Europe Still Plenty of Trouble for Carmakers (F, GM)

At the end of August, automaker General Motors Co. (NYSE: GM) reached a deal with the German government allowing the company to go to a short-time schedule, which cut workers’ hours but not their pay. The government makes up the difference.

That’s just a temporary fix though. The big problem for GM and Ford Motor Co. (NYSE: F) is that total automobile manufacturing capacity in Europe is about 33% higher than the number of new cars sold. The Wall Street Journal reports that European plants are running at less than 70% of capacity and closing the plants is not an option because of strict government and union rules.

GM’s specific part of the problem is its Opel/Vauxhall division, which has lost about $16 billion on the Opel group in the past 12 years. And the losses are forecast to continue. GM is trying to come to agreement with its German unions and with the government to close its plant in Bochum, which currently employs 3,100 workers.

In Ford’s case, a Belgian plant that employs 4,000 workers makes a car that is nearly identical with the company’s Fusion model, which has become a best-seller for Ford. The company is expanding its capacity for building Fusions in the United States and Mexico, and also announced last week that it would introduce its Mustang and two SUVs to the European market. In a departure from the company’s usual practice, the new models will be built outside the continent and imported into Europe for sale.

Given the overcapacity in manufacturing and the harsh rules for closing plants, both GM and Ford — as well as other European automakers — continue to face tough times in Europe. And there’s not a lot of confidence that the carmakers will be allowed to fix the problem in the only way that makes sense — by closing plants.

Paul Ausick