The Detroit Three Fight to End Losses in Europe image

This year US automakers might loose $4 billion in Europe, as they struggle to use the same strategy which saved the US industry in 2009.

Between 2001 and 2010 US automakers had to eliminate 230,000 jobs and close plants in the home market to save the auto industry. But these measures take longer to be executed in Europe, as restructuring is more expensive here, due to the political resistance, powerful labor unions and restrictive labor laws.

“The political environment is difficult because employment is important and where restructuring may be necessary, that’s not, should we say, an invited conversation,” said Stephen Odell, CEO of Ford Motor Co.’s European operations. “And in some countries, we’re dealing with four, five, six unions, and not all with common goals.”

In the past decade GM has lost around $15 billion in Europe and this year it expects to lose more than $1 billion, while Ford will lose $4 billion for 2012 and 2013 and Fiat more than $1 billion. The fall of the auto industry in Europe was caused by production overcapacity, the sovereign debt crisis and the drop in consumer confidence. Currently the industry works at around 60% capacity, when at least 75% is needed for profitability.

If four years ago the Detroit Three managed to close plants and lay off employees as they were close to bankruptcy, in Europe it is a totally different situation. As the losses in Europe can be offset by the gains in North America, this makes it more difficult for the automakers to convince labor unions and governments of the necessity of closing plants and laying off employees.

“There are the issues of people saying, ‘You’re an international company and you’re making good returns,'” said Odell.

Last fall Ford announced it will close three plants in Europe by 2014, GM already closed an Opel plant in Belgium three years ago and plans to close another one in Germany next year. In 2011 Fiat sold a plant in Italy and had plans to close others but confronted with the unions’ opposition. Employees do not want to lose their jobs and neither do the politicians as this would mean losing votes. Each country points finger at other countries to convince automakers to close plants somewhere else.

“It’s not seen as the European auto industry,” Rhys said. “It’s seen as the French auto industry in France and the Italian auto industry in Italy.”

When it comes to the revival of the auto industry in Europe, opinions vary. Ford CFO Bob Shanks says that industry in Italy, Greece, Spain, Portugal and Ireland has hit rock bottom, while Fiat and Chrysler CEO Sergio Marchionne says that industry will improve from the second quarter as governments are expected to begin focusing on growth and not on austerity.

Source: The Detroit News