FRANKFURT/BRUSSELS (Reuters) -- General Motors Co.'s drive to revamp its Opel/Vauxhall operations will only make a small dent in the European auto industry's overcapacity as high closure costs and political concerns prevent sweeping rationalization.
GM is grappling with heavy losses in Europe and has said the future of its plant in Antwerp, Belgium, and its 2,300 workers, is uncertain.
Analysts doubt that a large-scale shrinkage desperately needed in the wider European auto industry -- home to roughly 100 major car plants and about 20 percent overcapacity -- will take place in 2010, given the profound effects it would have on over 12 million jobs depending on car production.
There is little incentive to be the first to act since car site closures can cost hundreds of millions of euros, spark bitter conflict with unions and governments and lead to a loss in market share, even if the industry as a whole benefits.
Capacity use down to 59%
IHS Global Insight says that on average 80 percent capacity utilization is required to break even and sees the rate rising gradually to 75 percent by 2015 from its current level of 59 percent. In the boom year of 2007, the rate was 83 percent.
PriceWaterhouseCoopers estimates excess production in the European Union at 6.8 million vehicles, even adjusting for plants that have already cut shifts.
"Based on an average output of 300,000 vehicles annually per site, this translates to 22 plants – and in 2010, excess capacity could surpass 7.2 million units," said Calum MacRae, global leader of the PwC Automotive Institute.
Embattled carmakers are scrambling even harder to keep their expensive western European auto plants open and avoid big payouts by modifying factories.
IHS Global Insight production analyst Francisco Carvalho said Europe tends not to close plants but transform them by removing a production line or converting them to engine factories or distribution centers.
Productivity gaps will widen
In many other industries, companies allocate resources only to the most efficient assets, but carmakers spread the pain by cutting shifts, swapping volumes between plants or temporarily idling sites on a rotating basis for one or two days per week.
"I see thinning out of staff on a big, big level. There's an awful lot of reining in possible between a three-shift system running 24 hours a day and a one-shift system that might still be producing a fair number of vehicles," said Nick Margetts, the managing director for Jato Dynamics in Germany.
Such measures can cement a productivity gap between plants that can range from under 20 hours to build a vehicle to over 60, according to industry efficiency guru Ron Harbour.
Renault, PSA have shut plants
It is easier to close a plant in countries such as Britain due to more liberal labor laws or in Belgium because the potential impact of a consumer boycott will be smaller given it represents only 4 percent of the western European car market.