Fiat CEO Sergio Marchionne Warns on Europe’s Excess Auto Production image

Fiat warned that European automakers are heading towards difficult times if they don’t find a solution for the surplus to demand.

“How long can you keep on subsidising Europe at that rate?” said Fiat’s CEO Sergio Marchionne. “There’s going to be an implosion of some kind. I think we’re seeding the air for one hell of a hurricane.”

In 2012 new car registrations in Europe dropped 8.2% and are expected to fall even more this year. In Italy sales have reached the lowest level since 1979, while the situation on the continent get gloomier, opposing that in the US where sales have increased 13.5% in 2012. Marchionne added that automakers avoid closing plants due to what is called a “prisoner’s dilemma”, which means that any facility closures will help other automakers keep their plants open.

“The problem with chipping away at capacity is that every time you take an ounce of capacity you benefit the other guy,” he said.

Fiat has already closed a plant in Sicily in 2010 and plans to convert two other plants in Italy to export-oriented work. One of the plants will manufacture a small Jeep, while the other will produce vehicles for Maserati, Fiats’ high-end luxury brand. Marchionne said that although this is a risky move, it has to be done.