European Auto Sales Slump Before Paris Show - Business Insider

PARIS (AP) ? European carmakers were preparing for a future of labor strife, lower sales and more financial uncertainty as they set out their latest models at the Paris Auto Show on Thursday.

France's Peugeot, Citroen and Renault see the event as a chance to show off their newest cars and prototypes to a hometown crowd, but European executives seemed just as preoccupied with the factories they believe must close to cope with a shrinking market.

The latest data show new passenger car registrations in the European Union dropped 8.9 percent in August, the 11th consecutive monthly decline. And the industry is bloated ? there are too many factories to build a dwindling number of cars.

Bailouts from European governments failed to force the carmakers to overhaul their businesses, unlike in the U.S., where 18 car factories were closed after the U.S. government bailed out GM, Chrysler and some suppliers, according to industry analyst Laurent Petizon of Alix Partners. Since 2010, only three European factories have closed.

"The problem is that there hasn't been a profound restructuring," Petizon said.

He argues that the recent years' financial turmoil in Europe is not the cause of the problems afflicting the continent's carmakers. "The crisis only brought into focus the problems that were there," he said.

Most European countries have strong labor protections that can delay layoffs for months after they're announced. Governments are reluctant to facilitate job cuts at a time when unemployment is already in the double-digits in many countries, including France, Italy and Spain.

The consequence, however, is that the automotive sector, one of the continent's most important industries, keeps suffering.

PSA Peugeot Citroen will close one factory in France this year, but the plan to lay off 8,000 workers has run into opposition from France's powerful unions and the government.

The company's chief executive, Philippe Varin, insisted Thursday that the only solution is to close plants, no matter how politically difficult.

"This situation is not tenable over the long term," he said.

Sergio Marchionne, CEO of Fiat and Chrysler, has long advocated that the European Union coordinate such decisions and help carmakers restructure ? since individual countries tend to fight just to save plants on their home turf.

"I think it would be much more beneficial if this became a European problem as opposed to a national problem," he said. "There's no flag that will fix this."

Rebecca Lindland, director of research for IHS Automotive, said the current downturn is no blip. Car manufacturers are facing a long-term reduction in demand in Europe.

"If you can't change demand, you have to change supply," she said.

As far out as 2020, the forecast "really never gets above 15.5 million units," down from 17.5 million in 2007, she said. Plant closures, which many carmakers have been calling for, are "incredibly difficult politically but (are) incredibly necessary."

Even Volkswagen, which has fared better than the manufacturers in Italy and France, is preparing for a long-term contraction, especially in southern Europe.

VW's sales and marketing boss, Christian Klinger, said Thursday that Spain's overall market had fallen by half since 2007 and Italy is down as well.

"It's a development that we all have to live with," he told reporters at the Paris Auto Show.

For VW, North American sales growth remains "relatively stable" while China continues to grow and Russia is "very dynamic," Klinger added.

Varin, the Peugeot CEO, said the situation is only getting worse, with Germany's economy, the traditional powerhouse of Europe, now slowing down as well.

"Our working hypothesis is that the market is at a plateau for the next three years and that 2015 won't look very different from 2012," he said.

The industry will have to redefine itself in coming years, both because new markets like China and Brazil are vitally important and because the economic troubles of the past several years have taken a toll.

Carlos Ghosn, CEO of Renault, said the crisis stretches well beyond the auto industry, with ramifications for years to come: "We have to prepare ourselves for a relatively long period of recovery for Europe. It's not only a financial or a currency crisis, Europe is facing a super-problem of competitiveness."

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Greg Keller and Sarah DiLorenzo contributed to this report.

Source: http://www.businessinsider.com/european-auto-sales-slump-before-paris-show-2012-9

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