The Nightmare of the European Auto Industry

Wolf Richter's picture

Wolf Richter

Europe with its relatively affluent population of 500 million has turned into a nightmare for the auto industry. And the R-word—restructuring—unpalatable and almost illegal as it is in Europe, is being bandied about, this time by Fiat-Chrysler CEO Sergio Marchionne, who, as President of the European Automobile Manufacturers' Association, spoke for all EU automakers. It was a dire warning and a cry for help.

"Horrible" was how he described the plight of the auto industry when he spoke at the European Business Conference in Bruges, Belgium, on March 20. He predicted that auto sales would sag by 5% in 2012, the fifth down year in a row. He didn’t see a recovery before 2014. All-time-high gas prices are part of the reason. For that debacle, and for how it sends French consumers and presidential candidates reeling, read.... The $10-Per-Gallon Gas Has Arrived In Paris.

Perhaps Marchionne was fear mongering: his message was addressed to the EU Commission. The auto industry would have to restructure profoundly, and the Commission should take steps to allow and encourage it, he said.

New car registrations in February fell 9.7% across the EU compared to last year, worse even than February 2009 at the trough of the financial crisis. It was the fifth down month in a row. The results would have been even worse had it not been for an extra selling day.

For January and February, registrations were down 8.3%. Some bright spots were tucked away at the fringes of the EU—Estonia was up 21.2%, Hungary 31.8%, and Rumania 54%—but among the largest markets, only Germany scraped by with a decline of 0.2%. Number two France and number three Italy plunged 20.5% and 17.8% respectively. Among smaller markets, Portugal swooned 47.9%. And in Greece, where hardly anything is sold anymore, only 3,827 new vehicles were sold in February, down 45.2% from the already traumatized level last year.

Marchionne’s cry for help wasn’t just about saving Fiat whose EU sales dropped 16.7% so far this year. The whole industry would have to cut capacity by 20%, or 3 million units, shutter ten or so plants, and massively lay off workers. But that is precisely what you can’t do in the EU.

PSA Peugeot Citroën, whose February sales plunged 16.8%, re-announced at the Geneva auto show that it would solve its overcapacity over the next two years. But layoffs and plant closings become highly politicized. French Labor Minister Xavier Bertrand issued a stern warning to PSA CEO Philippe Varin when word of talks with GM leaked out: layoffs as part of the alliance would be out of the question. In November, President Nicolas Sarkozy summoned Varin and told him  to reconsider laying off 6,800 workers. Layoffs will be even tougher to implement if socialist François Hollande wins the election.

Whatever their thinking was at the time, GM and PSA are now saying that Opel and PSA would each deal with its own overcapacity, and that plant closings weren’t part of the alliance, which would focus on saving money elsewhere. Chancellor Angela Merkel got personally involved in protecting Opel factories during the financial crisis and brokered the sale of Opel to keep GM from shutting it down. The deal fell apart, but the restructuring agreement survived and prevents GM from closing any plants until 2014.

Individual countries prevent layoffs, Marchionne said and added that the French government bailed out its automakers on condition that they wouldn’t close any factories, whereas in the US, the opposite happened: the government pushed GM and Chrysler to restructure during their bankruptcies as part of the bailout. So he appealed directly to the EU Commission to liberalize labor markets because individual countries wouldn’t do it.

Overcapacity pushes prices down, he said, and “that’s why almost no one is making money in Europe.” Alas, VW, BMW, and Daimler are basking in last year's record worldwide sales and profits. Even in Europe they weren’t faring too badly, with Daimler up so far this year and VW and BMW down a smidgen. Clearly, the situation is “horrible” for European automakers, but there are those that can get through it and those that can’t. And those that can’t—Fiat, PSA, Renault, Opel, and Ford—will have to restructure... or get bailed out again.

Restructuring is already happening in Germany. The most recent deal was Kiekert, the world's largest manufacturer of automotive door-lock systems: a Chinese government-owned company bought it. A sea change in the German auto industry. For that inexorable and stunning process, and the fretting around it, read.... China, the Number One Foreign Investor in Germany.

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rajonmestra's picture

Well even for big car companies, they still have bad times with their sales and such. I do want to own a BMW accessories but with tight budget, I guess I would be postpone in owning and driving one.

leo_21's picture

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Toyota Corolla 2010 | Used Mazda Millenia | Used Hyundai Tucson | Toyota Allion 2011

Cursive's picture

You mean that Fiat ad with the really, really hot chick during the Superbowl didn't solve these intractable problems?

Element's picture

Get a load of this crap from yesterday ... subsidising car makers in Australia is just like funding sport or the arts ... according to Canberra:

So much for efficiency, innovation and competition - road to hell is paved with good intentions:

Ned Zeppelin's picture

Keep on Rocking in the Free World, got roads to drive, got fuel to burn.

rsnoble's picture

Fuck 'em that's what happens when you keep plowing along doing stupid shit like building a years worth of inventory like nothing has ever happened.  Nothings been fixed.  And since it's obvious it's a failed system by now then there is no repair.  If you insist on repairing instead of rebuilding then just forget it.  Problem is it's so far gone the grand idea of rebuilding is just a happy night time story.

SKY85hawk's picture

How can the Fiat guy expect any sympathy when he repaints the fiat-500?  We americans are NOT STOOPID!

I had a 124-spyder!  It was a fun car.

I had a Baccarudda, IT was a fun car!

Fiat reeks of more debt 2 fix excessive debt!


SKY85hawk's picture

How can the Fiat guy expect any sympathy when he repaints the fiat-500?  We americans are NOT STOOPID!

I had a 124-spyder!  It was a fun car.

I had a Baccarudda, IT was a fun car!

Fiat reeks of more debt 2 fix excessive debt!


Curt W's picture

How many times can Chrysler be bailed out.  Before we decide maybe it is a bad business model, and just let it fail.

I remember Chrysler being bailed out way back in the 80's, and thinking how huge the number was.  But the government throws around that amount nearly daily now.

Buck Johnson's picture

Because believe it or not Chrysler and especially GM aren't car companies anymore.  They are retirement funds that happen to make cars.  The govt. in the US wouldn't allow them to fail because of two things.  One, the millions of people who get pension benefits and healthcare from GM and Chrysler would be out in the cold and would put a burden on the bankrupt govt. institutions.  And two, it would have sent a cascade of bankruptcy and defaults in the whole supply chain where GM and Chrysler pay their accounts not every week but at 60, 90, or at one point 120 days interval.  And if you a supplier of goods and services for these big monsters don't get your money from accounts because of bankruptcy then you are insolvent and you may have to layoff and or go bankrupt and so on with his suppliers etc. etc..  It would have gutted the manufacturing industry of the US even more.

kall's picture

Maybe this is the time for a reconfiguration of the auto market. Maybe cars with a different alternator and more affordable pieces would have a better luck on the European market.

Ned Zeppelin's picture

Not to mention creating an enormous pool of angry, throw the bums out, army of the voting-unemployed.

Dburn's picture

On the cover of "Shoot" magazine for Commercial video producers was a headline:

What's worse that one Job from GM? TWO


That was based on the 6 months samre as cash deal that GM was offering it's suppliers before the bankruptcy.

Heroic Couplet's picture

Let's be clear that the US auto bailout was for the banks that hold auto loans, not for the workers or asembly line or the executive. There's a reason GM added GMAC financing. Harvard Business Review had an article on automated production: the cost of making a car is $800. HBR also stated in an article that in South Africa, it's easier and cheaper to pay workers to hand-build a Mercedes than it is to turn on the electricity for the assembly line!

Walt D.'s picture

Perhaps the Fed could give them some "Fiat Money" !

zrussell's picture

Why can't the Euro car makers/dealers do the same thing as the US:

- 0% down, no credit, only heartbeat required.

- Euro for clunkers

- US taxpayer bailout of debt with corporate ownership 51% controlled by the global banksters.

Works here!!

Testudo321's picture

We have the Volt -  it is called Ampera.

walküre's picture

A sea change in the German auto industry. For that inexorable and stunning process, and the fretting around it, read.... China, the Number One Foreign Investor in Germany.

That's not the type of investment the ECB was talking about when they were keeping the "China, the ultimate sovereign debt savior" alive, was it?

Maybe the ECB mandates that any Chinese investment into a European innovation and production facility has to be GARNISHED with a few cool billion Eurobonds?

Sorry, Chinaman you cannot get the Schnitzel without the Sauerkraut. Ja. Schnookipootzie.

rhaan's picture

GM is looking for closure two Opel factories in Germany


Use Google translate German-English for this link

THE DORK OF CORK's picture

In Ireland 50%+ of the new car sales are now A class vehicles with emissions less then 120g /km when only a few years ago it was in the teens %

These were the new car sales figures for Feb

Band Fuel Type   Total Petrol Diesel Petrol & Electric Petrol & Ethanol Electric Other A 2,392 10,475 219 0 0 0 13,086 B 3,348 6,315 21 557 0 0 10,241 C 166 858 11 0 0 0 1,035 D 20 504 0 0 0 0 524 E 18 275 0 0 0 0 293 F 5 268 0 0 0 0 273 G 7 11 0 0 0 0 18 Not available1 3 11 0 0 16 0 30 Total 5,959 18,717 251 557 16 0 25,500

Notice the Diesel numbers.............

The only short term salvation for the euro car market is for it to adopt the 2CV design philosophy.ën_2CV

"It was technologically advanced and innovative, but with uncompromisingly utilitarian unconventional looks, and deceptively simple Bauhaus inspired bodywork,[3] that belied the sheer quality of its underlying engineering"

There is only one car that fits the bill at the moment and that is the Skoda  Fabia greenline

Sorry that was a mess..............................

Diesel purchases were 18,717 of a total of 25,500 cars

In real world conditions many drivers can reach 95MPG over long 100 Mile distances

steve from virginia's picture


How sad, the auto industry is destroying itself. How much longer before it's gone altogether?

Joebloinvestor's picture

Notice the huge upsurge in the green auto industry in Europe?


Watch the EU TRY TO pull a rabbit out of the hat and license the VOLT or some other stupid stunt.

johnQpublic's picture

Fiat=worthless paper car with no intrinsic value

gdogus erectus's picture

Hey. At least Ferrari's are faster than Vettes again. Barely.

RafterManFMJ's picture



FIAT - who would name a car after a rapidily devaluating style of currency? Fix it again, Tony?  Who would've thought Government Motors would choose the ugliest European to marry?  Uncle Obama don' know! Hello! Is this thing on? Seriously though I'm typing this on my iDevice at a stop sign in my sweet sexy Volt - and boy does it draw the babes! Unshaven and heavily pierced, but - AAAAAAAAAAAAH Volt fire! AAAAAAAAAA HELP! The goggles do nothing!!

adr's picture

Just send 10 million BMWs to the ghettos of America. The US treasury can pay for them and Obama can do his best Oprah impression, "Every one of my people gets a car. I promised, you voted, you win. Get out there and do it again!!!"

Ropingdown's picture

Nobody has to actually pay for it in the next ten years.  Just put the beemers on the tab.  This has been a very successful strategy so far.  "No manufacturing jobs?  Just higher lots of teachers, nurses, cops, and clerks and....put it on the tab."  Nobody notices until you've made your money and moved to Dubai or Singapore!

Ned Zeppelin's picture

Gee, that's hilarious. 

Bet you think we should all get on the Mitt bandwagon cause he'll do better. Right.

They're all crooks.  Rs and Ds alike. 

apberusdisvet's picture

What?  Honesty from auto makers in Europe?  Channel stuffing isn't allowed?

DoChenRollingBearing's picture

Hah!  + 1

Hyundai of Korea just became the number one seller of cars in Peru (2011, new car units sold), beating out rival Toyota.  Hyundai is on the march!

Peru is doing well too.  We are having record bearing sales in 2012.

¨Some bearings we sell in Peru¨.  Google that or gmail me at my name for a link to my article.  Pretty pictures and oddball bearings, what more could you ask for?