The restructuring of the European auto industry is surging into a higher gear with a government bailout, a plant closing and warnings that the final quarter of the year will be even worse than the dismal months and years that preceded it.
As the French government came through with a €7-billion loan guarantee for battered PSA Peugeot Citroën, Ford Motor Co. said it will close a plant in Genk, Belgium, and two of Germany's powerhouse auto makers said conditions in Europe are deteriorating.
Auto makers are finally taking drastic actions in Europe after years of delaying strong moves in response to the sovereign debt crisis that has sent vehicle sales plunging.
"The situation is placing the whole automotive industry under considerable pressure," Christian Klingler, member of the Volkswagen AG board of management responsible for sales and marketing, said on a conference call Wednesday. The company reported higher nine-month pre-tax profit and an increase in its global vehicle sales, but a 19 per cent slide in operating profit in the third quarter.
Volkswagen has thrived through the recession – in part because of the strength of its operations in China, Brazil and other non-European markets – but Mr. Klingler warned that the European crisis is affecting consumer confidence around the world.
Daimler AG, which released its third-quarter financial results by mistake a day before they were scheduled to be issued, warned that its full-year earnings before interest and taxes will not match the level of 2011.
All the companies are reacting to years of sliding sales and a vicious price war as they all tried to hang on to market share and keep their plants operating.
Vehicle sales have fallen every year since 2007 and on a year-over-year basis in every month since April, 2010. Volkswagen said sales in Western Europe have fallen to 1993 levels.
Sales in France and Italy demonstrate the desperate straits of auto makers in Europe.
Last month, Canadian vehicle sales of 143,143 surpassed those of France and Italy, despite those countries' populations of about 65 million and 60.7 million respectively, which are almost double the 34.5 million population of Canada. Annual sales in those two countries regularly top 2 million vehicles – even through the recession – compared with sales in Canada that are typically in the 1.5 million to 1.6 million range.
"The whole thing is structural, but has come to a head due to the recession and the hoped-for recovery that has failed to come," noted Paul Nieuwenhuis, co-director of the Centre for Automotive Industry Research at the Cardiff University business school in Wales.
Ford's Genk factory is the third assembly plant in Europe earmarked for closing and the Detroit-based auto maker is scheduled to meet with employees in Britain Thursday amid fears that a plant in Southampton will also get the axe.
The closing of the plant in 2014 will help reduce overcapacity caused by the 20 per cent drop in overall Western European sales since 2007, Ford said in a statement.
"Ford's European problems solved? Definitely not," Adam Jonas, Morgan Stanley auto analyst said in a note to clients Wednesday. But "Ford is demonstrating the vision and industrial courage to make tough decisions today that will pay off long term. The biggest unknown is, can others follow in Ford's footsteps?"
The cuts in auto production caused by the European slump will affect Canadian auto parts makers, BMO Nesbitt Burns Inc. auto analyst Peter Sklar said in a note to clients.
Mr. Sklar cut his profit forecasts for Magna International Inc., Linamar Corp. and other publicly traded Canadian parts companies.