Factory shutdowns could solve European overcapacity, says analyst

Article by Anita Panait, on June 14, 2012

Overcapacity in Europe could only be solved if auto manufacturers in the region shut some of their plants down, according to Philippe Houchois, a UBS analyst in London. Houchois said that each of the five volume manufacturers in Europe needs to close at least one factory, for a total of five sites. General Motors is already planning to close one of its auto factories in Germany and the other four carmakers -- Renault, PSA/Peugeot-Citroen, Fiat Group and Ford – need to follow suit.

Auto manufacturers in Europe so far have only shut down two plants in the past four years, as they succumbed to political pressure not to cut jobs in the region. These factories include GM’s Brussels site and Fiat’s Sicily plant. According to researcher IHS Automotive, overcapacity in western Europe could more than double to about 2 million vehicles in 2012. But the region's car market is expected to contract 7 percent this year, ACEA said last week.

There are current concerns on PSA’s ability to recover from its sluggish sales, which extended the company’s losses in the first quarter to 40 percent and reduced the carmaker’s market value to EUR2.7 billion. Renault and Fiat’s sales were also down by 27 percent and 26 percent respectively for the same period. Volkswagen Group, which does not have overcapacity issues, saw its sales drop 11 percent in the same period.

Executives from various carmakers will meet in Madrid on Tuesday to discuss ways to deal with the industry's slumping sales, as deliveries are expected to take a dive in 2012 for a fifth straight year. Automotive sales across the region dropped 7 percent in the first four months of 2012, with the Italian, French and Greek car markets diving 18 percent or more, according to ACEA data.

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