More car plants will close - and it will do European car makers good
Richard Aucock explains how some short-term pain could save Europe’s car manufacturers in the long run.
Ford has announced it will close its factory in Belgium and its Transit van plant in Southampton. Richard Aucock says there will be more closures to come but it might be the only way for many European car makers to get back on track.
For five years running, Europeans have been buying fewer cars. In 2007, 20% more new vehicles were sold than are expected to be sold this year. According to historical trends, recessions generally last five years – but this European recession isn’t a normal one. Some say it could now last a decade. Others go further, and say the European new car market may never again achieve its previous highs.
It is against this backdrop of severe overcapacity and severe losses that car makers are taking action. They are losing staggering amounts of money because they are running production plants at a loss. There is only one solution: close plants. Take capacity out the system. Try to run the plants that stay open more efficiently.
"...some suggest Ford is operating at around 50% capacity in Europe"
As an indication of how bad things have become, some suggest Ford is operating at around 50% capacity in Europe (and for the Southampton Transit plant, below even this). The accepted breakeven point for a new car plant is 75-85%. This is why Ford has increased its expected loss in Europe, from $1bn to a staggering $1.3bn.
That’s simply unsustainable. Many, many more jobs are at risk if a solution isn’t found.
Most volume car brands, without the sales margins from charging premium prices, are under pressure. Peugeot Citroen is trying to close a plant in Paris, and reduce its job count by around 8,000. GM is undergoing rebalancing in Germany. Fiat is seriously considering the future of two plants in Italy. Many others are reviewing their operations.
"Non-premium cars built in Europe can only really be sold in Europe – and Europeans are not buying them."
So what’s going wrong in Europe? A perfect storm: the credit crunch means we can’t afford to buy new cars… but westernised living standards (and the resultant high wages to sustain them) mean brands can’t afford to sell cars made here to other parts of the world without losing money either. Non-premium cars built in Europe can only really be sold in Europe – and Europeans are not buying them.
The extent of Europe’s overcapacity problem is sobering. Automotive consulting firm Alix Partners reckons there are 26 million units of overcapacity in the region. That’s the equivalent of 40 car plants. Ford will thus not be the last.
"...the longer term picture is more positive for the UK"
But while it’s Britain that has today been hit, the longer term picture is more positive for the UK. Ford, for example, has committed investment to make its new generation of diesel engine at the Dagenham plant. It is estimated one in every three Fords sold worldwide uses a British-built engine, so the UK is to remain an important part of the blue oval’s portfolio.
Nissan, Honda and Toyota have all committed big investment in the UK too, while Jaguar Land Rover goes from strength to strength – the British frim is even building a new factory near Wolverhampton, rather than closing them, and running its Halewood plant around the clock.
GM too is suffering in Europe but the flexibility of British workers has helped its Ellesmere Port plant win a reprieve at the expense of another factory in Belgium: Ellesmere Port will produce the next-generation Astra and so will actually grow rather than close.
All this is arguably just reward for Britain, which has its own painful history of automotive decline and massive plant closures. Who can forget the 1970s and 80s: there’s now no British mainstream car maker, for example, and our favourite new car brand, Ford, stopped producing our favourite new car, the Fiesta, more than a decade ago here.
"If hard choices are not made today, some brands may actually not be around tomorrow."
We have felt the pain of massive job losses and, because of this, have learned how to work with car makers to try and project jobs. Our workers are acknowledged as being skilled, efficient and far more flexible than counterparts in other countries. Given a choice, then, Britain has often been given the nod.
This doesn’t mean new business will now come our way, but it does mean our car factories may be more secure than those of other European countries. The tough decisions need to be made over there now, for one simple, stark reason: only by removing the dead wood can European car manufacturing survive in the long term.
If hard choices are not made today, some brands may actually not be around tomorrow. That is how serious things have become. And that’s why Ford will not be the last car maker to close factories.
Follow Richard Aucock on Twitter @richardaucock
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- Austin Allegro
- Austin Maxi
- Austin Montego
- Austin Princess
- Hillman Avenger
- Morris Marina
- Morris Ital
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