Aroq

Capacity crunch in Europe is coming

News   •   Oct 26, 2012 10:54 BST

The decision by Ford to close its Genk manufacturing plant underscores the problem faced by volume car players in Western Europe's declining car market, says industry analysis website just-auto.com.

“The problem, in a nutshell, is matching supply with demand in a market that is more than 20% off where it was in 2007,” says just-auto editor Dave Leggett.

Ford's actions to reduce cost highlight just how serious things have now become.

“Ford, a relatively strong performer in the European marketplace in recent years, is being hit hard on its bottom line. A projected US$1bn loss on its European operations this year is, rightly, hard to take. Patience has run out. The losses are of a scale and projected longevity that have been deemed unacceptable,” Leggett says.

just-auto's latest analysis suggests that there is more restructuring – including plant closures – to come in Europe.

“It's partly the severity of the current recession and partly a result of inaction historically which has left several OEMs top-heavy with capacity. The squeeze on profits for major volume players is also part of a long-term trend reflecting the rising share of premium and Asian brands in Europe's car market,” Leggett adds.

“What we can hope for is that a healthier and more sustainable European automotive industry is the eventual result of the restructuring that lies ahead. Doing nothing and simply taking higher costs on the chin, or expecting bailouts from governments in the form of scrappage incentives, do not – in the world of 2012 – look like a sensible option for long-term survival.”