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Cars on show as industry bleeds

2012-09-28 08:27

NOT OPEN AND SHUT: French manufacturers are known to splash out at their "domestic" auto shows, but this year's reveals - including the Citroen DS3 cabriolet - have been overshadowed by impending plant closures and job cuts.

kalahari.com

Author: LORI HINNANT

 
PARIS, France - European automakers are preparing for a future of labour strife, lower sales and more financial uncertainty but still set out a bold display of new models at the 2012 Paris auto show which opened on Thursday (September 27, 2012).

France's Peugeot, Citroen and Renault saw the event as a chance to show off their newest cars and prototypes to a home town crowd but European executives seemed just as preoccupied with the factories they believe must close to cope with a shrinking market.

SET TO FOLLOW US EXAMPLE?

The latest data showed new passenger vehicle registrations in the European Union dropped 8.9% in August 2012, the 11th consecutive monthly decline. And the industry is bloated - there are too many factories to build a dwindling number of cars.

Bail-outs from European governments failed to force the automakers to overhaul their businesses, unlike in the US where 18 vehicle plants were closed after the Obama government bailed out GM, Chrysler and some suppliers, according to industry analyst Laurent Petizon of Alix Partners.

Only three European factories have closed since 2010.

"The problem is that there hasn't been a profound restructuring," Petizon said, arguing that the financial turmoil in Europe in recent years was not the cause of the Continent's automakers' afflictions.

"The crisis only brought into focus the problems that were there," Petizon added.

Most European countries have strong labour protections that can delay lay-offs for months after they're announced. Governments are reluctant to facilitate job cuts at a time when unemployment is already in  double-digits in many countries, among them France, Italy and Spain.

SUFFERING AUTOMOTIVE SEGMENT


The consequence, however, is that the automotive sector, one of the Continent's most important industries, keeps suffering. PSA Peugeot Citroen will close a factory in France by the end of 2012 but the plan to lay off 8000 people has run into opposition from France's powerful unions and the government.

The company's chief executive, Philippe Varin, insisted on Thursday that the only solution was to close plants, no matter how politically difficult. He said the situation was "not tenable over the long term".

Sergio Marchionne, CEO of Fiat and more recently Chrysler, has long advocated that the European Union co-ordinate such decisions and help automakers to restructure - since individual countries tend to fight just to save plants on their home turf.

He said: "I think it would be much more beneficial if this became a European problem as opposed to a national problem. There's no flag that will fix this."

Rebecca Lindland, director of research for IHS Automotive, said the current downturn was not just a blip. Vehicle  manufacturers were facing a long-term reduction in demand in Europe. "If you can't change demand, you have to change supply," she said.

As far out as 2020, the forecast "really never gets above 15.5-million units", down from 17.5-million in 2007, she added. Plant closures, which many automakers have been calling for, are "incredibly difficult politically but (are) incredibly necessary".

Even VW, which has fared better than automakers in Italy and France, is preparing for a long-term contraction, especially in southern Europe. VW's sales and marketing boss Christian Klinger said on Thursday that Spain's overall market had halved since 2007; Italy was down as well.

"It's a development that we all have to live with," he told reporters at the show.

Sales of VW in North America remained "relatively stable" while China continued to grow and Russia was "very dynamic", Klinger added.

REDEFINITION REQUIRED


Varin, Peugeot's CEO, said the situation was getting worse, with Germany's economy, the traditional powerhouse of Europe, now slowing down as well.

"Our working hypothesis is that the market is on a plateau for the next three years and that 2015 won't look very different from 2012," he said.

The industry would have to redefine itself in coming years, both because new markets such as China and Brazil are vitally important and because the economic troubles of the past several years had taken a toll.

Carlos Ghosn, CEO of Renault, said the crisis stretched well beyond the auto industry and the ramifications would be felt for years to come: "We have to prepare ourselves for a relatively long period of recovery for Europe. It's not only a financial or a currency crisis, Europe is facing a super-problem of competitiveness."

For more from the 2012 Paris auto show, click here.

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Read more on:    renault  |  fiat  |  peugeot  |  volkswagen  |  2012 paris auto show

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