European automakers face dark present, uncertain future

Christopher Werth Nov 27, 2012
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European automakers face dark present, uncertain future

Christopher Werth Nov 27, 2012
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Correction: The original article misstated the attribution of the statement that automakers in Europe envy the recovery of the U.S. car industry. David Bailey of Coventry University made the assertion. The text has been corrected. 

Bar Tazzoli is more a café than bar. Inside, a radio plays in the background. There’s a row of arcade games, and noticeably very few customers. The place sits just outside Fiat’s sprawling factory in Turin, Italy. Tito Gallo has worked at the factory for 23 years. He says workers used to meet here everyday in between shifts. But recently, Fiat has cut their hours to just a few days a month.

“Twenty-three years ago there were a lot of people here,” says Gallo. “Now there’s no one. I’ve watched this factory die.”

In the U.S., Fiat is known as the company that saved Chrysler. Today, Chrysler may be the only thing that’s keeping Fiat afloat. European carmakers are up against what Fiat and Chrysler CEO, Sergio Marchionne, calls “Carmageddon” — a confluence of hard times for Europe’s auto industry.

First, Europeans are in no mood to buy cars as the debt crisis drags on. In Italy and Spain, sales are down as much as 35 percent. Second, Europe’s auto makers are burdened with overcapacity.

Aldo Enrietti of the University of Turin says Europe has too many auto factories and autoworkers. On average, European plants run at just 70 percent their potential output. That’s far below the point at which companies make money.

“So you have an industry that is in a very serious situation,” says Enrietti. 

David Bailey of Coventry University says many car factories in Europe need to close.

“What we need to see happen really is a restructuring of the automobile industry in Europe in a similar way to what happened in the United States,” he says. In fact, according to Bailey, there’s a certain amount of envy in Europe. American carmakers have emerged from bankruptcy and quickly landed on their feet

Stefano Aversa of AxisPartners, a consultancy to the auto industry, says an American-style approach in Europe would be ideal. But, he says, Europe is not the United States. Instead of one country, Europe is made up of 27 different nations, and none of them want their auto factories to close.

“I think the solution will be found company by company and country by country,” Aversa says. And besides, Europe has little appetite for more bailouts.

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