Europe's carmakers grapple with low productivity

[NINETY EIGHT REGENCY]

Europe's carmakers grapple with low productivity

Ola Kinnander and Tim Higgins / Bloomberg News

General Motors Co.'s 1,300 workers in Antwerp, Belgium, are fighting for their jobs, hoping for a white knight to rescue the factory from closure.

"We're trying to find an investor by the end of this month," said Luc van Grinsven, a union official at the 86-year-old plant, which makes an Astra model for GM's Opel unit. "If we don't, the factory will close at the end of the year."

Antwerp is an anomaly. Not a single European automobile plant closed during the recession, while 18 assembly factories have been shuttered in the U.S. since 2008. European governments prevented the biggest automakers from firing workers and used subsidies to prop up sales. Now that most of the incentives have expired, executives must find ways to cope with a slump in demand.

"In Europe, the relationship between governments and major manufacturers goes hand in hand," said Francisco Carvalho, a London-based analyst at IHS Automotive. "Closing plants will upset the governments. The U.S. now has much more sane utilization rates than Europe in the medium term."

European capacity use will probably be surpassed by the U.S. this year for the first time since 2006, IHS Automotive estimates. North American plants, on average, will use 72 percent of capacity, up from 51 percent in 2009. The average for Europe may climb to 68 percent, boosted by demand from China. An automaker typically needs at least 80 percent utilization for a plant to be profitable, the researcher says.

With GM and Chrysler Group LLC leading the U.S. plant closures as part of their bankruptcy reorganizations last year, improved usage is helping them post profits or pare losses. GM, the biggest U.S. carmaker, earned $2.4 billion in the first half. Chrysler, run by Fiat, reduced its losses to $369 million.

"Their cost base, relative to western Europeans and a lot of companies around the world, is going to be lower and they should be very cost competitive," said Ron Harbour, a partner at New York-based consultant Oliver Wyman. "If they can do everything they need to do on the product side, they could be dramatically more competitive than western European plants."

At 62.8 percent, Renault SA, the maker of the Clio compact and Megane family car, has the worst capacity use rate among Europe's volume carmakers, said Carvalho. Fiat SpA, Italy's largest carmaker, is at 64.8 percent and PSA Peugeot Citroen, France's biggest, is at 67.4 percent.

European capacity this year, including Russia, where carmakers have built plants recently, is at about 27.5 million cars, IHS' Carvalho said. By contrast, Ford Motor Co. said last month that Europe's new car sales may fall to as low as 14.5 million vehicles this year from 15.9 million in 2009.

Next year, Fiat will close its Termini Imerese plant in Sicily, which makes the Lancia Ypsilon. CEO Sergio Marchionne is also prepared to shift production of its best-selling Panda model from Poland to the under-utilized Pomigliano plant in Italy and invest in the factory if unions agree to add shifts and work a six-day week.

Pomigliano employs 5,000 workers and produced 35,000 cars last year. Melfi, Fiat's second-biggest Italian plant and the one with the best capacity utilization, employs 5,280 workers and built 280,000 Grande Puntos in 2009. That's seven cars per employee at Pomigliano, versus 53 at Melfi.

"It's a European issue," Marchionne told reporters in Rome this week. "This is why we called for a resolution for the government and unions to find a solution. This country needs to move on."

Renault CEO Carlos Ghosn shed workers during the recession at one of 14 French production sites, in Sandouville, where 1,300 people left in 2008 because of sluggish sales of the Laguna model made at that factory.

While politics may keep automakers in Europe from closing plants as easily as in the U.S., automakers have still reduced some European capacity in recent years, said Arthur Maher, an analyst with J.D. Power & Associates.

From The Detroit News: http://www.detnews.com/article/20101003/AUTO01/10030301/1148/auto01/Europe-s-carmakers-grapple-with-low-productivity#ixzz11P0mwwRW