EU resists Marchionne's call for help on overcapacity
Fiat CEO fails to win support from VW, Daimler and BMW
BRUSSELS -- The European Union is resisting calls by Fiat CEO Sergio Marchionne for EU help to tackle excess production capacity in the region.
Marchionne is seeking support -- both political and financial -- from the EU to share the burden of job cuts and factory closings among major auto-producing countries, such as Germany, the UK, France, Italy and Spain.
The Fiat CEO and other industry leaders discussed the outlook for the region's car industry with the European Commission, the EU's executive body, in Brussels today.
Europe's Industry Commissioner, Antonio Tajani, presented a plan to restart the stalled car industry that does not advance efforts to shut unprofitable factories, a person familiar with the matter told Bloomberg.
Tajani's proposal doesn't address overcapacity because there is no consensus, the person said. Instead, the plan increases support for green-car research to more than the planned 1 billion euros in the 2014-2020 budget.
German automakers Volkswagen, Daimler and BMW are resisting Marchionne's call to form a united front. Their European plants are busy because their vehicles are in demand in China and the United States, so they have little incentive to help solve their competitors' woes.
Overcapacity in western Europe may more than double to about 2 million vehicles in 2012 as sales fall for the fifth straight year, according to IHS Automotive. Fiat, PSA/Peugeot-Citroen and Renault bear the brunt of the costs of excess capacity, which UBS estimates at 7.4 billion euros ($9.2 billion) a year for labor and equipment.
VW, BMW and Mercedes-Benz's parent, Daimler, use more than 90 percent of the capacity in their European factories, compared with rates of 60 percent to 75 percent for other carmakers in the region, according to Philippe Houchois, a London-based analyst with UBS.
European politicians generally agree that overcapacity is a problem, but they want jobs cut somewhere else. Even Germany has sought to prevent layoffs at home as part of General Motors' efforts to turn around its Opel unit.
Fiat was the first European automaker to close a factory in its own country since the 2008 financial crisis when it shut a plant in Sicily in December 2011. Before Fiat's move, GM was the only other carmaker to shut a factory in the past four years, closing a facility in Antwerp, Belgium, in 2010.
PSA factories in Aulnay and Rennes in France are most at risk of being shut down as cooperation with GM adds to pressure from sluggish sales in Europe, according to French unions. PSA builds the Citroen C3 compact in Aulnay and the Citroen C5 and C6 and Peugeot 508 sedans in Rennes.
"The situation is unbearable in the short term" for Renault and Peugeot, said Xavier Caroen, an analyst at Kepler Capital Markets in Zurich. "The risk is the same: potentially losing money on each vehicle that is produced in plants that are not used at their full capacity."
New Hungary factory
The lack of support from German automakers stems from their successful expansion decades ago, making them less reliant on demand in Europe. Volkswagen, the region's biggest carmaker, generated more than double the combined revenues of Peugeot and Renault in the first quarter. Rather than cutting capacity, Daimler opened a new plant in Hungary in March to build its latest B-class compact-premium model.
The Germans are more global with their production and sales than the French and Italians. Fiat just last year re-entered the U.S. market and this year is opening its first China factory after more than a decade of failed attempts. That makes Fiat -- minus Chrysler Group -- heavily dependent on Europe for sales. PSA and Renault are not present in the United States and lag far behind the market leaders in China.
By comparison, VW, Mercedes and BMW have factories in China and the United States and significant sales in the countries. China and the United States are BMW's two largest markets, while VW's biggest is China. While Europe is still important for them, they have gone global and are benefiting as a result
"We do not want to comment on the topic, because we do not have any overcapacities," said Bettina Singhartinger, a spokeswoman for Daimler in Stuttgart.
Volkswagen, BMW declined to comment, as did German auto industry lobby group VDA.
"Marchionne's plan is a fairy tale," said Giuseppe Berta, a professor at Bocconi University in Milan, who has written several books on Fiat. "Europe has no funds, nor the political will, to help the auto industry with incentives to shut plants and reduce the work force."
Bloomberg contributed to this story