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European carmakers must cut capacity, Ford Europe CEO says

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European carmakers must cut capacity, Ford Europe CEO says

June 23, 2010 12:16 CET

BILBAO, Spain (Reuters) -- Europe's car industry needs to deal with the problem of surplus production capacity, which has worsened since the start of the downturn, John Fleming, the head of the company's Ford's European operations, said.

The European car industry is estimated to have around 35 percent too much capacity, but carmakers face opposition from governments and unions to closing plants and cutting jobs.

Fleming told delegates at the Automotive News Congress on Wednesday that excess capacity had increased during the downturn -- which many had seen as an opportunity for carmakers to reduce their operations.

"Overcapacity is a prime factor in fuelling the current heavy and aggressive discounting we are seeing in the market," Fleming said.

"This is not a sustainable way to run the industry. We must remember that we need to take action not just to improve our efficiency as far as the European market is concerned but to hone our competitive edge in the face of growing international competition," he said.

Keeps forecasts

Ford's Fleming see European sales at 14 million to 15 million this year.

Fleming said he was sticking with Ford's forecast of a 14-15 million unit European car market in 2010 as good news on economic indicators offset worries over sovereign debt and austerity measures.

Moves such as the UK's VAT hike would not encourage consumers to buy new cars, he said.

"My sense is we're going to see the market continue to weaken, probably still within a 14-15 million unit range," said Fleming.

The market got a boost from scrapping incentive schemes in 2009 when governments stepped in to help carmakers hurt by a deep crisis.

Last year, car sales in the 27 EU member states plus the EFTA countries reached 14.48 million units. Many scrapping schemes have now ended or are being phased out, and this is offsetting the positive effects of underlying economic recovery.

"We have had a very strong first quarter thanks to continued scrapping. The second quarter was more natural," Fleming said.

"I think we're still half way through the book. It's difficult because the final chapter hasn't been written."

Ford should close the sale of its Swedish Volvo car unit to China's Geely in the third quarter, Fleming said.

Zhejiang Geely Holding Group, China's largest privately run carmaker, agreed to buy Volvo from Ford for $1.8 billion in March, underlining China's arrival as a major force in the global auto industry.

"Our guidance has been that we'll get closure in the third quarter and I don't see anything at the moment that would stop that," he said.

Read more: http://www.autonews.com/article/20100623/ANE/306239966/1131#ixzz0rgaEd9jC

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