Screws tighten on European automakers

March 4, 2012 RSS Feed Print

The GM-Peugeot alliance goes beyond the traditional tie-ups that the industry has seen before — where carmakers combine technology, chassis and production facilities — as the two automakers seek to gain efficiencies.

Family-controlled Peugeot is one of the most exposed to the European market, where it sells more than half of its 3.5 million cars a year. Last year, it lost euro439 million.

The strategic alliance could also help GM, based in Detroit, find a solution for its loss-making Opel and Vauxhall brands in Europe. General Motors Europe, which lost $700 million last year, is studying ways to cut costs, raising union concerns that a plant or plants could close.

European auto production has dropped from 18.5 million vehicles in 2007 to 16.6 million last year, according to IHS Automotive. It is expected to hit a low of 15.5 million this year, 2.47 million vehicles fewer than it has the capacity to produce.

Despite that, premium carmakers like Audi and BMW, mass producers like Volkswagen and new importers like Hyundai-Kia are ignoring the capacity fears at other European carmakers and beefing up their production to accommodate new models coming to market this year and next.

At Fiat, Marchionne is looking to the U.S. market, through the nearly 3-year-old alliance with Chrysler, to help restore health to Fiat's Italian production sites, running at 60 percent capacity, according to IHS Auto. With the European market waning, his goal is to produce cars in Italy for export to North America — but he will only do that if he can win flexible union contracts that he says are necessary to be competitive globally.

For now, Marchionne has put future investments on hold — once pegged at a total euro20 billion from 2011-2014 — until the impact of the crisis becomes clear.

He has already closed one plant, in Sicily, at the end of last year against fierce labor and political opposition. And he told the daily Corriere della Sera recently that if his plan to export cars to the U.S. doesn't take shape, he'll have to close another two.

Marchionne said the problem of excess capacity is one that needs to have a coordinated response.

"National solutions are not enough," Marchionne said.

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Dee Ann Durbin in Detroit contributed to this report