Car firms axe jobs as European demand slumps

Analysis by Jorn Madslien
Business reporter, BBC News

image captionEuropean carmakers have a backlog of some four million unsold cars, so at a time when demand is falling, they are eager to cut production

European carmakers are expected to continue to cut jobs in response to terrible market conditions in Europe, where sales have been falling fast to levels not seen in two decades.

A full year figure for 2012 has yet to be released, but during the January to November period, just 11.7 million cars were sold, 7.2% fewer than during the same period in 2011, according to European carmakers' organisation ACEA.

Sales, which are already more than a fifth lower than they were during their peak of about 15.5 million in 2007, are expected to continue to fall some 3% this year, according to ratings agency Fitch and others.

What's more, carmakers in Europe produced some four million cars last year that they have yet to sell - a backlog that would take about three months or more to clear at current sales rates.

It is clear, then, that carmakers are having to adjust to what they fear could be a long-lasting slump. Many of them have already made plans to cut jobs and output to match demand.

"Vehicle sales will not recover to pre-crisis levels in the near to mid-future, so the industry needs to adjust for the overcapacity that exists," ACEA head Ivan Hodac said in November.

  • In January, Honda's decision to cut 800 jobs at its Swindon plant in the UK was soon followed by Renault's plan to cut 7,500 jobs - 14% of its workforce.
  • In December, Opel said it would end car production at its Bochum manufacturing plant in Germany in 2016, with the loss of up to 3,300 jobs at the factory, plus many more with suppliers, while Fiat has said it will cut 1,500 jobs at its plant in Tychy in Poland.
  • In October, Ford announced that it would cut 1,400 jobs at its Southampton and Dagenham plants in the UK, as well as closing a factory in Genk in Belgium that employed 4,300 workers.
  • In July, PSA Peugeot Citroen announced the loss of 8,000 jobs and a plan to close a factory in Aulnay, outside Paris.

Carmakers have urged the European Union to "use all the means at its disposal" to support regions where jobs are lost, in order to reduce the social and economic impact of their cutbacks.

Commercially viable

image captionGetting Europeans into the car showrooms has become very difficult in recent months

Carmakers insist that what they are doing is necessary to remain commercially viable, let alone competitive, in the years ahead.

Many industry observers agree, pointing to Europe's many ageing and hopelessly uncompetitive car factories that are facing increasingly stiff competition from more modern manufacturing plants elsewhere in the world.

Old factories' costs are excessive, industry analysts and executives say, not least as carmakers in Europe are utilising no more than an estimated 70% of their current production capacity - with some carmakers using as little as 50-60% of their capacity, according to ACEA.

This makes the factories unable to compete on price in global markets, which in turn makes it almost impossible to utilise the capacity to build cars for exports outside Europe.

Consequently, many of Europe's carmakers - Fiat, PSA Peugeot Citroen and Opel/Vauxhall in particular - depend almost totally on fast-shrinking European markets, where the excess capacity is fuelling a crippling price war between manufacturers that are expected to suffer losses to the tune of several hundred million euros each this year.

Troubled European carmakers resent finding themselves in this situation.

Many in the industry feel that the current crisis could have been avoided, or that at least its impact could have been reduced, had they taken the opportunity to close factories and cut capacity during the 2008-9 downturn, rather than accept short-term government support, such as scrappage schemes, that tided them over.

They realise that the loss of tens of thousands of jobs in Europe is painful for their workers, but they also insist that they have no choice but to pay that price to safeguard the long-term future of the European car industry.

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