Europe and the overcapacity problem image

Just as Europe has too much debt, it also has more automobile factories than the economy can support.
As the region’s weak economies keep many European car buyers away from showrooms, analysts say the unprofitable automakers have no choice but to start closing production lines and cutting payrolls.

“I’ve never seen it this bad,” Sergio Marchionne, chief executive of both Chrysler and the Italian automaker Fiat, said during an interview.
All of the car manufacturers have capacity problems — all of them,” Carlos Ghosn, head of the Nissan-Renault alliance, said in Geneva. The industry is just waiting for one company to make the first move, he said.

And the move was made – by PSA Peugeot Citroen and Fiat SpA.

So where we are?
Automotive production and overcapacity
According to AlixPartners, 40 percent of the European plants overall are currently operating under their financial breakeven points — equal to a capacity utilization of around 75 percent to 80 percent.

Plants with the lowest capacity utilization are primarily found in France, Italy and Spain, but also in growing markets such as Russia and Turkey.

Ford lost $190 million overseas during the first quarter, most of it because of losses in Europe. In a filing with the Securities and Exchange Commission, Ford said its second quarter overseas losses could be as much as $570 million. According to Morgan Stanley analyst Adam Jonas Ford is currently using just 63% of its European factory capacity.

Opel – the European arm of General Motors is also on the same area. With its plants operating at only 77 percent of capacity, General Motors said operating loss before interest and taxes in Europe totaled $361 million compared with a $102 million profit a year earlier.
That’s huge! The company’s second-quarter European vehicle production fell 29 percent from the year-earlier period to 230,000 vehicles. GM’s market share dropped to 8.8 percent from 9 percent, the company said.

Fiat. Fiat’s chief executive said the carmaker may need to close another plant in Italy if he does not secure further cost-cutting concessions from its workforce. Why?
According to consultancy AlixPartners, Italy’s car plants – overwhelmingly Fiat’s – are operating at just 53 per cent of their capacity, the lowest level of any country in Europe.
The loss in the region before interest, taxes and one-time items including investments was 184 million euros ($226 million), the Turin-based company said in a statement last week.

PSA Peugeot Citroen. Oh yes. The family controlled giant posted a first-half loss of 662 million euros at its automaking division and announced plans to eliminate 8,000 jobs.

So how much overcapacity we have in Europe? According to IHS Automotive we’re talking about 2 million vehicles. Or maybe more…

New car sales in Europe
New registrations for cars in the European Union dropped by 2.8 percent to just over 1.2 million vehicles in June, constituting the ninth consecutive month of declining sales in the 27-nation bloc, the European Automobile Manufacturers Association (ACEA) said.