European Overcapacity: Marchionne Knows How To Fix It

For quite some time, Fiat-Chrysler CEO Sergio Marchionne has been busy lamenting the dreadful overcapacity in the European auto industry. He’s doing I so much that slowly, people begin thinking that Marchionne is honestly concerned. “If I would be in his shoes, I would be concerned too,” said an audibly unconcerned European auto exec, who requested anonymity. My friend thinks that when Marchionne talks about the European car industry, he is talking about Fiat.

Now, Marchionne has a plan how to fix the chronic overcapacity at Fiat in Europe.

He wants government intervention.

A week ago in London, Marchionne said this:

“Many other industry sectors have already been through a major consolidation and rationalization, such as the steel industry in the 1990s.”

Yesterday in Geneva, Marchionne said that the EU must forge a common solution to fix the chronically oversupplied market:

“Europe needs to provide a unified, concerted road map to get this done. Look at what happened with the steel industries in the ‘90s, and copy that example.”

You need to be a student of recent European history to have and idea of what the oracle of Turin could be talking about. He is talking about a managed solution where everybody takes a haircut, and everybody stays alive. If he really takes steel as an example, then he is talking government aid and import restrictions.

In the beginning of the 90s, the European steel industry suffered from overcapacity. The industry was asked to shed capacity. At the same time, imports of steel were restricted. That did not work. In the second half of the 90s, a law was passed that made government aid legal as an emergency measure. Money was poured into the steel industry. At the same time, under the cover of anti-dumping measures, imports of steel to Europe was heavily restricted.

My anonymous friend opines that German automakers (except Opel, perhaps) are strictly against mandated capacity shedding. Their order books are full, and they are happy to take the market share of European makers in distress. Such as Fiat. As long as this continues, Marchionne can pound sand. As a student of recent European history, Marchionne is probably thinking of chapter two of the steel story: Government aid plus import restrictions.

Good luck with that. As long as the Germans are exporting themselves out of the crisis, Berlin won’t start a trade war, and has no reason to finance ailing carmakers. Pound sand, Sergio.