Storm At The Horizon: Automakers To Shut Down Plants In Europe
|   Monday, June 18, 2012
Bad news for those working in European car manufacturing plants: the dropping demand has prompted a few automakers to consider closing some of their production facilities in order to avoid overproduction. Such is the case of GM's Bochum plant in Germany, which will close by 2017. However, Bloomberg analysts consider that 5 more plants should be closed by other large car makers if the situation is to improve.

Philippe Houchois, UBS analyst in Paris for Bloomberg, says that General Motors, Renault, PSA Peugeot Citroen, Fiat and Ford should shut down a factory each if they wish to avoid the worst of the burnt.
These production units should have been restructured or closed long ago, but political pressure to maintain workplaces, have prevented that from happening. In the last 4 years only 2 such facilities have been closed: one in Sicily by Fiat and a GM plant in Belgium.

IHS Automotive estimates that in absence of those measures, overproduction will top demand by 2 million units in 2012. The European Automobile Manufacturers Association (EAMA) has estimated last week that the auto market in Europe will witness a 7 percent drop this year. And there is no good news in sight, thus prompting automakers to turn to drastic measures.

Returning to the aforementioned case, David Arnold, analyst at Credit Suisse in London, thinks that GM needs 5 years to close one of its marginal plants because of political reasons. Plus, it also illustrates that such measures are difficult to pull off and that an easy solution to the overproduction issue does not exist.

Regarding the other manufacturers confronting this same crisis, we see Peugeot's stock drop to the lowest point in the past 23 years due to fears concerning the company's capacity to stop sales decline; loses in the past 3 months amount to 40 percent, while market share stands at 2.7 billion Euros.

Renault's shares have taken a 27 percent dip, while Fiat witnessed a drop of 26 percent in the same period. Also, Volkswagen, a group that is not affected by overproduction, joins the club, after its shares dropped 11 percent.

Automakers leaders have met this Thursday in Madrid to analyze their options and see how they can end the negative period car sales are going through. This is a serious problem to be tackled, as during the first 4 months of 2012 car sales in Europe have gone down by 7.1 percent, while French, Italian and Greek markets have shrunk by 18 percent, acceding to EAMA estimates.

Renault's subsidiary, Dacia, may also be affected. After the French group opened a new factory in Tanger, Morocco, which operates at 18 percent lower costs compared to the Pitesti plant and is more strategically placed. This gave rise to fears that the Romanian facility will be closed, or see personal reductions. What's more, the French are planning to open another factory in Africa, in Algeria, thus putting more pressure on the successful Romanian plant.

These are dark times indeed for the European auto industry.
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