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Europe's carmakers deal with overcapacity

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Europe's carmakers deal with overcapacity

Ola Kinnander and Tim Higgins / Bloomberg News

General Motors Co.'s 1,300 workers in Antwerp, Belgium, are fighting for their jobs, hoping for a white knight to rescue the factory from closure.

"We're trying to find an investor by the end of this month," said Luc van Grinsven, a union official at the 86-year-old plant, which makes an Astra model for GM's Opel unit. "If we don't, the factory will close at the end of the year."

Antwerp is an anomaly. Not a single European automobile plant closed during the recession, while 18 assembly factories have been shuttered in the U.S. since 2008. European governments prevented the biggest automakers from firing workers and used subsidies to prop up sales. Now that most of the incentives have expired, executives must find ways to cope with a slump in demand as they gather at the Paris Motor Show this week.

In Europe, the relationship between governments and major manufacturers goes hand in hand, said Francisco Carvalho, a London-based analyst at IHS Automotive. "Closing plants will upset the governments. The U.S. now has much more sane utilization rates than Europe in the medium term."

European capacity use will probably be surpassed by the U.S. this year for the first time since 2006, IHS Automotive estimates. North American plants will on average use 72 percent of capacity, up from 51 percent in 2009. The average for Europe may climb to 68 percent, boosted by demand from China. An automaker typically needs at least 80 percent utilization for a plant to be profitable, the researcher says.

With GM and Chrysler Group LLC leading the U.S. plant closures as part of their bankruptcy reorganizations last year, improved usage is helping them post profits or pare losses. GM, the biggest U.S. carmaker, earned $2.4 billion in the first half. Chrysler, run by Fiat, reduced its losses to $369 million.

"Their cost base, relative to western Europeans and a lot of companies around the world, is going to be lower, and they should be very cost competitive," said Ron Harbour, a partner at New York-based consultant Oliver Wyman. "If they can do everything they need to do on the product side, they could be dramatically more competitive than Western European plants."

At 62.8 percent, Renault SA, the maker of the Clio compact and Megane family car, has the worst capacity use rate among Europe's volume carmakers, said Carvalho. Fiat SpA, Italy's largest carmaker, is at 64.8 percent and PSA Peugeot Citroen, Frances biggest, is at 67.4 percent.

European capacity this year, including Russia, where carmakers have built plants recently, is at about 27.5 million cars, IHS' Carvalho said. By contrast, Ford Motor Co. said last month that Europe's new car sales may fall to as low as 14.5 million this year from 15.9 million in 2009.

The European usage rate will likely drop in the second half, with carmakers forecasting a sales decline in the region as government-funded scrapping programs end.

Next year, Fiat will close its Termini Imerese plant in Sicily, which makes the Lancia Ypsilon. Chief Executive Officer Sergio Marchionne is also prepared to shift production of its best-selling Panda model from Poland to the underutilized Pomigliano plant in Italy and invest hundreds of millions in the factory if unions agree to a plan that includes adding shifts and instituting a six-day workweek.

"We're trying to resolve the capacity issue," a Fiat spokesman said. "We're doing more than other car companies."

Pomigliano employs 5,000 workers and produced 35,000 cars last year. Melfi, Fiat's second-biggest Italian plant and the one with the best capacity utilization, employs 5,280 workers and built 280,000 Grande Puntos in 2009.

"That gives you an indication of the spare capacity that exists at Pomigliano," said Mike Tyndall, a European automotive specialist with Nomura Securities in London. "That's seven cars per employee, whereas the average at the Melfi plant was 53."

Peugeot said in July that its auto unit may lose money in the second half on the slumping demand. The Paris-based carmaker posted a $918 million first-half profit.

After removing a production line last year at its Rennes factory and downsizing other plants, Peugeot is starting to see the benefits and plans no further capacity cuts, CEO Philippe Varin said July 28.

Renault CEO Carlos Ghosn shed workers during the recession at one of 14 French production sites, in Sandouville, where 1,300 people left in 2008 because of sluggish sales of the Laguna model made at that factory.

"At the other plants we kept our employees because we want to be able to restart full production when the crisis is over," spokesman Valerian David said. "We think the current situation is temporary, and we want to be ready when things get better."

Volkswagen AG, Europe's largest carmaker, has the best capacity use among the volume producers in the region with a rate of 77.2 percent, helped by booming sales in China, its biggest market.

Back in Belgium, workers at the Opel factory, which has cut its operations to one shift a day, hope that their factory is not the first in Europe to close since 2006. In that year, GM shut its site in Azambuja, Portugal, and Peugeot folded its Ryton plant in Coventry, England.

Two potential investors, one of which is an automaker, are looking at the plant, Van Grinsven said.

"I hope its a 50 percent chance, but I think 30 percent," he said.

From The Detroit News: http://www.detnews.com/article/20100927/AUTO01/9270352/1148/auto01/Europe-s-carmakers-deal-with-overcapacity#ixzz10jngzd4L

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