The Truth About Cars » overcapacity The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 28 Jul 2014 18:32:39 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » overcapacity Sergio Gives Unsolicited Advice To EU And China Goverments Mon, 29 Oct 2012 06:38:51 +0000

Fiat and Chrysler CEO Sergio Marchionne repeated its pleas that European governments should do something about the overcapacity in  the region. Being in Shanghai when he said that, he recommended that the Chinese government does the same. The governments likely won’t be enthusiastic about Sergio’s advice.

Said Sergio while the Wall Street Journal took notes:

“There is a demand-supply imbalance in Europe, and that needs to be addressed, which has been the reason why I have advocated European Union intervention. Somebody needs to control the process whereby this gets done before we end up creating nationalistic responses that are ultimately going to run right in the face of rational economic choices.”

Marchionne has been demanding that European carmakers take an equal haircut in capacity, something that had been roundly opposed by other EU carmakers, especially those in Germany. Brussels also has shown the cold shoulder to Marchionne’s suggestions. In the meantime, manufacturers like Ford started reducing capacity without government aid.

Overall car sales in Europe in 2012 are expected to be around 12.5 million vehicles, the lowest level since 1993.

Marchionne also suggested that Beijing should streamline its fragmented car industry that suffers from overcapacity and declining growth.

Marchionne repeated his old prediction that after a round of consolidation, only five or six global auto makers would remain. “I think you want at least one of those players to be Chinese,” he told the Chinese audience.

China currently has more than 100 carmakers. In 2011, some 50 carmakers made most of the 80 million automobiles built worldwide. Fiat recently opened a new plant in Chongqing, China, and is planning a few more for the coming years.

]]> 6
Marchionne Won’t Close Italian Fiat Plants, Overcapacity Be Damned Tue, 18 Sep 2012 12:00:40 +0000 Fiat CEO Sergio Marchionne vowed he will not close any of Fiat’s six Italian factories, Reuters reports. Actually, he says, he is a victim of circumstance:

“We’re in a dramatic situation here, and I’ve never talked about plant closures, I’ve never said I wanted to leave.”

And what about the awful sales of the new Panda? No, it is not selling because it is a bad car, says Marchionne. “It isn’t selling, because there is no market”.

 Fiat Group’s EU sales have been down 17 percent in the first eight months of the year, its home market Italy is down nearly 20 percent. Marchionne led a campaign for communal capacity shedding in Europe, only to attract the ire of mighty Volkswagen.

Reuters says  the Italian government will meet Fiat executives on Saturday to discuss Fiat’s strategy for Italy, the government said in a note on Tuesday.

]]> 17
Ford Still Mum Regarding Genk Plant Closure Fri, 14 Sep 2012 18:47:28 +0000

Union leaders met with Ford officials last week during Ford’s Amsterdam extravaganza, and when the topic of closing the Genk, Belgium plant was raised…nothing was said.

Genk, which employs 4,000 workers and builds the Mondeo and S-Max minivan, is looking like the next victim of European overcapacity.

With the new Mondeo now a world car, the door is open for alternate assembly locations – such as the United States or Mexico. The car has already been delayed by six months. Supplies and workers are getting nervous. Speaking to Reuters, union chief Luc Prenen said

“We asked about the rumours (of plant closure)…They said they could neither confirm nor deny them.”

Ford officials were equally evasive, stating that “…It’s too soon to provide any specifics about our plan for Europe.” But with European car sales at their worst in nearly two decades, and Ford bleeding money in Europe, it wouldn’t surprise anyone to find out that Ford packed up and left Genk.

]]> 3
In Pain, European Carmakers And Unions Turn To Obama For Inspiration Mon, 03 Sep 2012 08:37:38 +0000

People in Europe had a lot of time to think about their troubled future during their long vacation. Coming back to work, they are “ready to shut plants and lay off staff,” as Reuters observes. Executives and union leaders are said to be in rare agreement over who to emulate: Obama, the UAW, and Detroit. Europeans want their bailout too. Some do, at least.

“Barack Obama said the federal government was ready to help (GM and Chrysler) on condition they carry out the necessary restructuring,” said Laurence Parisot, head of French employers’ organization Medef. “”If we want our companies to be competitive market leaders again in five or 10 years, we have to accept some adjustments.” Likewise, some union leaders “are calculating that cuts now can save more jobs later,” says Reuters.

Those “adjustments “ could be brutal if the U.S.A. is taken as an example. At GM alone, the adjustments did cost four brands, 14 U.S. plants and 21,000 jobs. The fact that employers and employees in Europe start thinking about cutting off the leg to save the body illustrates the level of pain they are going through

“Higher restructuring hurdles, from bankruptcy law to labor protection, also mean European cutbacks will never match Detroit’s for depth or speed” says Reuters.”Still, the U.S. example is too recent and, so far, successful to ignore.”

There is a much bigger hurdle: Not everybody in Europe is hurting: “Two in five European plants are running below 75 percent, deemed the minimum profitable rate, while Volkswagen’s factories are close to full tilt. The laggards are concentrated in Italy, France and Spain,” says Reuters.  Government bailouts are against EU regulations. Those regulations can be changed or flouted – but that needs unanimous consent. So far, the call for government help come from Fiat’s Marchionne and now  from GM-partner PSA. Volkswagen says “let them die” and is getting ready to pick up the pieces. But what if Volkswagen also gets affected?

Germany’s Automobilwoche [sub] reported over the weekend that Volkswagen is getting ready to cut its currently red-hot production by ten percent. Nonsense, says Volkswagen.

“The given scenarios are speculative and factually not correct,” a Volkswagen spokesman told Reuters. He also added that the situation in some markets is “tense” and that the coming months will be “significantly more difficult and demanding.”

]]> 12
PSA Restructuring Includes Plant Closure, 8,000 Jobs Cut Thu, 12 Jul 2012 12:36:57 +0000

It’s been a long time coming, but PSA has finally done it; the parent company of Peugeot and Citroen is cutting 8,000 jobs and closing an assembly plant outside Paris, as the carmaker tries to cope with a sagging market and excess capacity.

Of the 8,000 jobs being shed, 3,600 are not related to assembly work, while 3,000 are expected to come from the Aulnay plant outside France’s capital. 1,400 will come from the Rennes plant, which builds larger vehicles like the Citroen C5 and Peugeot 508, models that have seen demand drop off in the wake of Europe’s economic downturn.

According to Reuters, PSA’s plants are burning $244 million a month, with cash flow not expected to turn positive until 2015. PSA’s first-half losses in 2012 amounted to $857.5 million. With significant exposure to troubled markets in Europe (i.e. the PIIGS countries), no low-cost brand (like Dacia for Renault) and an uncompetitive small car lineup for Peugeot, the company’s fortunes are hardly bright.

The move by PSA could be the catalyst for a wave of restructuring moves across Europe. Carlos Ghosn, head of Renault-Nissan, told Reuters in March that “The day somebody’s able to restructure heavily in Europe, it’s going to force all carmakers to do it,”  while Fiat CEO Sergio Marchionne has long advocated for a way to reduce capacity, via closing plants or finding additional ways to take advantage of it.

]]> 11
Italian Made Chryslers A Possible Solution For Fiat’s Overcapacity Problem Tue, 10 Jul 2012 15:27:39 +0000

Sergio Marchionne has been one of the most prolific alarmists regarding European overcapacity, and who can blame him? The economy is in the dumps in Fiat’s home market, as well as crucial export markets, and closing a plant would come with all kinds of blowback.

According to a report from Just-Auto, there may be a solution on the horizon, involving Chrysler products built in Italy and exported back to the United States. And it’s either that, or one of Fiat’s Italian plants will have to take the bullet.  A Fiat spokesman told the publication

“Given the under-utilisation of our plants in Italy [and] in an effort to resolve that issue, the company has [been] talking with Chrysler to see if we in Italy could build Chrysler or build products for export back to the States…Chrysler is doing well and they are close to saturation point in the majority of sites we have in the US. In order to have that [US export] we have to have the unions on board – if we can’t make this work… then there is one plant too many [in] Italy.”

The FIOM, a prominent metalworkers union, refused to sign a deal with Fiat that promised increased compensation packages that were linked to enhanced flexibility at the plants – something which could seriously hamper the Fiat/Chrysler export plans. According to the Fiat spokesman, other labor unions are on board with the plan.

The U.S. export plan has been in discussion since the beginning of the year. A report by Reuters in February quoted FIOM’s National Secretary for the Auto Industry criticizing Marchionne’s plans. FIOM’s Giorgio Airaudo told the news service

“It seems worrying to me. He’s telling us that there are two Italian plants at risk if the recession continues and if his plans do not materialize…”

Marchionne wouldn’t get specific with what product would be exported, he told the Wall Street Journal that “a lot of these [Italian] plants are going to be producing for the U.S.” While other automakers are lighting their hair on fire regarding over-capacity, Marchionne has a handy escape route; American exports. Even if they aren’t as profitable as American-built vehicles, the unions are kept busy (and happy), plants are fully utilized, and the appetite for Chryslers (and hopefully, an expanded Fiat/Alfa Romeo lineup) is satiated.

]]> 11
Shut Up And Die: No EU Life-Saver For European Car Industry Wed, 06 Jun 2012 11:11:42 +0000

Brussels has bad news for Fiat and PSA, and by extension for Chrysler and GM. There will be no EU assistance for an orchestrated  and painless capacity shedding, Financial Times Deutschland says.  A report of an expert group puts European overcapacities at 25 to 30 percent.  Fiat-Chrysler CEO Sergio Marchionne has been publicly lobbying for government support, PSA pressured the French government.  As predicted here months ago, a lobby of German carmakers torpedoed any support from Brussels and is for Darwinian solutions instead. With carmakers at odds, European governments are happy that they don’t have to act. After all, there are more pressing problems in Europe.

Instead of a massive support program, the EU likely will announce feel-good measures with the efficacy of a band-aid. There will be the usual green programs, combined with less aggressive CO2 limits. None of this will solve the overcapacities, which will get more pressing as Europeans get more cautious with buying new cars. Chrysler’s new owner Fiat, GM’s new partner PSA, along with Opel and to some degree Ford, will be sliding deeper and deeper into the European morass.


]]> 10
PSA-GM Tie Up Won’t Solve Bulging Over-Capacity, PSA Admits Mon, 02 Apr 2012 15:49:48 +0000

It must be the grand plan to make Iran walk or ride mules, because the alliance between GM and PSA is not about reducing over-capacity. This is what PSA told just-auto today. Confessed a PSA spokeswoman:

“We do have some over-capacity in Europe – around 20% over-capacity. The alliance is not here to tackle this problem – each company will tackle this problem – GM and Opel/Vauxhall will deal with the problem on its side. Regarding plants, we say the life of a plant is linked to the life of products we make.”

That makes us sleep better, because we had been racking our brains to see how joining one company that is bursting with over-capacity to another company that is bursting with over-capacity will reduce over-capacity. Now we know: It won’t.


]]> 16
Report: Auto Industry Still Carrying 3.5m Units Of Overcapacity Fri, 27 Aug 2010 21:12:02 +0000

Edmund’ Bill Visnic takes on the latest Harbour report, which finds North American auto plants running at an average of 58 percent capacity (even Europe, the global whipping boy for intractable auto overcapacity operates at an average 81 percent). Despite the recent downsizings across North America, the Harbour Report still estimates that 3.5m units of annual overcapacity remains in the US and Canadian auto manufacturing footprint, equivalent to 14 unneeded assembly plants. A rise in sales levels to the previous 15-16m mark could help the situation according to the report, but increased plant flexibility will be the factor that automakers can actually control. Even so, if 15-16m annual units don’t come soon, North America could be looking at more plant closures and job losses.

]]> 18
Carmageddon 2.0 Tue, 24 Nov 2009 07:44:11 +0000 He looks alive. Picture courtesy

Think everything will be hunky-dory by, well, 2012? (Watch the  movie.) Fitch Ratings thinks the U.S. auto industry won’t get back on its feet anytime soon. Worse, the industry may be caught in an “airline-style” cycle of repetitive bankruptcies because of weak sales and a glut of production capacity. It is unusual for a U.S. airline (and many elsewhere) to not be in bankruptcy or not have been at some point.

Amongst the rating agencies, Fitch is the only halfway good one. They were the lone voice that had warned against the dangers of the collateralized debt obligations that brought the world to the brink of disaster.

In a report cited by Reuters, Fitch says that high fixed costs, the lengthy periods required to develop new products and chronic overcapacity will leave the industry “littered with failures—plants, product lines, brands and companies.”

Even in peak conditions, companies would not generate enough cash to repair their balance sheets, leaving them vulnerable to severe financial stress in downturns. Fitch calls it “boom and bust cycles without the boom.”

According to Reuters, “the Fitch report was one of the rating agency’s starkest outlooks yet on an industry battered by recession, slow-selling products and crushing labor and retiree costs.”

Fitch thinks 2010 may see a 7.8 percent rise in U.S. light vehicle sales to 11.1 million units. Even that will leave much of the industry bleeding cash in 2010. Fitch sees more government money going down the black hole in 2010. Fitch thinks hell will freeze over before GM or Chrysler could successfully access the equity markets. You will continue making payments to GM or Chrysler even if you don’t own their cars.

Fitch prognosticates that a number of suppliers that have emerged from bankruptcy will go belly-up again. “The manufacturers could also fall into the same pattern.” If there is a double-dip recession or spike in gas prices, all bets are off.

In the fourth quarter of 2008, capacity utilization for motor vehicles and parts stood at 53.6 percent, says the Federal Reserve (2009 numbers are scheduled to be published in March 2010.) In an industry where capacity utilization below 80 percent portends gloom and doom, using only half of the capacity is a guaranteed trip to Jonestown. The rest of the world is not much better off. According to a CSM Worldwide study, global capacity utilization is 65 percent: The plants of this world could make 86m light vehicles, 30m more than the market demands. The healthy thing to do would be to hand industrial policy to Darwin: Survival of the fittest. Instead, governments the world over, led by the USA, are keeping their barely used auto industries on life support, even if it looks more and more like preserving the body of Vladimir Lenin.

]]> 16