is showing you can actually take out capacity - and
maybe even get it done without anyone setting things on fire,"
he said. "VW is seizing the opportunity to increase its share of
markets it would otherwise find hard to penetrate."
Peugeot's way, Hauser added, "is to sit it out with
government support and wait for the market to recover."