With an estimated 70 all-new or significantly updated products and concept vehicles on display, the auto industry has big hopes for this month’s Frankfurt Motor Show – in itself a good sign considering the downright dour mood at other recent European auto shows.
It’s been a truly awful period for the Continental industry. Hammered by a devastating economic recession that came close to crushing the euro and even breaking up the European Union itself, car sales dipped to their lowest level in two decades during the first months of 2013. But there have been signs of life this summer, particularly in the retail side of the market where not only are more customers returning to showrooms but they’re also spending more to opt up what they buy.
“We’re about to see the end of five years of decline,” predicted Carlos Ghosn, the CEO of the Euro-Asian Renault-Nissan Alliance, during a news conference at the Frankfurt Motor Show.
His assessment was shared by a number of competitors. But while there’s a growing sense of light at the end of the tunnel, some skeptics continue to wonder whether what they’re really seeing is just another brushfire.
While European car sales do show signs of having bottomed out, according to Stephen Odell, the CEO of Ford of Europe, the industry is still operating well below peak levels and will continue to have to take steps to constrain capacity and costs.
Ford, for example, is moving ahead with plans to close its big assembly plant in Ghenk, Belgium, as well as two smaller facilities in Britain. Peugeot, Fiat and Opel are also closing factories – something that would have been all but impossible to achieve prior to the downturn due to strict union agreements and protective national policies.
(Click Here for a complete Frankfurt Motor Show round-up.)
But are those enough? A new study released just in time for the Frankfurt show by restructuring consultants AlixPartners says the industry may not be reaching far enough. It concludes that only 60% of European auto assembly plants will reach the level of capacity utilization – estimated at 70% to 80% — to operate in the black this year. That is up substantially from 2011, when only 40% were operating at profitable levels.
The study suggests that Europe has a full three million units more capacity than it needs right now. And even with the cuts planned by Ford and other makers, about half of that excess will remain.
That prompted Martin Winterkorn, the CEO of Volkswagen CEO, to issue his own dim assessment, suggesting to reporters at the Frankfurt Motor Show that “it’s 10 factories that could be closed.”
(Struggling to “evolve,” Opel’s Monza Concept pushes design envelope. Click Here to see more.)
The European automotive crisis resembles what happened – albeit a few years earlier – in the U.S. But where manufacturers drastically trimmed capacity, especially Detroit makers, during the darkest days of the Great Recession, what European makers have done is “nowhere near the scale of what happened in North America,” concedes Stephen Odell, CEO of Ford of Europe.
But where the U.S. government “actually encouraged” cuts, quite the opposite has been the case in Europe and so, barring another sharp market downturn, Odell concludes that, “If we were going to see large-scale capacity cuts, we would have seen them by now.”
In Ford’s case, Odell contends the long-term savings of the three factory closings scheduled for late next year could ultimately save the maker $500 million annually and put it back in the black in 2015. Meanwhile, General Motors is optimistic its own restructuring – including the closure of a German assembly line – should lead it back into profitability.
(Automakers hope to charge up European market with flood of new battery-based vehicles. Click Herefor the story.)
But don’t expect to see the sort of rapid rebound in Europe the U.S. is experiencing, almost everyone agrees. “We can see the beginning of a turnaround,” said Renault-Nissan CEO Ghosn, “But we still don’t see growth.”
If anything, 2013 will likely end with about a 5% decline from prior-year sales for the European industry, Ghosn cautiously forecasting the numbers will rise perhaps 1.5% in 2014 and only slowly gain momentum beyond that.
The old adage is that, “a rising tide floats all boats.” Perhaps, but Europe’s Great Downturn revealed that more than a few of those corporate boats had large holes in them. Which automakers will be able to take advantage of a sales upturn – however slow – and which will continue to sink remains to be seen.
Tags: 2013 frankfurt motor show, Carlos Ghosn, Martin Winterkorn, auto news, car news, europe car sales, europe car slump, europe plant closings, european auto sales, paul a. eisenstein, paul eisenstein, stephen odell, thedetroitbureau