A new round of alliances among European automakers, such as a manufacturing tie-up being considered by PSA/Peugeot-Citroen and General Motors for its Opel/Vauxhall unit, will not address the whole problem currently facing the industry in Europe.
Such partnerships can reduce investment and production costs, but they ignore the other half of the problem -- Europe's chronic production overcapacity, which is getting worse as new-car demand falls in the region.
Max Warburton, an auto analyst at Bernstein Research in London, says something needs to happen in the European auto industry because of chronic overcapacity, terrible pricing and near-zero gross margins in small cars.
But he adds: "Putting European auto companies together, while logical on paper or Powerpoint, is incredibly hard to execute and to make functional."
Warburton says that the issues that have prevented PSA and Opel from making money over the years will not simply disappear in the event of an alliance. "They would arguably double the problem," he says.
Analysts estimate that Europe has 2 million to 5 million units of overcapacity. In 2007, about 16 million cars were sold in Europe, while the 2012 total is likely to be below 13 million.
Figures from PricewaterhouseCoopers show that by 2015 Europe's 112 plants will have an installed capacity for 22.84 million units, up from 113 plants generating 21.1 million in 2009 and almost half a million units more than the 22.4 million capacity from 117 plants in 2007.
The utilization rate in 2015 is expected to be 82.4 percent compared with 80.9 percent in 2009 and 84 percent in 2007, according to PwC. An automaker typically needs at least 80 percent utilization for a plant to be profitable.
Cooperating on the development of vehicle architectures, engines and transmissions could help to lower investments and, also thanks to joint purchasing, even reduce production costs.
The question is if these eventual savings could overcome a capacity utilization which is projected remaining well below break-even this year and possibly also until 2014.
According to research by Morgan Stanley, last year PSA used almost 80 percent of its installed capacity in Europe – where it lost money – and this year the figure could fall to just above 70 percent, as the market is forecast to decline by 6 percent in Europe and by 8 to 10 percent in PSA's French home market.
Opel is in even worst shape, with capacity utilization at about 70 percent last year, predicted to fall to about 65 percent this year, according to Morgan Stanley estimates.
"Peugeot and Opel/Vauxhall both need to reduce head count and rationalize capacity," Richard Hilgert, an auto analyst at Morningstar in Chicago wrote in a note to investors.
Cooperation between automakers provide some purchasing synergies where common vehicle architectures and common parts are used, but this would not substantially help GM in its two goals for Europe, which Hilgert sees as growing Chevrolet in the region as a low-priced entry brand while pushing Opel/Vauxhall more upmarket.
That said, potential savings from cooperation between large automakers – PSA builds 3.5 million units worldwide and Opel/Vauxhall 1.2 million units – should not be underestimated.
"Synergies between GM and PSA could thus ultimately run into billions - we estimate from 3 billion to 4 billion euros from joint purchasing alone – but it would take many years to deliver and, given the political sensitivity, would not come without significant execution risk either," said Laura Lembke, an auto analyst at Morgan Stanley.
Political sensitivity is what has generally prevented – and still prevents - European automakers closing plants in their home countries. In the past decade, only Fiat has closed a factory at home, when it shut Termini Imerese factory in Italy last year.
Peugeot, for its part, closed the Rython plant in the UK, while in 2010, Opel closed its Antwerp plant in Belgium. But these were outside their home countries.
In short, restructuring in your own backyard has always been taboo, which makes any kind of radical action from Opel in Germany or PSA in France all the more unlikely. Particularly with a general elections looming in both countries in 2012 and 2013.