09 March 2012

The European Car Making Mess

I wrote this article in December 2009: http://tiny.cc/BVGf2b
Just over two years later little has been done about European overcapacity. Both Fiat and GM closed a plant in 2011, but that was not enough by far. GM and PSA are trying to save costs with a cooperation deal as I mentioned in a recent article. That will achieve little if they both fail to bite the bullet and close factories. So what is the problem?

The Problem: Depressed Sales. Europe is in a financial squeeze and the brands hurting are the makers of standard, everyday cars. Premium brands are doing fine.

The Reaction So Far: Slash prices to try keep people buying cars. With no end in sight to the economic woes, this means big losses.

What To Do: Reduce capacity. Not too much though as any future economic improvement needs to be met, but enough to get operating costs down.

Why It Hasn't Happened: It is a very unpopular thing to do. Politicians get involved when plant closures get mentioned and government meddling always makes things worse.

Those Most Affected: Fiat, PSA, Renault and GM Opel/Vauxhall.

To Be Done: Some car plants in France need to close, another in Italy for Fiat and one GM plant (obviously one of the three German plants). This is a minimum.

Will It Happen?: It has to, but how it is handled will say much about Europe.

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