22 December 2009

European Over Capacity

In the US, vehicle plants have been closing as sales fall. There was and is too much over capacity and closing plants, while painful, protects its sustainability long term.

In Europe, it is different. Because the plants across Europe are in different countries, government often fight to make sure no plants are closed within their borders. The UK is an exception, where many car plants have gone to the wall over recent years. However, France has been giving aid to its car makers on the condition that if they close plants, it cannot be in France.

Meanwhile in Germany, the government has not permitted a single vehicle assembly plant to close since the end of World War II. It recently worked with labour unions to interfere in the restructuring of GM Opel. Germany was the one country where GM plants should close. Had the deal to sell Opel to Magna gone through, it's hard to imagine that Opel could have survived long term with the deal the Angela Merkel was stitching together.

There is too much vehicle manufacturing capacity worldwide, much of it in Europe. Europe is supposed to be a free market but the way some European countries behave, the free market in that region is frankly a joke.

The bottom line: Unless capacity is reduced in Europe, especially in Germany and France, profitability will be hard to achieve unless you are making premium brand cars.

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