EU: Car makers at a dangerous crossroads

Gazeta Wyborcza, Warsaw ^ | 4/23/2012 | Andrzej Kublik

[bruinbirdman]

The automotive industry, a crucial sector of the European economy, is suffering the consequences of the economic crisis. Forced to alter their production output, different groups are choosing different strategies to combat the tough economic climate.

by Andrzej Kublik

With the opening of a brand new Mercedes-Benz plant at the end of March in Kecskemét, near Budapest – the first such facility in Europe outside Germany – the Hungarians have reason to celebrate.

The plant, which cost around 800 million euros to build, is expected to initially produce up to 120,000 cars per year, before later doubling its production. It is also creating about 2,500 new jobs. On March 28, while the Hungarians were ready to party, the atmosphere was much less festive in Russelsheim, near Frankfurt, where Opel's supervisory board was considering development prospects for the firm, a European subsidiary of General Motors (GM).

The German press was full of alarmist articles on the alleged intentions of GM to close its Opel factory in Bochum, Germany, and its facility in Ellesmere Port in the UK. The supervisory board did however not rule on the future of the European plants and has pledged they will remain open until the end of 2014. The festivities in Kecskemét and the tension in Rüsselsheim reflect the divergent views on the future of the European automotive industry.

Are there too many factories in Europe?

Sales of new cars in the EU is clearly dropping, with only 13.1 million cars sold in 2011 and even lower sales in 2012. Many European plants are running well below production capacity, resulting in losses to manufacturers. The firm Pricewaterhouse-Coopers has estimated the excess capacity at 4.4 million vehicles a year. This problem, typically European, is not seen in any other market in the world.

The automotive sector is a critical element in the battle for jobs. According to data from the Association of European Car Manufacturers, some 2.3 million people work in factories making cars, engines and spare parts, representing 7% of all people employed in the industrial sector throughout the EU, not counting the 10 million people in sub-contracting businesses.

The industry is also an important source of innovation. European investment in automobile research and development hits 22 billion euros, which is greater than investment in the pharmaceutical sector.

The second wave of crisis

During the first wave of the crisis in 2008 and 2009, many EU governments set up car scrappage systems, allocating financial assistance to buyers who replaced older vehicles with new cars.

But with the first wave of the crisis over, the time came to restructure and adapt European plants to meet current market needs. A need that is all the more important due to the drop in demand for new cars in Europe as a consequence of the eurozone debt crisis.

Several European plants have already shut up shop. Opel closed its Antwerp plant two years ago. As for the Swedish manufacturer Saab, it has not been producing vehicles for almost a year. The situation at Peugeot-Citroen’s factories is thought to be just as delicate, after the firm signed a strategic alliance agreement with GM, which may see the closure of the group’s French factories.

The Panda case

"Today, very few automobile makers are managing to make money in Europe. This is untenable and must change," said Fiat boss and current head of Association of European Car Manufacturers, Sergio Marchionne, on the sidelines of the last Geneva Motor Show.

He has urged European authorities to implement a policy to support the development of a European automotive industry capable of competing globally. He has also invited car manufacturers to address the problem of excess production potential, particularly exacerbated by the intervention of "member states which, under political pressure, have disrupted the balance of the common market".

While criticizing interventionism, Marchionne has praised Fiat’s decision to shift production of its new Panda car from its plant in Tychy, in Poland, to a factory in Naples, suggesting it is an example other manufacturers should follow. "The decision to bring the new Panda to Italy, was not based solely on rational grounds. We took it because of historical ties and close relations that bind Fiat to Italy," he said.

Christian Klingler, who sits on the Board of Volkswagen, believes that the real debate is not one of excess capacity in factories, but one of competitiveness. He believes it was correct in terms of competitiveness that the German company chose to produce its new city car Up! in a factory in Bratislava, in central Europe, rather than adopting a Fiat-style approach. For Mercedes, now located in Hungary, the calculation was a quick one: production costs are 30% lower there than in Germany.

Translated from the Polish by Lucyna Haaso-Bastin

[factoryrat]

The GM strategy since the late 1990’s has been to move as much manufacturing to china as possible. GM is now a financial institution who happens to build motor vehicles. Growing up in Michigan, I have witnessed this first hand. It is all about profits now, regardless of where those profits are generated. The shareholders could care less where their profits are generated, as long as the profits keep coming in. Unfortunately for them, they will be saddled with the costs of supporting all of those displaced workers, through unemployment and welfare.

[donmeaker]

BMW stands for “Bubba Makes Wheels”!

[Lazlo in PA]

Motorhead, Collector Car Junkie, Speed Freak, Automotive Related Ping List.

Freepmail "Lazlo in PA" to be added or removed.

[Lazlo in PA]

I had no idea the Europeans did cash for clunkers too. Looks like it worked out for them as well as it did here. Fail.

[bruinbirdman]

"The shareholders could care less where their profits are generated, as long as the profits keep coming in."

Shareholders, bondholders, profits and General Motors don't exactly go together; might not be the best example. They were all wiped out a few years ago.

Speaking of not being interested in profits, that's why GM is big in Red China. ChiComs hate private property and capitalism. They will use it to hang you.

yitbos

[factoryrat]

GM is employing their china policy. They've been bent on off shoring to china since we've had normalized relations with china. No one here can compete with slave labor from the third world. Are you willing to work for literally a bucket of rice a day as your wage? These corporations are the modern day slave drivers.

[Nik Naym]

“It is all about profits now, regardless of where those profits are generated. The shareholders could care less where their profits are generated, as long as the profits keep coming in.”

Exactly.

And that is the point. Otherwise no one would want to be a shareholder.

This may come as a shock to you, but here is a fact:

Corporations do not exist for the purpose of creating or providing jobs. They exist for the exact reasons you stated yourself: to produce profits for the shareholders.

Sorry.

[factoryrat]

No need to be sorry, that is what business is all about.

[factoryrat]

The only way we can bring the work back to the US is to beat the competition on price, and the only way we can do that is with technology. You can turn a profit with cheap labor, but if I can develop automation that will drive the overhead far below the cost of foreign labor, the work will come back.

The only downside to that is that in the process of moving manufacturing to china, we basically handed all of our technology over to them on a silver platter. Now we have to compete with them on a higher level, because they now they not only have the cheap labor, they have the high end machinery and a cheap labor force. Oh, and IP rights are nonexistent in china, so if you make things there, expect to have your product copied and marketed elsewhere.

[Nik Naym]

“The only way we can bring the work back to the US is to beat the competition on price, and the only way we can do that is with technology. “

Only partially true.

We also need fewer onerous Govt. regulations and interference.

Regardless of labor costs, there is no way I would want to start any kind of manufacturing company here in the U.S.

Actually, there is no way I would want to employ any one at all the way things are currently. Too much Govt. interference in the form of 3 and 4 letter agencies, plus the uncertainty of Obamacare regulations, etc. etc. etc.