MILAN, March 2 Europe's car industry is
edging closer to making painful and costly production cuts that
industry executives acknowledge are the only way of nursing
loss-making businesses back to health.
When the industry hit crisis in 2009, European carmakers
largely put off the pain with the help from scrappage schemes
and government loans in the hope economic recovery would erase
the need for cuts. The recovery came, but was short-lived and
carmakers are again facing a downturn.
That is in stark contrast to their counterparts in the
United States, who delivered major capacity cuts in exchange for
The slimmed-down U.S. industry shed a total of 1.5 million
units capacity from 2007-12, including the so-called
"transplants" of U.S-based foreign carmakers.
The number of factories fell to 54 from 64, sending capacity
utilization shooting to an expected 82 percent in 2012 from 66
percent in 2008, according to figures from IHS Automotive.
Detroit's Big Three automakers closed 13 plants during that
In Europe, with 241 plants in 27 countries, just three
factories have closed, or are slated to, in the same period.
This leaves capacity utilization at an expected sluggish 65
percent this year, according to figures from IMC-Auto.
Carmakers need to run plants at about 80 percent capacity to
break even, said Calum Macrae, PwC's lead automotive analyst.
The European industry seems to be reaching a tipping point.
A grinding price war in a withering market, combined with high
overheads from excess manufacturing capacity, has forced General
Motors and Peugeot into an alliance to share
production, development, and purchasing costs.
On Friday, Peugeot CEO Philippe Varin acknowledged for the
first time that the alliance will affect production plans from
2016, when Peugeot and GM are planning to begin assembling some
vehicles on shared production lines.
"Our factories already assemble Peugeot and Citroen cars on
the same lines," Varin said. "In the future PSA factories may
also assemble GM cars, and vice-versa."
The overcapacity problem in Europe is region-wide, but
national governments shirk from job losses on their own turf, so
end up offering a financial lifeline that does little to solve
the underlying mismatch between supply and demand.
In Europe, restructuring "is seen as a change, but not a
positive change," said Wolfgang Schneider, vice president of
Ford Europe for governmental and legal affairs.
"Restructuring is job losses. Job losses. Job losses."
Severance pay to workers is costly in Europe. Unions justify
it by saying an unemployed car worker in, say, Spain finds it a
lot harder to move to a job in another country such as Slovakia,
than his U.S. counterpart would to move from Detroit to another
Many laid-off car workers simply don't find new jobs, and
entire regions suffer when families cut their spending, said
Marinella Baltera, a union organizer at Italy's Fiom in Turin
who has helped hundreds of laid-off auto supplier workers
negotiate benefits in the past four years.
"My main job is to manage a disaster," she said, referring
to Fiat's production cuts and their impact on the city.
According to the European Automobile Manufacturer's
Association (ACEA), 13.1 million new cars sold last year in the
European Union and this is expected to fall this year, for the
fifth year in a row.
European car makers have an excess capacity of up to 4.4
million units, according to figures from PcW Autofacts 2012.
That's a lot of capacity. Most plants make, say,
250,000-300,000 cars a year running at full speed. Closing GM's
Opel-Vauxhall plant at Bochum in Germany and Ellesmere Port in
Britain, say, would only be a drop in the bucket.
Varin's statements, however, could indicate that some of the
two automaker's emptier factories may be destined for closure.
GM's guarantee not to close Opel plants expires at the end
of 2014, and Varin has said the future of Peugeot's Aulnay plant
north of Paris is in doubt beyond that year.
Peugeot's plant in Madrid is also seen as vulnerable, as are
GM's sites at Bochum, Ellesmere Port, and Zaragoza in Spain.
Closing plants is expensive -- to shutter PSA's Spanish factory
at Villaverde would cost about 309 million euros, broker
Bernstein estimated in a research report published last month.
Politicians in Europe -- where economies are reeling from
deep spending cuts in austerity budgets -- are already
positioning themselves for the job cuts that seem increasingly
"Governments regard part of their job as to create and
protect employment so Britain and Germany will be fighting to
keep their plants alive," said Paul Niewenhuis, director of the
Center for Automotive Industry Research (CAR) at Cardiff
"Cars aren't like trainers - you can't make them all in
China - and there is a view in the auto industry that cars need
to be made close to where they are sold."
Britain's business secretary Vince Cable met GM Chief
Executive Dan Akerson in New York on Wednesday to urge the
company to spare its Vauxhall plant in Ellesmere Port, north-
west England, as part of plans to cut costs across its European
A source with knowledge of the talks said the UK minister
pressed the business case for keeping production in Britain and
raised the possibility of GM producing other products at the
Fiat Chief Executive Sergio Marchionne has been lobbying for
an EU-wide solution. But so far, a European version of U.S.
President Barak Obama's automotive task force is nowhere to be
"Europeans are 'European' as long as it works," said Ford's
Schneider. "When there is a challenge, then you have a breakup
tendency and the old national interest patterns start to