after four years of falling demand and profits, Europe's carmakers have to restructure or consolidate

At a board meeting of the European automaker's lobby group ACEA, the bosses of Volkswagen, Daimler, BMW, PSA/Peugeot-Citroen, Renault, Fiat and Opel decided it was time to discuss the elephant in the room: plant closures.

The hard truth is that after more than four years of falling demand and profits, Europe's carmakers have yet to restructure or consolidate. Many factories are running at partial capacity - analysts estimate automakers have cut some 3 million cars, or 20 percent, from their production lines - and still producers struggle to sell their wares.

Germany, France, Britain and other countries offered some 30 billion euros in financing and incentives to companies and car buyers to support an industry upon which 12 million families depend for their livelihoods. But there was a conspicuous lack of pressure for companies to restructure or merge - governments battling the financial crisis did not want to have to deal with yet more job losses. In France the government explicitly awarded the money on the proviso that its automakers did not shut any plants.

In contrast, U.S. carmakers were forced to overhaul their businesses in return for their massive $81 billion bailout, when Chrysler and General Motors were supported through bankruptcy.

But where the American industry has rebounded strongly, Europe's carmakers muddle on. Some, such as German firms BMW, Mercedes-Benz and Volkswagen, have enjoyed big profits on the back of demand for premium models. Others - Peugeot, Fiat and GM's Opel - have struggled. Many rely heavily on discounting, continuing to fund price cuts set up initially as government cash incentives for new buyers. Rebates in Germany and Italy reached an all-time high in March of 30 percent off the sticker price.

So it is no surprise that many in the industry have concluded that the solution is to close some of the 187 vehicle factories in the EU, Russia and Turkey.

A policy group called CARS 21, which gathers ministers from EU member states, auto executives, EU commissioners, and trade union representatives, also argues for EU support and has drafted a series of suggestions. Germany, France, Italy, UK and Spain - where the problem of overcapacity is worst - are likely to welcome acknowledgement from the EU that the auto industry is in crisis, since it will provide political cover for the job losses that come from plant closures.

However, carmakers hoping for the kind of support offered to European steelmakers in the 1980s - when restrictions on state aid were lifted to fund financial help and production quotas - are likely to be disappointed.

Sources:
Yahoo! News
Reuters
Europe.autonews