By on March 7, 2012

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.

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18 Comments on “European Overcapacity: Marchionne Knows How To Fix It...”

  • avatar

    The overcapacity Fiat is experiencing is a direct reflection of having been beaten in the marketlace, mostly by VW. Turning to mommy EU and demanding that it force VW to reduce their capacity is beyond the pale, even for European politics.

    The only realistic fix is for Fiat to use up its spare capacity by building a high volume Ferrari crossover, perhaps based on the platform underpinning the Dodge Nitro.

  • avatar

    Here in western Pennsylvania, people hunt deer in order to thin the overpopulation. This means that some die in order for others to live, which is better than all of them being sick and starving. It comes down to a contest between their deer smarts, hunter smarts, and luck.

  • avatar

    What a pile…VW has no overcapacity issues, so that means Europe has no overcapcity issues.

    And what about Opel? Peugeot-Citroen? Ford? Renault? Honda, Nissan factories in UK? What about Toyota factories in Europe?

    • 0 avatar

      The german car/truck makers without capacity problems (VW+Audi+Daimler+BMW+Porsche+MAN) together built more than 40% of the vehicle production in the EU in 2010 (according to OICA), so its not a case of “VW against the world”. That percentage is very, very likely to have risen again in 2011, but those numbers aren’t available yet…

      And while the asian manufacturers in europe aren’t doing that well regarding sales (except Hyundai/Kia), I highly doubt they have the same capacity problems. Their plants are younger, probably more flexible and probably were never built to reach capacities much higher than they are doing now.

    • 0 avatar
      Franz K

      Mercedes Benz / BMW- MINI / VW-Audi are all hiring , so no overcapacity issues with them

      PSA / FIAT / OPEL / Vauxhall and to a lesser extent FORD and Renault are all in the weeds , hence all their whining about overcapacity /Union problems etc

      The Japanese are holding steady . For the moment .

  • avatar

    “My friend thinks that when Marchionne talks about the European car industry, he is talking about Fiat.”

    Your friend is probably right.

    Marchionne wants to close down Fiat plants, but that is politically difficult.

    One possible way to get around this would be to get around the Italian government by moving it up to the EU level. At the very least, having the dialog helps to pave the way for eventually shutting down the plants that Fiat wants to shutter.

    Oddly enough, the Chrysler acquisition seems to have transformed Fiat into an American company with some Italian operations. I must admit that I never saw that one coming.

    • 0 avatar

      “Oddly enough, the Chrysler acquisition seems to have transformed Fiat into an American company”

      I never thought such a thing could happen. Perhaps the problem in Auburn Hills all these years was they never appreciated their own potential, and it took someone from the other side where the grass isn’t as green to push them to reach it.

  • avatar

    Fiat is indeed contributing to solving the overcapacity problem in Europe… by ceding its own market share to competitors by delaying and cancelling new models, so that other manufacturers may build more cars in their own underutilized factories. The problem is obviously that Fiat’s *own* overcapacity problem increases as a result.

    Unfortunately, Marchionne’s still insisting on neglecting Fiat’s model lineup in Europe, despite the disastrous consequences it has on Fiat’s market share. To Marchionne, market share is apparently only important during good times. But the neglect cannot continue forever, and personally I’m terrified that Alfa Romeo may end up as a casualty, eventually ending up just as yet another nameplate in Ferdinand Piëch’s already large portfolio. Which of course would be a tragedy.

  • avatar

    Simple solution: let Piech take Alfa Romeo. The catch is that VW also has to take an Italian plant or two — maybe the last remaining plant with ties to Alfa — Pomigliano d’Arco? Maybe throw in the Arese property for old times sake?

    • 0 avatar

      Piëch taking over Alfa Romeo – I’m having bloody nightmares about that happening… so no, it shouldn’t be allowed to happen.

      • 0 avatar

        How much worse could it possibly be? Alfa has been neglected for years by Fiat, both before and during Marchionne’s reign, and the sales are solidly stuck at 100K/year.

        Now compare that to Audi, which used to sell fewer cars than Alfa …

      • 0 avatar

        Alfa needs a deep-pocketed sovereign wealth fund to take it independent and restore it to its former glory.

        Seems to be working for Aston Martin (using Kuwaiti cash). They are even racing again. (Or Lotus which backed by Malaysian money.)

  • avatar

    I am sure that he would be satisfied with cutting workers and closing factories at Fiat alone, but he DARE NOT say such a thing. That would guarantee strikes, and, (probably) government rules forbidding any layoffs
    This is ITALY we’re talking about where the unions will strike at a sneeze.

  • avatar

    hey, he got Chrysler for free, that can certainly create further delusions.

  • avatar

    Hey Fiat…. how about some new models… like Punto or Bravo, you know, your best selling models? They are almost decade old now.

    If there was no Italian market, there would be no Fiat left.

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