General Motors Co. (GM:US)’s move to shutter the first German car factory since World War II addresses only a fraction of the supply glut hobbling the European auto industry.
“One would need to close at least one factory per volume manufacturer in Europe, which would be about five factories in total,” said Philippe Houchois, a UBS analyst in London, referring to Renault SA (RNO), PSA Peugeot Citroen (UG), Fiat SpA (F) and Ford Motor Co. (F:US) as the other four companies needing to shut plants.
Hamstrung by political pressure not to cut jobs, Europe’s carmakers have balked at shutting unprofitable plants, closing just two in the past four years: a GM facility in Belgium and a Fiat factory in Sicily. With demand softening, overcapacity in western Europe may more than double to about 2 million vehicles in 2012, according to researcher IHS Automotive. The region’s car market will contract 7 percent this year, the European Automobile Manufacturers’ Association, or ACEA, said last week.
GM’s announcement yesterday to shut a factory in Bochum, Germany, reflects the difficulties that European automakers face. The move will take until 2017 to carry out after the Detroit-based automaker agreed to extend job guarantees.
“Even GM seems to need five years to close down its most marginal plant,” said David Arnold, a sales specialist with Credit Suisse in London. The prolonged closure “highlights once again that there will be no easy or indeed quick solution to the European overcapacity problem.”
Peugeot shares plunged to a 23-year low yesterday on concern about the Paris-based company’s ability to reverse slumping sales, extending losses over three months to 40 percent and shriveling its market value to 2.7 billion euros. Renault has declined 27 percent and Fiat 26 percent over the same period. Volkswagen AG (SXAP), which isn’t suffering from excess factory capacity, has dropped 11 percent.
Auto executives meeting in Madrid today will discuss how to deal with the industry’s shrinking sales, with deliveries set to drop in 2012 for a fifth straight year. Car sales across the region tumbled 7.1 percent in the first four months of the year, with the Italian, French and Greek markets all plunging 18 percent or more, according to ACEA data. Delivery figures for May will be released tomorrow.
Opel is in negotiations with unions to keep the Bochum plant open until GM stops making the Zafira minivan at the factory at the end of 2016, the Ruesselsheim, Germany-based GM unit said yesterday. Opel would extend job protections by two years through 2016 and in exchange ask workers to delay wage increases set for this year.
“Under the current economic conditions and outlook, there will be no further product allocation for Bochum after the Zafira goes out of production,” Doris Klose, an Opel spokeswoman, said by telephone. “It is currently being negotiated with the unions whether something else might be produced there.”
The deepening crisis has some carmakers calling for intervention. French Industry Minister Arnaud Montebourg yesterday said his government was considering financial support for automakers after Renault Chief Operating Officer Carlos Tavares said he would welcome “any kind of measure of support.” The French government owns 15 percent of Renault.
The region’s auto executives today start their annual two- day gathering, led by current ACEA President and Fiat CEO Sergio Marchionne. The CEO is pushing for an industrywide plan under the auspices of the European Union that would draw up a blueprint for factory shutdowns in an effort to discourage member states from offering incentives to protect local jobs.
Thus far, his efforts have been thwarted by German automakers, which don’t have the same capacity glut in Europe as their French, Italian and American counterparts, because they make vehicles in demand in markets like the U.S. and China.
“Now that GM has opened the way, other manufacturers may find the courage to follow,” Houchois said. “The industry is now capable of financing its own restructuring. This will be much more difficult three years from now, especially if the macroeconomic situation doesn’t improve.”
Ferdinand Dudenhoeffer, the director of the Center for Automotive Research at the University of Duisburg-Essen in Germany, also estimated that as many as five plants should be closed, adding that three was more likely. The Bochum closing is the first in Germany by a still existing carmaker since 1945, Dudenhoeffer said. Juergen Pieper, a Bankhaus Metzler analyst in Frankfurt, said three to four factories need to be shuttered in Europe.
GM’s decision on Bochum is part of Chief Executive Officer Dan Akerson’s pledge to stem European losses he says are weighing on the shares. The U.S. automaker posted a first- quarter adjusted operating loss in Europe of $256 million and also had $590 million in writedowns. GM Europe, which until 2010 included the Saab auto brand, has reported $16.4 billion in losses since 1999.
GM agreed in February to buy 7 percent of Peugeot as part of an alliance to cooperate on purchasing and vehicle development in a bid to cut costs in Europe.
Peugeot factories in Aulnay and Rennes, both in France, 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.
Fiat was the first European automaker to close a factory in its home country since the 2008 financial crisis when it shut a plant in Sicily in December. Before Fiat’s move, GM was the only other carmaker to shut a factory in the region in the past four years, closing a facility in Antwerp, Belgium, in 2010.
Bochum, which produced its first Opel vehicle in 1962, has 3,100 employees, down from a peak of more than 20,100 in 1979, according to company figures. GM’s remaining European factories will work on a three-shift basis and may eventually produce non- Opel vehicles, the carmaker said yesterday.
“We must work towards sustainable positive results for our operations,” Opel CEO Karl-Friedrich Stracke said. “Opel needs to adjust its business in a way that enables profitability even in difficult market conditions.”
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