GM closing factory in Germany is just the beginning, experts say
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FRANKFURT/PARIS (Bloomberg) -- General Motors Co., moving toward the first shuttering of a German auto factory since World War II, is only addressing a fraction of the European supply glut.
"One would need to close at least one factory per volume manufacturer in Europe, which would be about five factories in total," said Philippe Houchois, a UBS analyst in London, referring to Renault, PSA/Peugeot-Citroen, Fiat Group and Ford as the other four companies needing to shut plants.
Europe's carmakers, hamstrung by political pressure not to cut jobs, have closed just two plants in the region in the past four years: a GM facility in Brussels and a Fiat factory in Sicily.
Overcapacity in western Europe may more than double to about 2 million vehicles in 2012, according to researcher IHS Automotive. The region's car market will contract 7 percent this year, industry association ACEA said last week.
PSA shares plunged to a 23-year low Wednesday on concern about the Paris-based company's ability to reverse slumping sales, extending losses over three months to 40 percent and shriveling its market value to 2.7 billion euros.
Renault has declined 27 percent and Fiat 26 percent over the same period. Volkswagen Group, which isn't suffering from excess factory capacity, has dropped 11 percent.
Auto executives meeting in Madrid Thursday will discuss how to deal with the industry's shrinking sales, with deliveries set to drop in 2012 for a fifth straight year.
Car sales across the region plunged 7 percent in the first four months of the year, with the Italian, French and Greek markets all falling 18 percent or more, according to ACEA data. Delivery figures for May will be released Friday.
German deal
Opel is in negotiations with unions to keep the plant in Bochum, Germany, open until GM stops making the Zafira minivan at the factory at the end of 2016, the Ruesselsheim-based GM unit said Wednesday.
Opel would extend job protections by two years through 2016 and in exchange ask workers to delay wage increases set for this year.
"Under the current economic conditions and outlook, there will be no further product allocation for Bochum after the Zafira goes out of production," Doris Klose, an Opel spokeswoman, said by telephone. "It is currently being negotiated with the unions whether something else might be produced there."
Cry for help
The deepening crisis has some carmakers calling for intervention. French Industry Minister Arnaud Montebourg yesterday said his government was considering financial support for automakers after Renault Chief Operating Officer Carlos Tavares said he would welcome "any kind of measure of support."
The French government owns 15 percent of Renault. The region's auto executives Thursday start their annual two-day gathering, led by current ACEA President and Fiat CEO Sergio Marchionne. The CEO is pushing for an industrywide plan under the auspices of the European Union that would draw up a blueprint for factory shutdowns.
Thus far, Marchionne's efforts have been thwarted by the German automakers, which don't have the same capacity glut in Europe as their French, Italian and American counterparts.
"Now that GM has opened the way, other manufacturers may find the courage to follow," Houchois said. "The industry is now capable of financing its own restructuring. This will be much more difficult three years from now, especially if the macroeconomic situation doesn't improve."
PSA pact
Ferdinand Dudenhoeffer, the director of the Center for Automotive Research at the University of Duisburg-Essen in Germany, also estimated that as many as five plants should be closed, adding that three was more likely.
Juergen Pieper, a Bankhaus Metzler analyst in Frankfurt, said three to four factories need to be shuttered.
GM's decision on Bochum is part of CEO Dan Akerson's pledge to stem European losses he says are weighing on the automaker's shares. The Detroit-based company posted a first-quarter adjusted operating loss in Europe of $256 million and also had $590 million in writedowns.
GM Europe has reported $16.4 billion in losses since 1999.
GM agreed in February to buy 7 percent of PSA as part of an alliance to cooperate on purchasing and vehicle development in a bid to cut costs in Europe.
PSA factories in Aulnay and Rennes, both in France, are most at risk of being shut down as cooperation with GM adds to pressure from sluggish sales in Europe, union representatives Franck Don of CFDT and Bruno Lemerle of CGT said. The manufacturer assembles the Citroen C3 compact in Aulnay and the Citroen C5 and C6 and Peugeot 508 sedans in Rennes.
Opel adjusts
Fiat was the first European automaker to close a factory in its home country since the 2008 financial crisis when it shut a plant in Sicily in December. Before Fiat's move, GM was the only other carmaker to shut a factory in the region in the past four years, closing a facility in Antwerp, Belgium, in 2010.
Bochum, which produced its first Opel vehicle in 1962, has 3,100 employees, down from a peak of more than 20,100 in 1979, according to company figures. GM's remaining European factories will work on a three-shift basis and may eventually produce non-Opel vehicles, the carmaker said Wednesday. "We must work toward sustainable positive results for our operations," Opel CEO Karl-Friedrich Stracke said in a statement. "Opel needs to adjust its business in a way that enables profitability even in difficult market conditions."
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