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Marchionne Sees “Painful” Changes for European Auto Industry

Plant closings, job losses unavoidable.

by on Mar.21, 2012

The Chrysler side of the company has already undergone its restructuring. Now Fiat has to move, said Marchionne.

Amplifying recent comments by many of his key counterparts, Fiat/Chrysler CEO Sergio Marchionne says he sees a “painful” restructuring coming for the European auto industry, with the sort of plant closings and job losses experienced in recent years by the industry in North America.

It is the only way, Marchionne and other industry leaders argue, that the European auto industry can return to profitability.  With rare exception, manufacturers have been running up floods of red ink threatening their long-term viability.

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“It has to be painful, when you are talking about reductions, it’s going to have initially a negative impact on employment,” said Marchionne during a meeting with reporters in Bruges, Belgium.

Earlier this month, during the opening media events of the annual Geneva Motor Show, the issue of European over-capacity was a central topic of discussion.  Renault-Nissan Alliance CEO Carlos Ghosn told TheDetroitBureau.com, “Europe, today, is a place where all manufacturers have capacity problems.”

But the concern of leaders like Marchionne and Ghosn is that while economics demand production cuts, competitive pressures mean no maker wants to go first.

Fiat actually did decide to close one plant, but the operation in Sicily was never profitable and justified only by home market political considerations.  It has been warning that additional plants in its Italy could close, as well, especially without concessions from its workforce.

But politics will clearly play into any restructuring of the European industry, Marchionne said this week.  He said a solution to the problem of over-capacity can’t be handled on a country-by-country basis.  The shake-out must occur across the Continent.  General Motors’ German-based Opel subsidiary – which ran up $770 million in losses last year – is reportedly considering closures in both Spain and Italy.  CEO Karl-Friedrich Stracke has confirmed the maker will reveal a restructuring plan by mid-year.

Pressure for a European shake-out has only been increasing as the Continent’s economy crumbles in the wake of the Greek debt crisis.  Car sales are expected to dip sharply, Fiat reporting a 16% dip in just the first two months of the year.  The decline varies from country to country, and Fiat’s Italian home market is facing the threat of a debt crisis similar to that of Greece, forcing austerity on the nation’s citizens.

Marchionne noted Fiat has frozen new European investments and delayed some product launches due to the weakened economy.  He said he expects the restructuring of the European auto industry will take at least two years.

(For more on the European auto industry’s problems, Click Here.)

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