By Karl Henkel
The Detroit News Detroit automakers fight to stem huge losses in Europe Strong unions, political resistance make changes harder than in the U.S.
^^^^ CB: How about austerity has taken money out of the hands of European consumers
^^^^^
By Karl Henkel
The Detroit News
2 Comments
An employee works on a camshaft at GM’s new Opel assembly plant in Szentgotthard, Hungary. GM expects to become profitable in Europe by mid-decade. An employee works on a camshaft at GM’s new Opel assembly plant in Szentgotthard, Hungary. GM expects to become profitable in Europe by mid-decade. (Akos Stiller / Bloomberg)
Detroit automakers stand to lose more than $4 billion in Europe this year as they struggle to push through the sort of changes that saved the U.S. industry four years ago.
Plant closures and layoffs — tools that helped turn around the U.S. market, where Detroit automakers shed 230,000 jobs between 2001 and 2010 and eliminated brands in the midst of a precipitous sales decline — are taking longer to execute there. And restructuring is more expensive than in North America because of powerful European unions, political resistance and restrictive labor laws.
"The situation is dire," Garel Rhys, president of the Centre for Automotive Industry Research at Cardiff University in Wales, said in a telephone interview. "There's no other way to put it. We've been in this position since 2009, and it's worse than the 1930s in some countries."
European labor unions, which have more legal rights than U.S. unions, aren't the only obstacle to restructuring the region's bloated auto sector. Politicians, social expectations and a deep distrust of American-style "cowboy capitalism" are combining to block the kind of sweeping restructuring that returned Detroit to profitability in a few short years.
"The political environment is difficult because employment is important and where restructuring may be necessary, that's not, should we say, an invited conversation," said Stephen Odell, CEO of Ford Motor Co.'s European operations. "And in some countries, we're dealing with four, five, six unions, and not all with common goals."
Sales in Europe are running at 20-year lows. But Ford, General Motors Co. and Chrysler Group LLC, owned by Fiat SpA, remain profitable in North America, making it difficult to sell sweeping cutbacks in Europe because the parent companies are now financially stable. And as automakers seek leaner operations in Western Europe — they've already shed about 300,000 jobs in the past decade — they don't want to be caught short if growing demand in Eastern Europe, particularly in Russia, outpaces production.
GM has lost $15 billion in Europe the past dozen years and stands to lose more than $1 billion there this year. Ford will lose nearly $4 billion, combined, in 2012 and 2013. Fiat, which could lose more than $1 billion in Europe this year, is barely profitable because of Chrysler's success. Ford and GM expect to become profitable in Europe by mid-decade.
The sharp downshift in the European auto industry is a combination of a sovereign debt crisis, plunging consumer confidence and production overcapacity. The industry is running at about 60 percent capacity, according to some estimates, when at least 75 percent is needed for profitability. European auto factories can produce 17 million vehicles annually, but this year's sales pace is about 12 million.
That overcapacity is coupled with an unstable economic climate. The region's unemployment rate is above 12 percent, and a weakening euro and painful austerity measures meant to curb crushing debt has frustrated automakers and complicated restructuring efforts.
"A euro at these levels is probably the most uncompetitive tool that Europe has to offer the world," said Sergio Marchionne, CEO of Chrysler and Fiat. "We are so out of tune with the rest of the economic activity in the world today." No bankruptcy threat
During the North American industry crisis, two of Detroit's three automakers begged Congress for a taxpayer lifeline and all three showed the United Auto Workers their red-ink stained financial books, leveraging the reality to close plants, lay off workers and restructure contracts.
But in Europe, automakers deal with separate — and often multiple — unions in each country. And this time, unlike in North America four years ago, bankruptcy isn't a likely outcome for Ford, GM and Chrysler.
All three continue to offset losses in Europe with profits in North America. At Ford and GM, first quarter North American profits will likely offset all of their European losses in 2013.
Without the real threat of bankruptcy, automakers in Europe don't have the same leverage they did in North America. That reality makes closing plants, cutting jobs and eliminating brands an arduous task.
"There are the issues of people saying, 'You're an international company and you're making good returns,'" said Odell. But he said North American profits also allow Ford to reinvest and restructure in Europe.
Ford last fall said it will shut three plants in Europe by 2014, slashing 20 percent of its continental production capacity. GM shuttered an Opel plant in Belgium in 2010 and plans to close another plant in Germany in 2014.
Fiat sold its Termini, Italy, plant in late 2011 and has tried to close others. But unions have stymied the company's efforts. In some instances, three separate, politically driven unions represent workers in one plant, making it nearly impossible to reach compromise.
Workers don't want to lose their jobs, and European politicians don't want their workers to lose jobs because they don't want to lose votes. Instead, countries point fingers at one another in an attempt to sway automakers to close a plant elsewhere.
"It's not seen as the European auto industry," Rhys said. "It's seen as the French auto industry in France and the Italian auto industry in Italy."
Even when automakers can successfully negotiate a plant closing, it comes at greater time and expense compared to North America closings. Ford will take more than two years to close its assembly plant in Genk, Belgium, at a cost of nearly $1 billion. 20-year sales low
Sales have dipped to an annualized rate of 12 million this year, according to the European Automobile Manufacturers' Association. That's the lowest in more than two decades. Sales have dropped by 5 million in the past decade, the equivalent of completely removing the British, French and Italian industries from the market.
Some automakers, particularly those whose European-built vehicles are sold primarily in Europe — Ford, GM and Fiat — have been hit harder than premium automakers that rely heavily on exporting European-made premium cars and SUVs, such as Daimler AG and BMW AG.
This is one reason why Marchionne wants to refocus Fiat's efforts on Alfa Romeo and Maserati luxury cars, part of a segment that hasn't slowed at the same rate as the rest of the market.
But even the German automakers are no longer insulated from Europe's slowing economy. Volkswagen AG reported lower first-quarter earnings, and Daimler scrapped its earnings forecast for 2013 after worse-than-expected first-quarter results in the region.
"We have some major issues in different countries," said Wilfried Porth of Daimler's Board of Management, at a roundtable last week in Birmingham. "But we are much better off than other automotive companies."
BMW and Volkswagen have both said Europe will cause 2013 profits to flatten. But how long the European crisis will last varies by automaker.
Ford CFO Bob Shanks said five auto markets — Ireland, Italy, Portugal, Greece and Spain — appear to have hit rock bottom. Those countries comprised "the lion's share of the industry decline," he said.
Marchionne doesn't agree.
"We'll probably see it some time in the second quarter — on the assumption that the European political leadership gets its act together and starts moving an agenda that starts promoting growth now as a key objective as opposed to austerity."
The austerity measures — spending cuts and tax increases — reduced deficits in the 17 European Union countries in 2012, but debt grew because fewer people and businesses paid taxes.
Marchionne wants to see EU countries scrap austerity measures, but Porth said there may be a mixed solution.
"Being less strict on spending means that you will increase the debt," he said. "And we have to accept we have a huge debt situation."
Bryce G. Hoffman contributed.
GM investing in U.S.
General Motors Co., profitable for 13 consecutive quarters, is planning to invest about $16 billion on U.S. factories and facilities through 2016, more than it will spend in China, Selim Bingol, GM vice president of public policy, said in a letter published in the Wall Street Journal. The Journal last week ran a commentary on its op-ed page titled, "Welcome to General Tso’s Motors," saying China "is disproportionately benefiting" from the 2009 U.S.-backed bankruptcy reorganization of Detroit-based GM.
>From The Detroit News:
http://www.detroitnews.com/article/20130506/AUTO01/305060329#ixzz2SXrVIzjT
An employee works on a camshaft at GM’s new Opel assembly plant in Szentgotthard, Hungary. GM expects to become profitable in Europe by mid-decade. An employee works on a camshaft at GM’s new Opel assembly plant in Szentgotthard, Hungary. GM expects to become profitable in Europe by mid-decade. (Akos Stiller / Bloomberg)
Detroit automakers stand to lose more than $4 billion in Europe this year as they struggle to push through the sort of changes that saved the U.S. industry four years ago.
Plant closures and layoffs — tools that helped turn around the U.S. market, where Detroit automakers shed 230,000 jobs between 2001 and 2010 and eliminated brands in the midst of a precipitous sales decline — are taking longer to execute there. And restructuring is more expensive than in North America because of powerful European unions, political resistance and restrictive labor laws.
"The situation is dire," Garel Rhys, president of the Centre for Automotive Industry Research at Cardiff University in Wales, said in a telephone interview. "There's no other way to put it. We've been in this position since 2009, and it's worse than the 1930s in some countries."
European labor unions, which have more legal rights than U.S. unions, aren't the only obstacle to restructuring the region's bloated auto sector. Politicians, social expectations and a deep distrust of American-style "cowboy capitalism" are combining to block the kind of sweeping restructuring that returned Detroit to profitability in a few short years.
"The political environment is difficult because employment is important and where restructuring may be necessary, that's not, should we say, an invited conversation," said Stephen Odell, CEO of Ford Motor Co.'s European operations. "And in some countries, we're dealing with four, five, six unions, and not all with common goals."
Sales in Europe are running at 20-year lows. But Ford, General Motors Co. and Chrysler Group LLC, owned by Fiat SpA, remain profitable in North America, making it difficult to sell sweeping cutbacks in Europe because the parent companies are now financially stable. And as automakers seek leaner operations in Western Europe — they've already shed about 300,000 jobs in the past decade — they don't want to be caught short if growing demand in Eastern Europe, particularly in Russia, outpaces production.
GM has lost $15 billion in Europe the past dozen years and stands to lose more than $1 billion there this year. Ford will lose nearly $4 billion, combined, in 2012 and 2013. Fiat, which could lose more than $1 billion in Europe this year, is barely profitable because of Chrysler's success. Ford and GM expect to become profitable in Europe by mid-decade.
The sharp downshift in the European auto industry is a combination of a sovereign debt crisis, plunging consumer confidence and production overcapacity. The industry is running at about 60 percent capacity, according to some estimates, when at least 75 percent is needed for profitability. European auto factories can produce 17 million vehicles annually, but this year's sales pace is about 12 million.
That overcapacity is coupled with an unstable economic climate. The region's unemployment rate is above 12 percent, and a weakening euro and painful austerity measures meant to curb crushing debt has frustrated automakers and complicated restructuring efforts.
"A euro at these levels is probably the most uncompetitive tool that Europe has to offer the world," said Sergio Marchionne, CEO of Chrysler and Fiat. "We are so out of tune with the rest of the economic activity in the world today." No bankruptcy threat
During the North American industry crisis, two of Detroit's three automakers begged Congress for a taxpayer lifeline and all three showed the United Auto Workers their red-ink stained financial books, leveraging the reality to close plants, lay off workers and restructure contracts.
But in Europe, automakers deal with separate — and often multiple — unions in each country. And this time, unlike in North America four years ago, bankruptcy isn't a likely outcome for Ford, GM and Chrysler.
All three continue to offset losses in Europe with profits in North America. At Ford and GM, first quarter North American profits will likely offset all of their European losses in 2013.
Without the real threat of bankruptcy, automakers in Europe don't have the same leverage they did in North America. That reality makes closing plants, cutting jobs and eliminating brands an arduous task.
"There are the issues of people saying, 'You're an international company and you're making good returns,'" said Odell. But he said North American profits also allow Ford to reinvest and restructure in Europe.
Ford last fall said it will shut three plants in Europe by 2014, slashing 20 percent of its continental production capacity. GM shuttered an Opel plant in Belgium in 2010 and plans to close another plant in Germany in 2014.
Fiat sold its Termini, Italy, plant in late 2011 and has tried to close others. But unions have stymied the company's efforts. In some instances, three separate, politically driven unions represent workers in one plant, making it nearly impossible to reach compromise.
Workers don't want to lose their jobs, and European politicians don't want their workers to lose jobs because they don't want to lose votes. Instead, countries point fingers at one another in an attempt to sway automakers to close a plant elsewhere.
"It's not seen as the European auto industry," Rhys said. "It's seen as the French auto industry in France and the Italian auto industry in Italy."
Even when automakers can successfully negotiate a plant closing, it comes at greater time and expense compared to North America closings. Ford will take more than two years to close its assembly plant in Genk, Belgium, at a cost of nearly $1 billion. 20-year sales low
Sales have dipped to an annualized rate of 12 million this year, according to the European Automobile Manufacturers' Association. That's the lowest in more than two decades. Sales have dropped by 5 million in the past decade, the equivalent of completely removing the British, French and Italian industries from the market.
Some automakers, particularly those whose European-built vehicles are sold primarily in Europe — Ford, GM and Fiat — have been hit harder than premium automakers that rely heavily on exporting European-made premium cars and SUVs, such as Daimler AG and BMW AG.
This is one reason why Marchionne wants to refocus Fiat's efforts on Alfa Romeo and Maserati luxury cars, part of a segment that hasn't slowed at the same rate as the rest of the market.
But even the German automakers are no longer insulated from Europe's slowing economy. Volkswagen AG reported lower first-quarter earnings, and Daimler scrapped its earnings forecast for 2013 after worse-than-expected first-quarter results in the region.
"We have some major issues in different countries," said Wilfried Porth of Daimler's Board of Management, at a roundtable last week in Birmingham. "But we are much better off than other automotive companies."
BMW and Volkswagen have both said Europe will cause 2013 profits to flatten. But how long the European crisis will last varies by automaker.
Ford CFO Bob Shanks said five auto markets — Ireland, Italy, Portugal, Greece and Spain — appear to have hit rock bottom. Those countries comprised "the lion's share of the industry decline," he said.
Marchionne doesn't agree.
"We'll probably see it some time in the second quarter — on the assumption that the European political leadership gets its act together and starts moving an agenda that starts promoting growth now as a key objective as opposed to austerity."
The austerity measures — spending cuts and tax increases — reduced deficits in the 17 European Union countries in 2012, but debt grew because fewer people and businesses paid taxes.
Marchionne wants to see EU countries scrap austerity measures, but Porth said there may be a mixed solution.
"Being less strict on spending means that you will increase the debt," he said. "And we have to accept we have a huge debt situation."
Bryce G. Hoffman contributed.
GM investing in U.S.
General Motors Co., profitable for 13 consecutive quarters, is planning to invest about $16 billion on U.S. factories and facilities through 2016, more than it will spend in China, Selim Bingol, GM vice president of public policy, said in a letter published in the Wall Street Journal. The Journal last week ran a commentary on its op-ed page titled, "Welcome to General Tso’s Motors," saying China "is disproportionately benefiting" from the 2009 U.S.-backed bankruptcy reorganization of Detroit-based GM.
>From The Detroit News:
http://www.detroitnews.com/article/20130506/AUTO01/305060329#ixzz2SXrVIzjT