Echoing Chancellor Angela Merkel’s hard line over Europe’s debt crisis, German automakers are balking at coming to the aid of embattled peers in the region.
Volkswagen AG (VOW), Daimler AG (DAI) and Bayerische Motoren Werke AG (BMW) are resisting calls by Fiat SpA (F) Chief Executive Officer Sergio Marchionne to form a united front to push for European Union support to reduce overcapacity in the region. A meeting today between auto executives and the EU in Brussels did not advance efforts to shut unprofitable factories.
“If you do a plan which distributes closures across countries, it’s easier to sell it,” Marchionne, who also serves as president of European auto lobby group ACEA, told reporters. “You can’t ask Italians to be the only ones who feel the pain of closures. They should go to France, Italy, Germany.”
Overcapacity in Western Europe may more than double to about 2 million vehicles in 2012 as sales fall for the fifth straight year, according to IHS Automotive. The region’s car market will contract 7 percent this year, ACEA forecast today.
With German carmakers producing vehicles in demand in China and the U.S., Fiat of Italy and PSA Peugeot Citroen (UG) and Renault SA (RNO) of France bear the brunt of the costs of excess capacity, which UBS estimates at 7.4 billion euros ($9.2 billion) a year.
VW, BMW and Mercedes-Benz’s parent Daimler use more than 90 percent of the capacity in their European factories, compared with rates of 60 percent to 75 percent for other carmakers in the region, according to Philippe Houchois, a London-based analyst with UBS.
While European politicians generally agree that overcapacity is a problem, they want jobs cut somewhere else. Even Germany has sought to prevent layoffs at home as part of General Motors Co. (GM:US)’s efforts to turn around its Opel unit. Still, German automakers have little incentive to help solve their competitors’ woes.
“There’s a clear problem of excess of supply in Europe, which has worsened because of the economic downturn,” said Pierluigi Bellini, an analyst with IHS Automotive in Milan. “I don’t see Marchionne succeeding in his efforts to get a European plan for the industry as German carmakers, especially BMW and Daimler, are running at almost full capacity.”
The EU should create an extraordinary plan for a common framework for closures across countries, Marchionne has said. His proposal hasn’t been considered because the carmaker association itself doesn’t agree on what steps to take. The Fiat CEO and other industry leaders discussed the outlook today with the European Commission, the EU’s executive body.
“It’s ridiculous,” Marchionne said. “We had a chance to discuss today with the Germans, and they say they have no plant to shut down. I know that at least two plants in Germany” are not doing well financially.
While the automakers could close factories on their own, the political repercussions would be so broad that some of the companies would prefer to have cover from the EU. Carmakers are not asking for EU funding to cut capacity, Marchionne said.
Antonio Tajani, the commissioner for industry, presented a plan at the EU’s CARS21 meeting to help the industry, including increasing support for green-car research to 1.5 billion euros in the 2014-2020 budget.
The commission also seeks to simplify rules for automakers, including environmental regulations, and to apply stricter conditions on trade agreements to take into consideration the impact on the industry, Tajani said.
Political interference has thwarted industry restructuring in Europe as governments seek to protect local jobs. Peugeot CEO Philippe Varin was summoned in April by Nicolas Sarkozy, who was then French president, after Peugeot workers called on him to help stave off layoffs. Francois Hollande, Sarkozy’s successor, has vowed to protect French jobs as well.
“Indeed, there must be a European solution to this issue, which is a European issue,” said Pierre-Olivier Salmon, a spokesman for Peugeot in Paris. Renault, which is 15 percent owned by the French government, declined to comment.
Fiat was the first European automaker to close a factory in its own country since the 2008 financial crisis when it shut a plant in Sicily in December. Before Fiat’s move, General Motors was the only other carmaker to shut a factory in the past four years, closing a facility in Antwerp, Belgium, in 2010.
Peugeot factories in Aulnay and Rennes are most at risk of being shut down as cooperation with GM adds to pressure from sluggish sales in Europe, union representatives Franck Don of CFDT and Bruno Lemerle of CGT said. The manufacturer assembles the Citroen C3 compact in Aulnay and the Citroen C5 and C6 and Peugeot 508 sedans in Rennes.
“The situation is unbearable in the short term” for Renault and Peugeot, said Xavier Caroen, an analyst at Kepler Capital Markets in Zurich. “The risk is the same: potentially losing money on each vehicle that is produced in plants that are not used at their full capacity.”
The lack of support from German automakers stems from their successful expansion decades ago, making them less reliant on demand in Europe. Volkswagen, the region’s biggest carmaker, generated more than double the combined revenues of Peugeot and Renault in the first quarter. Rather than shutting capacity, Daimler opened a new plant in Hungary in March.
The Germans are more global with their production and sales than the French and Italians. Fiat just last year re-entered the U.S. market and this year is opening its first China factory after more than a decade of failed attempts. That makes Fiat -- minus Chrysler Group LLC -- heavily dependent on Europe. Peugeot and Renault are not present in the U.S. at all, and lag far behind the market leaders in China.
By comparison, the Germans -- VW, Mercedes and BMW -- have factories in China and the U.S. and significant sales in the countries. China and the U.S. are BMW’s two largest markets, while VW’s biggest is China.
“We do not want to comment on the topic, because we do not have any overcapacities,” said Bettina Singhartinger, a spokeswoman for Daimler in Stuttgart. Volkswagen, BMW and German auto industry lobby group VDA declined to comment.
“Marchionne’s plan is a fairy tale,” said Giuseppe Berta, a professor at Bocconi University in Milan, who has written several books on Fiat. “Europe has no funds, nor the political will, to help the auto industry with incentives to shut plants and reduce the workforce.”
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